Will Tesla need more cash next year?

John Shinal over at Marketwatch.com argues that Tesla will need additional capital to stay afloat in 2013, writing that Tesla ”will rank among the top candidates in Silicon Valley for a 2013 stock collapse, unless it receives significantly more cash next year.” Overall, Shinal is very negative on the stock.

He points to the Q3 filing showing Tesla had only $86 million in cash and that the company had burned through $200 million in the first nine months of 2012. Tesla did raise $195 million in October through a secondary offering, which CEO Elon Musk characterized as emergency cash in the event of supplier problems. I’d say that’s partially true. I think the cash situation was getting a little too short to be comfortable, despite the fact that Musk knew that Q4 would be a big revenue quarter as Model S production and delivery ramped up.

Shinal thinks Tesla is a disaster waiting to happen, and compares it to Groupon, noting both had balance sheets showing they hadn’t created any net equity value for their shareholders. I think Shinal goes a bit far here. Yes, Tesla needed more cash this year, but it is ramping production and as the economy improves and its Model S gets more attention following it winning Motor Trend Car of the Year, we’ll see consistent orders next year.

Musk has said that as long as Tesla sells and ships 20,000 sedans in 2013, it will be profitable. That seems entirely reasonable given the fact that the company will move about 3,000 this quarter, before it’s had a few more quarters to find traction.  Keep in mind the company is supply constrained right now, not demand constrained. It can’t build enough cars. People like the product.

I think the risk for Tesla isn’t its balance sheet. The risk is that it’s a one product company and were it to have a supplier problem or a recall, its margin of error is so small that it would get caught in a cash crunch very quickly. But as long as those problems don’t materialize, I think Shinal misses the point that revenue is on track to grow, which will shore up its balance sheet and help it through next year as it prepares for its next product launch in 2014.

One final note here regarding Tesla’s $465 million loan from the DOE that folks like Shinal are concerned about. The payback schedule is disclosed in Tesla’s quarterly filings, running just under $15 million a quarter. It’s real money but the company has good visibility on that payback, which is due to take between 7 and 9 years, depending on which of the two loan facilities it’s servicing. While any investor would rather Tesla not have these loan obligations, they’re not cause for panic and are the reason that Tesla was able to complete the R&D and production build out it needed to get the Model S out the door.