Tesla’s profits short circuit

Patrick Budicini
Staff Writer

It seems Elon Musk, renowned co-founder and CEO of the luxury electric car manufacturer Tesla, gets increasingly ambitious with each new year.

In 2017 alone, he plans to release a new vehicle, the Model 3 and open a huge battery factory.

Along with big plans of creating an affordable Tesla model that would suit a larger range of potential buyers, comes the need for a new factory, which they are in the process of building in Nevada. Marketwatch reports that many of Tesla’s new lithium-ion batteries will be produced in the $5 billion “Gigafactory,” which will give the company the ability to produce batteries on a grander scale.

As ambitious as Musk may be, Tesla has one major limiting factor money. Investors are worried as Musk recently reported that the car company could “get close to the edge” as it is rapidly spending cash ahead of the much-needed release of the new Model 3, Thomson Reuters reports.

The Model 3 sedan is geared toward the entire market, starting at the $35,000 price point, and will likely be crucial for the company’s future which currently includes dropping share prices and a limited amount of cash on hand.

Tesla had nearly $3.9 billion in cash and cash equivalents at the end of 2016, but spent almost $500 million in the fourth quarter alone and projects about $2.5 billion to be spent in the early part of 2017 with the release of the Model 3. This would leave Tesla with little cash at a time of “high levels of execution risk,” saids Kyle Jonas, an analyst at Morgan Stanley.

Reuters reports that although they are getting close to the edge with cash, Musk believes the company is safe but still plans to raise capital to reduce some risk and appease investors.

Tesla walks a fine line financially as it is a smaller, less developed company compared to institutional car companies such as Ford and Audi who do not have to worry about depleting their cash each time they launch a new model.

But Musk is not necessarily worried about profits for the time being. He geared towards transforming America and moving away from the fossil-fuel era it has been in for so many years.

This mindset makes Tesla a tough company to support for many institutional investors such as Goldman Sachs. Goldman expects the Model 3 release to be delayed and that Tesla’s stock price will struggle as they look to spend more cash in the coming months, according to Marketwatch.

The launch of the new model comes at a tough time for the company after the recent $2.9 billion acquisition of leading solar energy company, Solar City. Nicole Litvak, an analyst with GTM research questions this deal as there has recently been a rise in local, privately held solar companies and agrees that vertical integration may pose some difficulties and will cost the company more money.

Will Musk and Tesla follow through with the steep tasks on the agenda for 2017, or will Musk again miss deadlines leaving investors and consumers waiting on their toes?

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