Clouds Gather Even As Tesla Garners Positive Reviews

by Thom Forbes, Sep 26, 2012, 7:51 AM

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The auto press, according to the Los Angeles Times, has dished up “rave” reviews for the Tesla S. Savvy early adapters who talk to the New York Times offer gushing comments on their experiences. Wannabe owners have forked over $5,000 each -– to a grand total of $133.4 million -- to be on the waiting list for the all-electric vehicles down the line. Why, then, is Tesla Motors in the headlines this morning with observers in some quarters raising questions about its viability?

Because the cutting-edge automaker is running out of money as it misses production targets and burns through cash, Peter Eavis reports in his New York Times’ “DealBook” piece, so it’s selling an additional five million shares as its business model evolves. 

“Tesla’s story is starting to show some serious cracks,” says CapStone Investments’ Carter Driscoll. “This shows that capital raising is a necessity, not a luxury, as the company had maintained.”

Because of production delays at suppliers, as well as within, third-quarter sales will be $44 million to $46 million compared with the $83.1 million average of 12 analyst estimates compiled by Bloomberg, writes Bloomberg News’ Jamie Butters.

The Model S’ sticker price starts at $50,000 and goes up to nearly $110,000 before tax credits but “people are going to want these cars because they’re great,” John Griswell, a computer engineer from Austin, tells Eavis.

“The Model S is an all-new vehicle which we are producing with new employees using new equipment,” the company says in a filing with the Security and Exchange Commission. “As our main focus is on quality, we have methodically increased our Model S production at a rate slower than we had earlier anticipated.” 

To wit: “As of this week, Tesla has built 255 Model S cars, and has reached a weekly production rate of 77 vehicles,” Jerry Hirsch reports in the Los Angeles Times. “The company wants to produce cars at a rate of 400 a week.” It hopes to build 20,000 cars in 2013. 

The news comes “two weeks after one of its investors, venture capitalist Tim Draper, said in an interview that Tesla had won ‘the electric-car battle,’” Nathan Bomey writes in the Detroit Free Press. “‘Don't live in your reality-distortion field here in Detroit’," Draper warned his audience at the Techonomy conference at Wayne State University. 

Speaking of reality distortion, in a piece posted on “Seeking Alpha,” Stone Fox Capital Advisor’s Mark Holder posits that one problem may be that Elon Musk is a “part-time CEO” who is “spending a significant amount of time working on the SpaceX rocket launch” instead of focusing on “the suppliers and production efficiencies” at Tesla.

“Previously, Elon had been a media favorite and appeared to get a free pass. Now, according to the feature run by Bloomberg West, the reporters don't appear so enamored with him anymore, especially after his interview last Friday failed to even hint at any of these dramatic announcements just a few days later,” Holder writes.

The Palo Alto-based Tesla also is reworking the terms of its $465 million loan from the U.S. Department of Energy –- part of a program to develop advanced technology that notoriously backed the failed solar startup Solyndra -- and says it made need further concessions, MarketWatch reports. It “must come up with a speedier repayment schedule after getting a waiver on existing terms,” Bloomberg Businessweek reports, but CFO Deepak Ahuja tells Angela Greiling Keane and Alan Ohnsman, “DOE obviously will not do anything to force us to pay while in the process injuring us.”

“We currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014 and the two subsequent quarters,” Tesla says in its SEC filing.

On a positive note, CEO Musk on Monday “unveiled a new fleet of solar-powered, public charging stations for the Model S” that he designed himself, reports Bloomberg Businessweek’s Ashlee Vance, In doing so, Musk said: “You will be able to drive free forever on pure sunlight. I think it’s pretty hard to beat that.”

Let’s leave with a couple of questions: You think we might be hearing more about that Department of Energy loan as the presidential campaign goes into fourth gear?

Second, “our long-term success will be dependent upon our ability to design and achieve market acceptance of new vehicle models, specifically Model S and Model X,” the company says in the SEC filing. Sure makes it sound as easy as, say, driving forever on pure sunlight, doesn’t it?

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