Cash Flow for Telsa Could Result in Problems for the Company’s Credit Rating

The time for Telsa to produce the Model 3 may be running out, as the company continues to pour out millions of dollars for the production, which will be its first mass-market car manufactured. With thousands of customers already prepared to purchase the Model 3, Telsa has repeatedly missed production targets, while continuing to pour large amounts of cash into the production line.

This comes at a time when the company is faced with bonds of over $1 billion that are due in the coming 12 months. Telsa has $230 million due in November 2018 and $920 million due in March 2019.

Bloomberg has consistently tracked the production and has continually monitored the results from the vehicle identification numbers, which are issued by the National Transportation and Safety Board. As reported by Bloomberg, the production of the Model 3 is estimated at 1,026 per week, an increase over the 2017 fourth-quarter results, but less than 50 percent of the 2,500 target that Telsa set for the third quarter. The third quarter ends on March 31, 2018.

If the production target is not met by Telsa, it would be very significant and would be a concern for the company’s ability to reestablish its credibility with stakeholders and consumers. Depending on just how close the company can reach the target will signal how much of an impact there will be on credibility.

There hasn’t been a full-year profit made by Telsa since CEO Elon Musk made the decision to forge ahead in the auto industry. However, investors are still supporting the charismatic and idealistic CEO. Investors have continued to provide the cash required to meet the challenges of competing with established automakers, such as Ford and General Motors, which has actually driven up its market value. Telsa has also received the support of customers in the amount of $1 billion from the paid deposits for the Model 3, even knowing they will not receive the car for many years. Additionally, Telsa has needed to sell bonds to increase a stream of cash flow.

The concerns over the company’s cash flow resulted in a debt downgrade to junk bond status last week. Suppliers could now begin to demand payment for raw materials and parts. With a reported $2.4 billion in accounts payable, Telsa has been warned that other downgrades could be a possibility. A warning has also been made by Standard and Poor’s.

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