David Einhorn has had plenty to say about Tesla and its celebrity CEO, Elon Musk, and a day before the company’s next earnings report, he had even more to say. He reiterated his remarks about the company’s extreme cash burn levels, adding to the comments he made about Tesla in his firm’s second-quarter letter. The market seems to be taking the comments from Einhorn on Tesla Model 3 to heart.
David Einhorn on Tesla Model 3 cash burn
Einhorn made the comments during the earnings call for his firm Greenlight Capital Re this morning. He noted that Tesla is expected to burn more than $2 billion this year for production of the Model 3. He added that the automaker is “currently only capitalized for the next three quarters,” according to Bloomberg. He summed up by saying that Elon Musk and Co. will be testing the market’s willingness to fund the production ramp of the Model 3 throughout the year.
Tesla delivered the first 30 Model 3 cars to their owners last week, and it has been raising capital via debt and equity offerings to support production of its first mass-market car.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
Free capital now and forever?
In addition to the comments on cash burn made by Einhorn on Tesla Model 3, he also made some more general comments in his second-quarter letter for Greenlight Capital, which was obtained by ValueWalk. His firm is short Tesla, and he’s been speaking out about why he feels the EV maker is grossly overvalued for quite some time. He joins Stanphyl Capital and a growing number of others who are firmly in the bear camp on Tesla.
In Greenlight’s second-quarter letter, Einhorn explained, “While its [Tesla’s] cars do not burn gasoline, the company burns more than enough cash to compensate, and behaves as if it will have access to nearly free capital for the foreseeable future.”
Clues from Tesla’s earnings release
Tesla is set to release its second-quarter earnings report tomorrow after closing bell, so this will be the market’s next test for investors. Analysts are predicting GAAP losses of $2.39 per share, so investors should be well-aware of just how much cash Tesla is burning and thus should understand Einhorn’s concerns about cash burn. Non-GAAP losses are expected to amount to $1.87 per share, while sales are projected at $2.52 billion, up from $1.56 billion in last year’s second quarter.
The earnings call tomorrow evening will likely feature plenty of questions about and management commentary on the Model 3. Tesla management can also probably expect questions about cannibalization of Model S and Model X sales due to the less expensive Model 3, as some analysts are predicting this, although the severity of it is up for debate.
Tesla shares slumped during regular trading hours today, falling by as much as 1.13% to $319.80.