Can Tesla Profitably Finance Its Aggressive Expansion Plans?


That is one of the main concerns about Tesla Motors' growth story in an article published in Germany's Manager Magazin that made the rounds yesterday as the stock fell almost 6%. Tesla has aggressive plans to expand its Superchargers while simultaneously ramping up production. But will Tesla have all the cash it needs to make this happen?

A well-timed expansion
Tesla's aggressive Supercharger expansion is fundamental to the bullish case for Tesla stock. Not only will it provide extensive infrastructure for the company's Model S, but it also parades the company's enormous confidence that it will be able to bring its mass-market, lower-cost vehicle to market as early as 2016, and hopefully at least by 2017.

Expanding from just about 17 Superchargers earlier this year, Tesla plans to have a Supercharger station within driving range of 98% of the U.S. population and parts of Canada by 2015.

Planned Superchargers in U.S. and parts of Canada. Source: Tesla Motors.

Internationally, the company's plans are just as aggressive. A Sept. 10 press release reads: "By the end of 2014, 100 percent of the population of Germany, the Netherlands, Switzerland, Belgium, Austria, Denmark and Luxembourg will live within 320 km of a Supercharger station, with about 90 percent of the population in England, Wales and Sweden living within the same distance of a charging station."

Sure enough, Tesla is moving quickly. Before the above press release was published, Tesla already had Norway covered.

Interestingly, this massive expansion of infrastructure will be complete right before the 2016-2017 time frame the company laid out in a recent corporate presentation for the higher volume, lower price point, third-generation platform Tesla is planning to launch. The company's expansion plans, therefore, provide solid evidence that management sees a clear and fast path to this higher-volume vehicle. And it's on this confidence that the stock can trade at such high levels with such bullish, forward-looking numbers priced in.

A shortage of cash flow?
According to Manager Magazin, the Model S director of programs, Jerome Guillen, said that the development and expansion in Europe is Tesla's biggest challenge. When asked about what it will cost the company to build out this infrastructure, all Guillen had to say is that the company will "make sure that the expansion is cost-effective."

In the company's second-quarter earnings call, Tesla CFO Deepak Ahuja (as pointed out in this Business Insider article) had some more vague guidance: "We want to stay as close as we can to a free cash flow position... but that's not something we necessarily want to guide to. We're going to manage it... and spend the cap ex where we need to to ensure we're growing at the right pace."

Though Tesla seems to have a plan on how it will afford all of this aggressive expansion, it will be interesting to get an update on the company's progress in this area when it reports earnings on Nov. 5. It's certainly a hot issue. The Business Insider article eloquently sums up why it's a topic to watch: "This gets to the heart of the short thesis on the automaker's stock. Tesla bears say quarter after quarter that the company is burning through cash too quickly to build the infrastructure it wants, and make the improvements to supply chain that it needs."

What do you think? Are Model S sales enough to finance this aggressive expansion while the company is simultaneously ramping up production? Or will Tesla need to take on new debt or raise more capital by selling equity?

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