Wednesday, January 23, 2019

Why Doesn't Tesla Raise Capital?

The market capitalization of Tesla is now $49 billion - in December it was as high as $65 billion. Tesla still has not raised capital, even though it used to tap the capital markets multiple times per year. Also, I suspect that if Musk could raise $5 or 10 billion (even now at the lower valuation) the stock would probably go UP.

He could instill so much hope with cash: avoid layoffs, pay off current liabilities, pay off some long-term debt, build more supercharger locations and add supercharger stalls, keep supercharging free, get people their repair parts, get vehicle buyers their registrations, poach some autonomous vehicle people from Uber or Google, put LIDAR in new models and make noise about gathering that data, make some real prototypes of a new model and have them out getting road tested and photographed, hire enough customer service people to keep the email inbox from filling up, and expand the service network.

Being well capitalized is essential to maintaining appearances as a growth company. And I think that Musk knows this. It's embarrassing that he doesn't have autonomous test vehicle fleets cruising the streets like Waymo or Uber. At a $65 billion valuation there ought to be tons of cash to support hobby experiments, each of which could then plug into a sum-of-parts megabullish valuation case at $10-50 billion valuations.

Instead, we are now seeing stingy cost cutting. They just raised prices on supercharging, initially by about a third. The normal VC/startup model (which is how Musk operates) would be to undercharge or give away something like that - to drive sales growth - and pay for it with expensive equity.

The higher prices may not even be a "gouge" - the superchargers cost more than just their marginal cost of electricity to build, install, and maintain. It's amazing to think - the charging process is so slow (especially in cold weather), that the throughput / utilization of the stations is very low, and so the breakeven cost (full cycle for the stations and power) per kWh might be as expensive as gasoline!

The existing auto manufacturers aren't as dumb as Silicon Valley people think - pure battery EVs just don’t make economic sense! To avoid range anxiety, you need a huge amount of heavy, expensive batteries that lower efficiency.

Smaller vehicles make sense, but we have stupid tax policy that encourages gigantic and fuel inefficient vehicles. Hybrid vehicles make sense. Diesel engines - like the great VW TDIs that the government crushed - make sense.

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