Recent financial news about Tesla’s downgraded earnings, production, and federal loan repayment spurred concerned media reports, but company CEO Elon Musk is saying not to worry, the outlook is actually positive.
In an Oct. 3 blog post, instead of the more frequent posts by VP George Blankenship, Musk took to the word processor to explain Tesla expects to be cashflow positive by the end of November.
He also clarified company intentions now that Tesla’s financing round is complete, saying there’s reason to keep the faith, and his hands had been tied in explaining sooner, despite negative reports.
“SEC rules rightly limit interaction with the press during a financing round to prevent companies from promoting stock,” Musk wrote. “Unfortunately, this made it difficult for me to respond properly when some journalists gained the wrong impression.”
What some journalists had focused on included Tesla’s statement that in the third quarter, it will earn $44 million to $46 million in sales, instead of around $80 million analysts had previously projected.
And, Tesla cut its annual revenue projection to $400-$440 million this year, down from $560-$600 million previously estimated.
Tesla also offered another 4.3 million shares of stock and granted Goldman Sachs a 30-day option to buy nearly 700,000 additional shares.
Further, Tesla was reported discussing with the U.S. Energy Department an accelerated repayment on its $465 million loan, and had about $228 million in cash with only about 250 Model S sedans sold – albeit with a long customer line waiting.
But these and other dots connected plus Tesla’s own statements led to “misconceptions” Musk said, commenting first on the stock offering.
“Public company financing documents are fundamentally about ensuring investors are informed about every possible risk,” Musk wrote, “even those that are highly improbable, and one has to describe those risks using language that is discomforting at best. Consistent with those principles, we described a relatively pessimistic scenario for Tesla, which was incorrectly interpreted by some to be what we thought was the most likely scenario.”
If anyone is familiar with Tesla’s usual manner of public disclosures, it generally avoids “language that is discomforting” and more often in its blog posts offers language as comfortable to prospective owners and investors as a favorite pair of warm fuzzy slippers.
So, setting the balance aright with the other side of the story, Musk reassured that barring a natural disaster or the like, Tesla will be financially in the black – in fact, some of the money raised might even stave off the effects of a natural disaster.
Alluding to breaks in other automakers’ global supply chains due to floods, fires, hurricanes or earthquakes, without getting into specifics, he said extra capital could help protect against such events.
And as for those reduced production numbers, there’s a more positive story behind production too.
Our September Dashboard estimates 150 sales for the company given Tesla – as have fellow California startups, Fisker and Coda – has chosen not to disclose its actual monthly numbers, opting differently than customary automaker practice.
But Musk said production – not to be confused with actual customer deliveries – is accelerating, and chronicled some mileposts recently passed for reference.
In the fourth week of September, Musk said around 100 cars were produced. This represents four times the volume of September week one, he said, without divulging week two or three production.
Week one and week four alone therefore account for maybe 125 produced, and we presume it may have built at least 25 cars for week two and 25 for week three.
Thus, conservatively estimated, the company may have produced in excess of 175 Model S sedans in September, and may have delivered more than 150.
Musk said last quarter it produced 359 vehicles, some of which presumably went to press fleet, demo, and other uses. It delivered 250 of these to customers, and Tesla has actually produced its 500th vehicle body, Musk said.
He said this is the “steepest portion of our production ramp.” (Read: the company is learning how to be a real automaker, has been taking baby steps, but expects to be strolling more steadily soon).
“If the calendar were simply shifted a few weeks to the right, Tesla would have exceeded the 500 vehicle delivery target for the third quarter,” Musk said. “While we are indeed a few weeks later than we would like, this is perhaps not a terrible outcome for a product as advanced and complex as the Model S, particularly given that Tesla is doing manufacturing of full vehicles for the first time with a new team and new suppliers.”
And lastly, while the media has recently again uttered the now-cliched S-word – “Solyndra” – when discussing Tesla just like it has Fisker, and other green energy startups with money to repay Uncle Sam, Tesla says no worries on this score either.
Tesla never balked at postponing Department of Energy repayment, Musk said, and this jibes with reports from May that said it planned to begin repaying.
Musk said the DoE’s now asking for quicker repayment is actually a vote of confidence, given the “DoE believes Tesla will be highly successful and accumulate a large amount of cash, but that we may then choose not to pay off the loan any sooner than is currently required.”
So, the DoE is “highly bullish about our future and doesn’t want us to delay early repayment of the loan if we have the cash on hand to do so,” he said.
“The DoE has simply asked if we would be willing to repay the loan early if we have excess cash,” Musk wrote. “The answer is unequivocally yes and I am happy to announce that we will be initiating an advance payment today to prefund the principal payment that is due in March 2013.”