Tesla’s current financial plan “doesn’t require any capital raise for the Model 3 — at all.”
There are a handful of reasons for this. One reason is that suppliers are now much more willing to let Tesla (TSLA) pay them for equipment in large part after production — a luxury Tesla didn’t have when Model S or Model X were launched. As Elon had noted on a previous conference call, Tesla used to have difficulty finding suppliers who would simply sell them parts, but after the company’s success with its first vehicle models, the top suppliers on the market were knocking on Tesla’s door to be involved in Model 3 production — that clearly gave Tesla more negotiation leverage, seemingly even more than Tesla expected on previous calls.
JB Straubel also noted that Tesla continues to improve its capital efficiency, which has led to lower capital expenditures than previously expected.
Following Elon’s comment about Tesla’s plan not requiring any capital raise for Model 3 production, he did say that didn’t mean not raising capital was the smartest approach. There are various benefits to raising more capital — “to cover uncertainty, to have a larger buffer, and to de-risk the business,” for example. Nonetheless, that Tesla’s current plan doesn’t require raising capital is a pretty uplifting statement that I think few people expected.
Elon also debunked the common assertion that SolarCity will weaken Tesla’s financial situation. He commented that, after a careful examination of SolarCity financials, they expect SolarCity to be “at least neutral — but perhaps a cash contributor — in the 4th quarter.” He was very cautious to say that this isn’t a promise but is “what appears to be the case.”
Overall, Elon seemed very happy about Tesla’s current financial position — “yeah, things are looking good,” he said in what seemed to be a sigh of relief after several long years of insanely fast maturation in a tough industry.
Update: Carl Raymond S added some additional thoughts on Tesla’s improving short-term financial position as it grows as well, again paraphrasing from Elon’s comments on the Tesla conference call:
Just listened to the earnings call. A bombshell not far from the start when Musk talks about the Model 3 ramp as providing a positive capital feedback.
Gives two examples.
1. Suppliers extend terms from 45 to 60 days. Do the math on what 15 days of sales adds to the balance sheet.
2. They won’t have to wait till the ship sails, they can just fill the whole ship, again getting paid before the bills are due.
Wow. Limits to growth? Not of the funding kind. Prior to hearing this, I had this image in my head that growth would always be a struggle. But by getting paid for the cars before they pay suppliers, the growth funds the growth. Keep in mind that Tesla are aiming to grow production by increasing line velocity where possible, so the labour and land costs barely move.
Image by Kyle Field
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