Brothers and sisters, residents of the planet Earth, I come before you today with a convenient rationalization for something you already want to do. I come to propose to you a way for you to give capital to Elon Musk to fuel his fires of innovation and salvation of the planet and the species, and yes…to build and sell cool shit.
Brother Elon’s (no relation) Tesla just reported losses…I mean investments. The fires of the cash burn continued to rage within the belly of the red beast. Tesla sayeth thusly:
Cash Flow and Liquidity
- Cash outflow from operating activities in Q1 2018 was $398 million primarily due to an increase in inventory and accounts receivable balances as a result of the timing of deliveries. Higher number of Model S and Model X vehicles in transit at the end of Q1 2018 compared to Q4 2017 had a negative impact of about $120 million on our working capital. Additionally, due to a substantial increase in our deliveries in the last few days of the quarter, our accounts receivables negatively impacted our operating cash flow by $169 million in Q1. Both of these factors provided cash inflows during April.
- We received $112 million in net funding from our vehicle lease warehouse lines, automotive asset-backed notes, auto tax equity fund and collateralized lease borrowings. When combined with free cash flow, this is a better indicator of the cash consumed in the quarter.
I’m not sure I’ve ever read the term “cash outflow from operating activities”, but Elon sayeth the burn was about $510 million dollars in Q1 2018. “Boring” analysts and reporters say the burn was $1.05 billion.
The cash balance at the end of the quarter was $2.7 billion. The 2018 cap ex projection is $3 billion. I am no mathematician, but the need seems great, brothers and sisters.
Brother Elon sayeth there will be no capital raise in 2018. Glory be! That will allow us more time to assemble our humble dollars should he need us to come to his aid. Though he says they will have “operating cash outflow” in Q3 and Q4 of 2018, we need to be prepared.
Bob is skeptical (but his GTO runs well, his dentures fit, and he is available for interviews):
The Tesla Tithe
So, brother Elon may have need of our meager dollars. I propose that we offer up our capital to the great red Tesla. By burning our cash we will purify ourselves, save our planet, and sanctify our mission (to Mars).
I propose we, the faithful, begin to prepare a Tesla tithe.
A tithe is a one-tenth (10%) portion of something, traditionally paid as a contribution to a religous organization or as a compulsory tax. See A World History of Tax Rebellions: An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present.
The Jewish law and tradition has incorporated tithes, which in turn, is part of the Christian tradition. One of the Five Pillars or Islam is giving a portion of ones assets to charity or other good purpose. Other faiths and traditions also follow a similar tradition. Oh, c’mon you know what a tithe is. This guy taught you all about it:
So we begin with the beginning; by setting aside 10% of our income (or whatever we can spare) to help the Tesla cause. If you can’t spare 10%, consider working more:
Yet, we will not send our offerings now. No, then they would only go to some moron who paid over 5x EV/REV, for a nascent car company. Also, brother Elon just said for us not to buy the stock now.
We will wait and build up our offering until he raises capital to actually deploy in the construction of a new car company….like these:
Ok, that was a downer, but those companies did not have our support. That is why we must give: to make sure it doesn’t happen again. So, we will accumulate our 10% gifts and save them for when Elon does need to raise capital.
Based on the conference call last night, I’m guessing Tesla raises capital on January 3, 2019. Then, praise be, we can be there to support glorious Tesla and brother Elon!
So, that was a little fun. Hopefully, you were amused.
In case you didn’t hear, Tesla is spending a lot of cash. But it does sound like they are at least thinking about cutting back on some cap ex (from $3.4 billion to $3 billion).
Tesla has been very financially stressed before and Larry and Sergey were poised to buy the company, if needed. That is one reason (in addition to fearing the Tesla tithe) that I would not make a short bet. By the way, if you haven’t read this book, you probably shouldn’t have an opinion either way on Tesla.
I kind of doubt they would go the full acquisition route this time, as they could just pick up the IP and whatever assets they needed via bankruptcy and let Elon start back up in Alphabet. If memory serves, I actually think J.D. Vance wrote that buying assets was the GOOG preference last time, but Elon wasn’t on board with that. Sometimes you have to do what the genius wants. Musk ended up just cutting expenditures to the bone (and maybe/allegedly using customer deposits) and made it through.
It also seems plausible that Tesla could go private. Maybe it should be a private company. Maybe we shouldn’t give them so much grief on a quarterly basis for spending tons of cash to build the world’s first electric car company. I mean people do fret about all these whales staying private for so long. Well…maybe this is why.
The executive departures are…concerning. Even the Rives seemingly couldn’t stand hanging around cousin Elon for long. But they kept the faith. When bailing, Peter Rive wrote, “Tesla is the most important company on the planet when it comes to accelerating our transition to sustainable energy, which has made my decision very difficult—there is no other company that can be more impactful in our fight against climate change.”
Maybe Tesla will make it to cash flow positive this year. I still think they are going to need to raise capital soon (I mean they are talking about new models, seemingly every month). I do think Tesla has already succeeded, somewhat, via the impact they have had on the larger automotive industry. They probably need to at least go a few more rounds, however, to fully accomplish that goal and make sure more of the ICE manufacturers actually roll out their electrics.
Elon did say that being unprofitable is a fair criticism of the company and that you are not a real company until you are profitable. I bet they will be driving hard to report at least some adjusted profits in Q4 this year.
My Tesla Tithe?
I actually would like to support Tesla for some of the non-financial reasons. That’s probably why ESG investing is growing, even though the implementation and results are pretty dubious.
In the end, maybe I will make a Tesla tithe. I would prefer to get long (make my love offering) after the next round of capital is raised (or as part of it, but since I’m a peon retail investor, that is not likely).
I also would prefer for the valuation to get in the neighborhood of maybe 2x the EV/REV multiples of Ford and GM; as at least a touchstone of hailing distance of rationality in valuation. That’s about another 50% down from here. I’m afraid of that volatility.
I would probably get a bigger bang for my buck by giving the money to brother Elon than by relying on Larry Fink or ESG funds to make a positive impact. Even if Tesla goes bankrupt, the technology, ideas, and methods will probably continue to impact the industry.
Thus, Tesla will probably have a bigger, most lasting impact than most charities or religious organizations that I might support. I can at least be certain I will get a higher ROI than if I sent money to this guy:
So maybe I will start the Tesla tithe, after all. But first, I will probably just buy a Model 3 and some Tesla schwag from their retail store!