Timing of Model Y Gives Cash Insight
The Tesla Model Y event went largely as expected (see our preview here). To our surprise, Model Y initial shipments will begin in the fall of 2020, a year later than we had anticipated. This timing likely implies the company is postponing the costly Model Y ramp in 2019 to conserve cash; it would be unfeasible to do a $35k Model 3 and a Model Y ramp at the same time. We now believe it’s more likely Tesla will raise money in 2019. Our takeaways:
- Size. We believe Model Y is big enough to compete in the crossover the market. We liken it to an Audi Q5 (Model Y has more interior space): it does have a 7 person seating option, although the back row is two foldable jump seats.
- Price. The base model is as expected at $39,000, below the Jaguar I-PACE ($69,500) and the Audi e-tron ($74,800).
- Availability. Model Y will be available later than we anticipated, with initial deliveries starting in the fall of 2020, a year later than our expectation. The timing of the $39,000 base model was in line with our expectation, available early in 2021.
- Reservations. Our best guess is they’ll take in 100k reservations in the first two weeks (before the end of Mar-19). Previously we had expected 175k reservations. The lower reservation number is attributed to the later initial shipments (fall of 2020).
- Cash flow from reservations. The $2,500 preorder was slightly more than our $2,000 estimate. At 100k reservations, that implies $250m in cash flow in Mar-19 from reservations.
Tesla Should Raise Cash, Short Term Pain for Long Term Gain
We left the event thinking about the impact of Model Y availability coming in fall 2020 instead of fall 2019. Before we had expected a small profit in the Jun-19 quarter would stabilize cash, would allow the company to meet its $566M note due in November of 2019. Based on logistics difficulties in delivering Model 3 to China and Europe, we now believe the Jun-19 quarter will be breakeven at best. Putting it together, the company appears to have to raise cash to meet the November debt payment and working capital needs. While this raise would fuel concerns around the company’s prospects and would be negative for shares of TSLA in the near-term, it would put the company on track to bridge the gap between meeting its debt requirements and volume production of Model Y early in 2021. Based on our conversations with the buy side investors, we believe the company can successfully raise enough cash ($1-2B) to reach long term profitability. We continue to believe Tesla will be a winner in capitalizing on the EV growth curve, but the 2019 road will have some bumps.
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