What If Tesla’s Model 3 Customers Run Out Of Patience?

by Trefis Team
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As Tesla (NASDAQ:TSLA) continues to delay production of the relatively more affordable Model 3, nearly 500,000 customers who deposited an advance to reserve the vehicles can’t help but wait. With a further delay of 9 months, it appears that most of the advance depositors will not get federal tax credit. Meanwhile, competition is heating up in Electric Vehicle market. Could these factors prompt these potential Tesla Model 3 customers to request refunds of their deposits in order to buy other electric cars and take advantage of tax credits? While that’s possible, Tesla’s brand and reputation still has strong appeal that may help these potential customers remain patient. Nevertheless, it is important to understand what would happen if they did ask for refunds. We have created an interactive dashboard where you can modify the percentage of customers demanding refund, and see the potential impact on Tesla’s financials.

Nearly half a million potential customers have deposited an advance of $1,000 each for Tesla’s Model 3. If half of them ask for a refund, Tesla will have to return nearly $250 million. The company can certainly afford that, as it does have nearly $3.37 billion in unrestricted cash, but it is burning it at a fairly high rate. It needs all the funds it can get in the near term, and therefore giving back any cash would be a significant negative for the company. Tesla’s 2017 operating cash flow was -$60 million, and its net loss was more than $2.24 billion. With 50% of customers demanding refund, operating cash outflows would increase around 5x.  

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