The continuous pattern of stop-and-go driving seen in Tesla Motors Inc (NASDAQ:TSLA) shares continued Monday, with TSLA decidedly in “go” mode. Tesla stock was up a few percent in the morning thanks to tweets by CEO Elon Musk, who says the electric vehicle company won’t need to raise cash in the fourth quarter to fund its aggressive production targets.
Plus, Tesla’s apparently giving us a shiny new product.
In a tweet posted on Twitter Sunday, the charismatic CEO ensured that neither Tesla or SolarCity Corp (NASDAQ:SCTY), which he also leads, will need to tap the equity or debt markets in Q4 to fund operations.
Tesla stock — up about 2% this morning — is reacting favorably to Musk’s promises. However, you have to act yourself: How much of that claim is believable? Only a couple days earlier, Tesla said that it would raise money before the end of the year, which sent Tesla stock down 2%.
In a filing with the U.S. Securities and Exchange Commission on Friday, Musk disclosed plans to seek additional cash by year’s end:
“While Tesla expects that its current sources of liquidity … will provide it with adequate liquidity based on its current plans through at least the end of the current fiscal year, Tesla is currently planning to raise additional funds by the end of this year, including through potential equity or debt offerings.”
Cash is king, some would say. But Tesla and TSLA stock are notorious for burning through cash — a quality that has angered investors into selling. Yet, Musk, who is ramping up to produce its Model 3 sedan at scale, can’t deliver on those promises without more cash.
Beyond the production ramp, there’s also the issue of SolarCity — a money-losing business that also burns through cash — which Tesla is in the process of buying.
The common denominator? Elon Musk, who heads both companies. On Sunday, via Twitter, Musk says he wanted “to correct expectations” about the companies’ need to raise money. Musk also promised that he would reveal a new product on Oct. 17, while reiterated a Tesla-SolarCity product would be shown on Oct. 28. The combined product fits within Musk’s grand scheme of bringing synergies between the two companies.
But the issue of cash and the fact that it’s immediately needed, though not carefully managed, remains a concern for Tesla stock.
On the positive side, it’s tough to bet against Musk, given that Tesla just announced preliminary third-quarter delivery results. The EV maker revealed it had delivered 24,500 cars in the third quarter. Not only does the delivery total mark an almost 40% jump from the second quarter, but it’s Tesla’s highest sales total since the company was founded. Plus, on a year-over-year basis, the 24,500 number more than double the deliveries Tesla made in last year’s third quarter.
That news sent TSLA stock soaring more than 5%.
Bottom Line for Tesla Stock
From a product and brand perspective, there’s no question Musk is delivering as promised. In terms of Tesla stock … well, that’s where the investment thesis might need to be parked for a while.
Officially, the SEC filing says Tesla will need to raise cash though Musk claims otherwise. Delivering on aggressive production targets, while acquiring a money-losing SCTY without raising capital might be the magic trick of the year.
But by the first quarter of next year, if not sooner, expect Tesla to seek source of funding whether via equity or debt markets.
As you should expect, that will pressure Tesla stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.