Reuters/Mike Blake Tesla CEO Elon Musk.
- Tesla spent far less cash than expected in the fourth quarter.
- It also brought in revenue that wasn't too much higher than the third quarter.
- Tesla should be continuing to spend cash to launch its Model 3, but it didn't in Q4.
Tesla reported better-than-expected fourth-quarter earnings, but two things jumped out at me.
First, revenue was about what analysts expected, at $3.3 billion for the quarter, but that wasn't much of an increase over the third quarter's $2.9 billion.
Second, Tesla's cash burn - which had been intense in Q3 at $1.4 billion - dropped way, way down. Negative cash flow was a mere $277 million, and total capital expenditure was $787 million.
Taken together, these two items tell a story. And not a complicated one. In Q4, Tesla should have been building thousands of Model 3 mass-market vehicles per week. But it isn't. In fact, weekly production of 2,500 now won't arrive until the end of the first quarter of this year, with 5,000 coming at the end of the second quarter, according to the company's rhetorically hedged guidance.
The bottom line is that Tesla should be spending a billion per quarter at this point, and the company should be seeing a substantial increase in revenue. And obviously, it should be selling a lot more Model 3s.
We shouldn't begrudge Tesla a better-than-expected quarter, even if it did have to sell almost $200 million emissions credits to help with the numbers (it has the credits to sell and go do so whenever it wants). The losses could have been worse. And with $3.5 billion in the bank, deferring some cash burn until 2018 might enable the company to stave off another capital raise, although with the stock price still riding high, it might not make sense to wait.
The real problem comes with what cash burn is versus what it should be. One quarter of holding back is probably OK, but if Tesla ends up nursing its cash in 2018, it will just mean that Model 3 depositors - each has put down $1,000, which hasn't been placed in an escrow account but is instead available for Tesla to spend on operations - will have to wait that much longer to get their cars.
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