Tesla is burning cash at a frightening pace

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Tesla lost nearly $700 million in the quarter ended March 31, one of its worst quarters on record.

The electric carmaker on April 24 reported first-quarter net loss of $668 million on total revenues of $4.5 billion. (For the sake of comparison, newly public ride-hail company Lyft lost $911 million for all of 2018.) Tesla attributed $121 million of the net loss to higher assumed return rates on cars after it raised prices for the Model S and Model X.

In the first quarter, Tesla also burned through $1.5 billion of its stockpile of cash and cash equivalents, which shrunk to $2.2 billion. The company said this resulted from it paying off $920 million in convertible bonds on March 1, and from an increase in “the number of vehicles in transit to customers” at the end of the quarter. At this point last year, Tesla had $2.7 billion in cash and cash equivalents.

Tesla chief financial officer Zachary Kirkhorn described the latest quarter as “one of the most complicated… in the history of the company.”

Analysts on the company’s earnings call seemed concerned.

“Talk about this whole notion of raising capital,” Toni Sacconaghi, technology research analyst at Bernstein, asked Tesla CEO Elon Musk. “For about the last year you sort of shooed it as almost an evil thing, and I think a lot of investors believe that the company might be better served in its growth aspirations if it did raise capital, had a stronger cash base. And given that you used up about $2 billion worth of cash in the quarter, aren’t you potentially trying to go through a very thin space while trying to grow quickly and be self-funding, which quite frankly may be unrealistic?”

“I don’t think raising capital should be a substitute for making the company operate more effectively,” Musk replied. “So that in that sense, I think it’s just, it’s important to have strong financial discipline of the company and just to make sure we don’t have extraneous expenses and we’re just being frugal with capital. If we keep raising capital every time, then it just takes—we now have the forcing function improving the functional operation of the business. So I think it is healthy to be on a Spartan diet for a while.”

Musk added that Tesla did raise $500 million in loans from Chinese lenders for its planned vehicle and battery Gigafactory in Shanghai, though some Gigafactory investors are also skittish. Over the weekend, a video showed a parked Tesla Model S exploding in Shanghai.

Other analysts pushed Musk on whether Tesla would be better off as a private company. Musk in August 2018 drew scrutiny from the US Securities and Exchange Commission by tweeting his intent to take Tesla private. He argued at the time that going private would help Tesla focus on execution and operational efficiency without being beholden to quarterly results and demands from investors.

“There’s just so much drama around Tesla’s share price and quarterly results,” said Adam Jonas, autos analyst at Morgan Stanley on today’s call. “From the outside, at least, it looks like a huge distraction.”

“It’s a bit of a distraction at times,” Musk replied, “but I’m not sure what to do about it.”

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