Tesla Inc. (TSLA) is gearing up to report quarterly earnings later this week with the car maker’s cash burn likely to be a key topic for investors and Wall Street analysts.
After all, worries have been mounting that Tesla may need to raise a lot more cash to keep on producing its vehicles or overhaul its growth strategy. So much so that Goldman Sachs is predicting it will need $10 billion by 2020.
Tesla May Need $10 Billion By 2020
According to TheStreet.com, the Wall Street firm thinks Tesla will need more than $10 billion in “external capital raises and debt refinancing” in two years, taking into account its plans for China and the Model Y, a yet-to-be-released electric crossover vehicle. Goldman Sachs analyst David Tamberino wrote in a note covered by TheStreet.com that the capital raise could come from a variety of structures and combinations including convertible debt, bonds and an equity raise. (See more: Steve Eisman of ‘Big Short’ Fame Shorts Tesla.)
"While our estimates remain below company target levels for Model 3 production, we model cash needs under a scenario where the company sustainably produces 10k/week Model 3 vehicles in 2020 -- and moves forward with the Model Y and plant capacity in China. Under this scenario, Tesla capital needs would be half of our estimate," Goldman Sachs analyst. Even if Tamberino’s more optimistic scenario played out, the electric car maker would need at the very least to raise $5 billion by 2020.
Tesla Cash Burn Worse Than Thought?
Meanwhile, Gordon Johnson, managing director at Vertical Group, told TheStreet.com that Tesla will likely exit the second quarter with under $1 billion in cash. In the event Tesla fails to raise money it could face a “cash event”, according to Johnson. Johnson argued Tesla has less cash than investors may think. (See more: Tesla Stock Analysts Turn Bears Ahead of Results.)
The worries about Tesla’s cash position reached fever pitch last week after the Wall Street Journal reported the green car company has been asking suppliers for refunds on money it previously paid out. Citing a memo, the Wall Street Journal reported that Tesla requested “a meaningful amount of money” to be returned from its suppliers on payments it made since 2016. In the letter, it stressed that the money was needed to become profitable during a period in which it is spending a lot on production. The report noted that Tesla described its request as a way to invest in the company and ensure that it can continue to order new parts going forward. The request reportedly went out to all suppliers although some said they weren’t aware of the letter. A spokesperson told the Wall Street Journal that Tesla has been looking for price cuts from suppliers and noted that these types of requests are standard in the industry. Tesla is slated to report second-quarter earnings on August 1.