Tesla Motor Co. (TSLA) shares were indicated lower in pre-market trading Thursday after Elon Musk's iconic clean-energy carmaker posted a smaller-than-expected fourth quarter loss but said it would increase capital spending this year even as it burned more than $3.4 billion in cash over the whole of 2017.
The burn rate, which rose to $787 billion in the three months ending in December, as well as the company's ambitions to expand its battery factory in China and roll out Tesla Semi and Model Y vehicles, suggest some investors may be bracing for a new wave of capital increases from the Palo Alto, Calif.-based group. Analysts were also concerned by the company's small Model 3 delivery figure of 1,542, which fell well shy of the 4,100 forcast and the "5,000 a week" target Musk boldly indicated last spring.
"We are going to make some capital investments towards the end of this year related to Model Y. I don't want to jump the gun on those, but I think we've got a good plan," Musk said in a conference call with investors that followed his company's earnings release last night. "But we are going to, as you suspect, need to make some capital investments in the second half of this year, really late Q3, Q4 for Model Y. But I think we want to wait probably three to six months before announcing any definitive plans on production location and the details associated with that."
Tesla shares were marked 1.48% lower in pre-market trading, indicating an opening bell price of $349.90 each, a move that would trim its year-to-date gain to around 9.1%.
Tesla reported a fourth quarter loss of $3.04 per shares on a non-GAAP basis, the largest in the company's history but smaller than the $3.12 per share figure forecast by analysts who cover the stock.
Still, Tesla had just under $3.4 billion in cash on its books at the end of last year, and increasing customer deposits for its suite of battery-powered vehicles could provide enough of a window during which Musk can address the so-called "bottlenecks" that have delayed Model 3 production targets for the past six months
"We didn't believe an equity raise was needed prior and now with cash ending at $3.4 billion, another $546mm from recent ABS, operating income in 2018 and expected working capital benefits from Model 3, risk may be even lower," wrote RBS analysts Joseph Spak and George Clark. "Provided there isn't a meaningful divergence from our Model 3 ramp assumption."
Tesla said net reservations for the Model 3, which saw only 1,542 deliveries in Q4, "remained stable" last quarter as reports of delays mounted, and have grown in recent weeks as the car began appearing in select Tesla showrooms and garnered positive reviews. But no number was given. The company previously disclosed having 455,000 net reservations as of late July, and has said the number grew "significantly" in Q3.
As TheStreet's Eric Jhonsa wrote Wednesday, however, that even with "Tesla having ended Q4 possessing $3.4 billion in cash to go with $10.4 billion in long-term debt and capital leases, odds are good that the company will raise capital again later in 2018", despite promises to keep a tight control over expenses.
"Thanks to heavy capex as well as well as a $966 million increase in GAAP operating expenses to $1.63 billion, Tesla's 2017 free cash flow (FCF) was negative $3.48 billion, much worse than 2016's negative $1.4 billion," Jhonsa noted.