How Long Before Tesla Runs Out of Juice?

Tesla Motors has drawn a lot of attention for its sleek, high-performing electric cars. Its Roadster has been an enviro-celebrity favorite for several years, and its new Model S sedan is getting great reviews. The company has been trying to scale up to large-scale production since 2009, raising $226 million in the stock market and $465 million in Department of Energy loans. But there are growing concerns that Tesla might run out of cash before it can get into full production. The original plan for the Model S was to produce 5,000 in 2012, but the company recently cut that to 3,000. At that level of production, how long will it be until Tesla uses up its sources of liquidity? Over the last four quarters, Tesla’s internal cash flow deficit was $423 million. That was mainly the result of heavy start-up costs, which caused a $159 million shortfall in cash from operating activities, and from capital spending of $412 million. Unusually, cash flow from working capital was positive. Tesla has hardly any accounts receivable; instead, it charges customers a $5,000 deposit on each car they order. Customer deposits contributed $100 million dollars to cash flow through the last four quarters. How has the company recharged its cash batteries? From two sources: cash reserves and loans. Tesla has drawn $109 million from cash reserves and $298 million from the Department of Energy since June 2011. That left Tesla with $211 million in cash at the end of June 2012. As we noted in an earlier post about Kodak, “cash burn” is commonly defined as “the rate a company uses up...

Developing Problems at Kodak

Kodak’s cash burn was a big concern among analysts in the last months before the firm’s bankruptcy in January of this year. Cash burn is a term that gets thrown around a lot when companies are in trouble, but it’s hard to find a definition for it in books on accounting or financial statement analysis. Accountingglossary.net defines cash burn as “the rate that a company uses up cash” and calculates it as “Total Cash Change / Time Period.” We think that’s a useful approach to analyzing how a company consumes its cash, although we think we have a better way. Our method starts with the company’s Internal Cash Flow. To calculate Internal Cash Flow, start with the company’s cash flow statement and use the values presented there. The formula is: Internal Cash Flow = Cash Flow from Operating Activities + Cash Flow from Investing Activities + All Uses of Cash in Financing Activities. Cash flows with negative values in the cash flow statement have negative values in the formula. Uses of cash in financing activities include debt repayment, dividends, share repurchases, and any other outflow in that part of the cash flow statement. Internal Cash Flow includes all operating and investing sources of cash and all operating, investing, and financing uses of cash. It’s cash flow before external financing, so it excludes cash from borrowings, debt issues, and equity issues. If Internal Cash Flow is negative, the company is not generating enough cash in the period to meet all of its needs. That leaves it with only two ways to plug the cash gap: get financing or use cash...