Wednesday, September 26, 2012

Tesla Cuts Revenue Outlook, Unveils Plan to Sell More Shares

Luxury electric car maker Tesla Motors Inc. facing a revenue squeeze from production problems, said on Tuesday it would sell about 5 million shares to raise cash after winning breathing room on terms of a $465 million U.S. Energy Department loan.

Tesla said production of its new Model S electric sedan is running between four and five weeks behind the company's original plan, sending its shares down about 10% to $27.66 in 4 p.m. Nasdaq trading on Tuesday.

The selloff, and the operational and financial problems that Tesla disclosed, are a blow to high-profile co-founder Elon Musk, who led a glitzy unveiling of a new battery charger on Monday, the same day the company got the DOE to amend its loan terms.

Tesla's troubles could prompt more criticism of the Obama administration's green-technology investments. Republicans have made the failure of another Energy Department loan recipient, solar panel maker Solyndra, an exhibit in their election case against President Obama's economic policies.

The Palo Alto, Calif.-based luxury electric-car maker expects an as much as $200 million shortfall in revenue this year as a result of production delays. It projected full-year revenue of between $400 million and $440 million, down from between $560 million and $600 million earlier.

On Monday, it won a waiver on terms of its DOE loan, according to a filing with the Securities and Exchange Commission. The waiver postpones $14.6 million of a loan payment due next month to Feb. 15, revises other scheduled payments and commits to submitting by Oct. 31 a plan to repay the 10-year government loan ahead of schedule.

Deepak Ahuja, Tesla finance chief, said that the company projects it would have about $100 million in cash at the end of the third quarter excluding proceeds from the stock sale. He said that sale, which is scheduled to close on Thursday, should raise about $128 million.

Tesla is currently at its "lowest cash position," but expects to start generating cash from operations by the end of the fourth quarter, Mr. Ahuja said.

The company has about $133.4 million in deposits from would-be customers, some of which would be refundable if the customers cancelled their orders. Mr. Ahuja said that Tesla approached several thousand customers this quarter to get them to commit to cars, and about 1,000 asked for their $5,000 deposits back. But he added the cancellations were more than offset by 2,600 new vehicle reservations.

Mr. Musk, who currently holds about 26% of the electric-car maker's stock, has committed to buying $1 million worth of the shares.

Tesla, in its filing, said that including proceeds from the proposed share offering, it expects to have $228 million in cash, cash equivalents and restricted cash by the end of the month. The company said it plans to cut capital spending by 20% in the third quarter from second quarter levels.

The all-aluminum body Model S is the company's second vehicle and is designed and priced to sell in higher volumes than its existing Roadster, which costs about $109,000. The company earlier had hoped to produce this year 5,000 of the Model S cars, which are priced between $50,000 and $98,000 after federal tax credit.

Tesla didn't provide details of the production problems in its filing. It alluded to concerns about quality and concerns about suppliers as reasons why its Fremont, Calif., factory has produced since June just 255 Model S cars as of Sept. 23.

"Certain suppliers have experienced delays in meeting our demand and we continue to focus on supplier capabilities and constraints," Tesla said.

The U.S. last year suspended payments to another luxury electric car startup, Fisker Automotive Inc., after that company fell behind schedule in its effort to engineer a midsize, plug-in hybrid sedan called the Atlantic that would compete against the Model S.

Anaheim, Calif.-based Fisker had been awarded $529 million under the DOE's Advanced Technology Vehicles Manufacturing loan program in part to re-tool a former General Motors Co. factory in Delaware to build the Atlantic. That plan is now on hold, and Fisker and its newly appointed chief executive, Tony Posawatz, are trying to raise private capital to replace the frozen federal loan.

Many established car makers with long histories of launching new models struggle to hit ambitious launch schedules without compromising the assembly quality of their vehicles.

Tesla said that it plans to "reach our objective of weekly production of 400 Model S vehicles before the end of 2012 which should enable us to produce more than 20,000 Model S vehicles in 2013.