Tesla’s Business Model Is Putting Enormous Pressure On Its Cash Resources

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Tesla Motors (NASDAQ: TSLA) runs an extremely capital intensive business. This is even more true for the Silicon Valley auto maker than for an average auto company. The reasons for this are as follows:

  1. Tesla’s production process is almost entirely vertically integrated, as it produces and assembles most of its car components itself. With the completion of the Gigafactory, the company will become even more vertically integrated, producing the lithium ion batteries used in its cars, in-house.
  2. The company sells directly to consumer, circumventing the usual dealership arrangement. This means that Tesla handles the after-sales servicing process itself, unlike most other auto companies.
  3. The company also arranges “fueling” for its vehicles itself through the Tesla “Supercharger Network”.
  4. The company is still in a nascent phase for an auto maker, in the process of increasing its model count and working on the manufacturing process for each of these vehicles in turn. This involves considerable expenditure on the company’s factories. Currently, the company is in the process of trying to achieve its target of meeting the demand for its new SUV Model X, increasing the weekly production rate for its sedan Model S and starting production for its new mass market sedan Model 3. Tesla plans to increase overall production close to 10x within the next 3-4 years.
  5. Moreover, the company has offered an all-stock deal to purchase Solar City, a financier and manufacturer of solar panels.

All of these factors put considerable pressure on the company’s cash resources. The table below shows how Tesla’s cash flows have led to increasing debt on the company’s balance sheet. Moreover, the company has made multiple new share issues in the past couple of years.

tsla cash

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tesla Motors

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