Submitted by Gordon Johnson of GLJ Research (Short specialist)
In our view, TSLA desperately needs money now; yet, at ~$700/shr, there’s limited demand from institutional investors for the type of raise ($4-$5bn) they need to do. So… Elon Musk needs to get the stock price down before he potentially trips debt (etc.) covenant levels on actual cash on hand, or has to issue a going concern alert.
Every week Fremont is down, TSLA burns $300mn. And, based on reports from the Chinese media, GF3 (i.e., TSLA’s Shanghai plant) sources just 30% of its parts from Chinese producers (the rest come from Fremont). We’re hearing, from credible checks, that the China Communist Party (“CCP”) is becoming "agitated" by TSLA's delays to source more parts from Chinese companies (i.e., TSLA is bidding too low); and, as a result, the CCP is pushing TSLA to big price cuts, again, on made-in-China (“MIC”) SR+/LR models as soon as July (apparently, this is being pushed by CCP ministries) – TSLA has already cut the price on it’s MIC Model 3 SR+ car by -23.7% YTD.
Thus, with the shelter-in-place in Almeda County (where TSLA’s GF2 is located) extended to June, TSLA may need to idle its Shanghai plant in June. We est. this would cost TSLA ~$150mn/week.
Along these lines with Fremont down 4 weeks, or (4 * $300mn = $1.2bn), and Shanghai down an est’d ~2 weeks in June, or (2 * $150mn = $300mn), the total cost of all this is around $1.5bn. However, in 1Q20, TSLA reported $8bn in cash vs. $4bn in payables (i.e., half the cash is due in payables). And, TSLA burnt -$895mn in FCF in 1Q20, alone. So, with their plants shut, they will likely have to pay a LOT of those payables over the course of 2Q20 (they admitted, on their call, that they delay payments to their suppliers to the forward quarter, and, given they won’t be able to do that this qtr [as they are not making cars], they will likely see a large drop in the payable balance).
Consequently the cash balance could drop to: $8bn (at end of 1Q20) - $1.5bn - $4bn - $1.2bn (FCF burn associated with less cars made in 2Q20 vs. 1Q20) = $1.3bn in 2Q20 without a raise.
a fine? lol like he cares. it's amazing what these guys get away with! what do the investors get in return for throwing their $$ into this guys company? the big boys can handle losses, the small time peeps who throw $ in for retirement get smashed.
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