Tesla Inc (Nasdaq: TSLA) investors got more bad news on Sunday when the Wall Street Journal reported that Tesla has asked some of its suppliers to return a meaningful portion of previous payments made by Tesla since 2016. TSLA stock was off about 4 percent midday Monday as investors and analysts question Tesla’s targets of profitability and positive free cash flow in the third quarter.
Tesla reportedly sent a memo requesting certain suppliers return payments as part of Tesla’s effort to deliver its first-ever profitable quarter. TSLA did not immediately comment on the memo, and other Tesla suppliers were not aware of the refund request.
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The high-tech carmaker has struggled to hit many of its financial and production targets over the years. After six months of delays, Tesla finally achieved its weekly Model 3 production goal of 5,000 vehicles per week in the last week of June. After reports of long hours and mandatory weekend shifts, several analysts have questioned the sustainability of Model 3 production.
However, CEO Elon Musk is not backing down from his next set of targets, which include TSLA stock reporting positive free cash flow and GAAP profitability for the first time in the third quarter. Analysts are skeptical. The Palo Alto, California-based automaker burned through about $1 billion in cash in the first quarter of 2018 and reported it had about $2.7 billion in cash remaining at the end of March.
Bank of America analyst John Murphy says Tesla is finding some creative ways to boost its cash flow in recent weeks, including a new requirement that customers pay $2,500 to configure their Model 3s. Murphy says the new requirement could provide a much-needed $1 billion cash infusion for Tesla, but it still may not be enough for Tesla to stay above water.
“Based on TSLA’s slow Model 3 ramp, and what could be $1 billion-plus cash burn in 2Q … we continue to believe that a capital raise may be necessary or, at the very least, prudent,” Murphy says.
Nomura analyst Rajvindra Gill says Tesla will burn through $6 billion in cash through 2020.
“Our current projections are that Tesla will continue to burn free cash flow into most of 2020, and that assumes CapEx remains relatively flat at $3.4 billion to $3.5 billion per year,” Gill says.
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Bank of America has an “underperform” rating and $180 price target for Tesla shares. Nomura has an “underperform” rating for TSLA stock.
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Tesla Inc (TSLA) Stock Drops on Supplier Refund Requests originally appeared on usnews.com
