The most exhaustive recent analysis of Tesla's debt issue comes from Goldman Sachs analyst David Tamberrino, who has a sell rating on the stock. Tamberrino and his colleagues note that Tesla had $2.7 billion in cash on its balance sheet at the end of the first quarter, down from $3.4 billion at the end of 2017. Goldman projects that Tesla's free cash flow will be –$2.3 billion this year, thanks to capital investment that is still aggressive, even after Tesla recently lowered its 2018 spending forecast by $400 million, to $3 billion.
Tamberrino is skeptical that Tesla will meet its production goals, leading to his forecast that the company will be low on cash by year-end. If the company does hit its production targets, making 5,000 vehicles per week by September and 10,000 weekly by the end of next year, then Tesla will have to raise about $5.7 billion to refinance debt, fund operations and sustain capital spending, Goldman estimates.
Goldman thinks capital expenditures will be about $3.6 billion each of the next two years. If that's the case, the company should not have to sell stock, diluting current shareholders, and should be able to make the numbers work well enough to accomplish most borrowing in the less-expensive market for bonds that are convertible into Tesla shares if the stock rises, Goldman said in a May report.
"The company has [targeted] a sustainable rate of 5,000 [Model 3's] a week in 3Q18 of this year, and the ability to hit the 25 percent gross [profit] margin target over time," Goldman said. "Should the company meet those targets, and ramp production of the Model 3 to 10,000 a week by the end of 2019, the company may not need to raise equity capital in 2018 or 2019. However ... we still believe Tesla would need $4 billion to $5 billion in financing required to build out [its] capacity. With a more healthy balance sheet from the ramp of Model 3 units in this scenario, this could likely be achieved in the debt markets alone.''
The problem gets tougher if the company continues to miss production schedules, delivering cars more slowly than CEO Elon Musk has led the markets to expect. In the worst-case scenario, Tesla has to raise $10.5 billion by 2020 — a tallish order for a company with a $50 billion market valuation and $9.4 billion in long-term debt already — to accomplish the same goals, Goldman said. If that's the case, Tesla's own contention that it won't have to raise money in 2018 would go out the window, with the company likely selling about $1 billion in stock this year and another $1 billion next year.
Even if Tesla does make production targets, it will also have to meet targets for gross margins that most of Wall Street considers unrealistic in order to deliver on its stated goal of being profitable and free-cash-flow positive by the third quarter, according to Sanford C. Bernstein analyst Toni Sacconaghi.
At the low end of reasonable, Tesla may need to raise as little as $3 billion to get through the next couple of years, Levy said, adding that if the company gets to profitability, it will be less dependent on capital markets and have "more control over [its] destiny.'