Tesla's Cash Burn Could Double With Expected Model 3 Delays, Says Deutsche Bank

Tesla Inc TSLA slipped 28 percent over the last month as investors weighed poor progress on the Model 3 ramp, deceleration in Model S and X deliveries, a Moody’s downgrade, fatal Uber and Model X crashes and the loss of its chief accounting officer.

Deutsche Bank added cash burn to the growing list of concerns.

The Rating

Analyst Rod Lache maintained a Hold rating on Tesla.

The Thesis

Deutsche Bank expects Tesla to post another Model 3 miss in its April 3 update based on data it's seen, Lache said in a new note. Trends suggest Tesla achieved an average weekly production rate of 800 vehicles in the first quarter and, despite promises of a 2,500-per-week closing rate, is only now approaching 1,100, the analyst said.

“There is growing concern about whether (or when) Tesla will be able achieve a ramp that’s anything close to this target,” Lache said.

If Deutsche Bank cuts its 2018 quarterly Model 3 estimates from 8,000, 25,000, 52,000 and 67,000 respectively, to 5,000, 15,000, 30,000 and 57,000, expected cash burn would more than double from $825 million to $1.7 billion.

That would halve the $3.4 billion with which Tesla closed 2017.

“For their part, Tesla still believes that their highly automated manufacturing strategy will ultimately work, and that it will ultimately yield higher output and significantly lower costs,” Lache said. “Traditional OEMs and industry consultants have long questioned this (high automation) strategy, citing quality, costs, ROIC and inflexibility.”

By Lache's assessment, Tesla is “clearly struggling.”