Tesla: Time to Take Profits?

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by Debra Fiakas CFA

English: Photo of the Tesla Model S, from the ...

The Tesla Model S, from the unveiling on 26-Mar-2009. (Photo credit: Wikimedia Commons)

The Wall Street Journal reported on Friday morning that Blackrock has cut its position in electric sports car innovator Tesla Motors (TSLA:  Nasdaq).  Blackrock is a widely known and respected fund manager.  I imagine more than just a few investors grabbed whatever device might be available at the time and punched in sell orders on the supposition that smart money always know best.  The really smart investors had already looked at Blackrock’s filing with the SEC detailing the reduction in its TSLA holding by a whopping 0.66% from the beginning of the year.  Most probably these investors had already concluded it prudent to hold their hand.

Even though Blackrock appears to be holding onto its position in Tesla Motors for the time being, it does not mean that smart investors should not question Tesla’s future.  Recently the Wall Street Journal also reported Elon Musk used the Twitter social platform to declare Tesla on the cusp of positive cash flow.  Musk’s interests in Twitter aside, it was a bold statement.  Tesla used $233.1 million in cash to support operations over the twelve months ending September 2012.  For clarity, that is $19.4 million per month on average.  Musk’s declaration might suggest that the situation is improving.

However, in the most recently reported three months, Tesla was using even more cash than usual  –  an average $32 million per quarter.  The Company started shipping its Model S in June 2012 and geared up for volume production by investing in its supply chain.  Tesla reported that it manufactured 350 cars in the quarter ending September.

The question is whether available cash will be enough to see the Company through until cash starts coming in from selling those 350 Model S cars.  Tesla has been able draw down funds from a Department of Energy Loan.  The Company reported taking the last $33.3 million of the total $465.0 million DOE loan in the third quarter.  With the $85.7 million in unrestricted cash it had on its balance sheet at the end of September 2012, and at the average cash burn rate, Tesla could have lasted through the end of January 2012.

Musk, who seems to be forever speaking into a reporter’s microphone, promised to take as much as $1 million of the 6.9 shares Tesla offered in a follow-on offering staged at the beginning of October 2012.  The shares were sold at $27.89 per share.  The stock has climbed steadily since, ending trading the day before this post near $34.00 per share.  Trading in TSLA shares may have temporarily run out of steam, probably because shareholders like Blackrock are tempted to take profits by the rising price and ample trading volume.  I do not believe the stock is not likely to challenge the 52-week high near $40 until investors hear how many of those 350 Model S cars have been sold.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 


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