Such is the rate of Tesla’s cash burn that in late 2017 Bloomberg Intelligence’s market analysts estimated Tesla would run out of money completely by August 2018 if nothing changed.
Indeed, in a note to investors at the beginning of this year, a Barclays analyst said he believed that Tesla would spend £3bn in 2018 as it struggles to get the Model 3 production lines rolling at full speed. He also predicted that Tesla would have to raise around £1.9bn in new funding by autumn 2018.
For the first time, it looks possible that Tesla could stumble and even begin to wither. If it doesn’t meet its target of producing 20,000 Model 3s per month by July, the share price could finally slide and raising further billions to carry the company through the second half of 2018 might be much less easy. By the end of this year, the established premium car makers will arrive with their own Tesla-rivalling electric vehicles.
The progress of Tesla from the darling of investors and starry-eyed futurists to a serious car-making company hinges entirely on the progress of the Model 3. But even the company’s admission at the beginning of January that it had missed its production targets for a second time seemed to have little effect on its financial standing: the share price dropped by just 3.6% on the news but then sprang back.
Progress of the Model 3 has been watched extremely closely over the past few months, as rumours began to emerge of serious problems with construction of the 3’s substantially steel monocoque. The Model S and X are constructed of aluminium, so shifting to steel for the majority of the Model 3 architecture (only the structures behind the rear seats and rear wheel wells are made of aluminium) put Tesla on a steep learning curve.
The other delay was at Tesla’s battery-making Gigafactory in Nevada. Sources told Autocar that errors in the construction of the battery can lead to much-reduced capacity. Officially, Tesla said it has to redesign two zones of the ‘four zone’ battery-making process, slowing the Model 3’s launch.
Back in the here and now, the company shifted 101,000 Model S and Model Xs in 2017. That was up by a third over its 2016 sales and strong in a global luxury market in which the Mercedes S-Class sold around 84,000 units in 12 months. But, as analysts at Evercore ISI put it in a note to investors, the Model 3 “is the most important piece of the investment story”.
Tesla wanted to build 5000 Model 3s per week by early 2018, but it has twice had to push that target back. It delivered 1550 vehicles in the last three months of 2017, well behind predictions. The company now says it will reach the 20,000 per month target by the start of July.