Tesla Now Expected To Turn Cash Flow Positive By Next Year

Bleeding On Cash Flow

Tesla said in its latest 10-K filing that it had a negative operating cash flow of $123.829 million in 2016, narrower than the outflow of $524.50 million in 2015. Free cash flow is operating cash flow, less capital expenditure.

Production Estimates

Analysts Rod Lache, Mike Levin and Robert Salmon expect the company to produce 22,000 Model 3 units in 2017, with 20,000 of them coming in the fourth quarter. In 2018, the company is likely to produce 250,00 Model 3 units, the analysts added.

The analysts noted that Tesla is targeting run rate of 5,000 per week in 2017 and 10,000 per week in 2018, translating to an annualized rate of 500,000. While stating that it is estimating volumes (including Model 3, S, X and other variants) of 122,000 for 2017, 350,000 for 2018, 500,000 for 2019 and 650,000 for 2020, the firm pointed to Tesla's production target of 1 million units by 2020.

Capex Expectations

Deutsche Bank believes Tesla may have to spend $5 billion to $6 billion in capital expenditure for every 500,000-unit volume growth or about $2 billion per year for future vehicle assembly plants and Gigafactories. Assuming an incremental $0.5 billion to $1 billion per year for other items such as vehicle updates/refreshes, new vehicle derivatives, super chargers, sales, service centers, etc., the firm targets capex at $2.75 billion per year between 2018 and 2020 compared to $3.25 billion in 2017.

Adjusting Model, Price Target

Deutsche Bank said it is adjusting its model and target price for Tesla shares, incorporating the company's $1.4 billion capital raising program. The firm now expects the company to end 2017 with $1.8 billion in cash, which it termed as offering comfortable liquidity cushion.

Assuming volumes leveling off at 2 million units per year from 2030, the firm expects terminal growth rate of 3.0 percent (in 2030 and 7.5 percent in 2021), terminal margin of 9.5 percent and capex at a rate of 3.8 percent of revenue. Accordingly, the firm's price target now moves up to $240 from $220. The firm's rating on the shares, however, stayed at Hold.

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