February 7, 2018 / 10:22 PM / in 13 days

Breakingviews - Elon Musk fiddles while Tesla burns

NEW YORK (Reuters Breakingviews) - Elon Musk is fiddling while Tesla burns. The entrepreneur has recently pulled off successful PR stunts for his other firms. And he has just broadened the electric-car maker’s funding options. But Tesla looks set to incinerate truckloads of greenbacks this year.

Fourth-quarter results unveiled on Wednesday show the maker of the Model S and Model X ended 2017 with $3.3 billion in cash on its books. That’s only slightly less than at the end of September.

But Musk has already had to push back Model 3 production targets three times in recent months after warning last summer of “at least six months of manufacturing hell.” And he has also committed the company to a number of other projects, including its Semi truck and an all-new Roadster. As a result, Tesla may set fire to almost $4 billion of cash by the end of December, reckon Barclays analysts.

Moreover, carmakers are starting to spend a good chunk of money to secure increasingly expensive or hard-to-get raw materials for electric batteries. Last month a Toyota unit agreed to spend $240 million to take a 15 percent stake in Australian lithium miner Orocobre. Tesla has discussed building a lithium-processing plant in Chile with Santiago-based miner SQM, Reuters reported last week. And last year Volkswagen tried to secure 10-year supplies of cobalt, Reuters exclusively reported.

The cash shortfall Tesla faces isn’t the kind that can be rectified with gimmicks that have worked elsewhere. Musk, for example, just raised $10 million for his tunneling firm, The Boring Company, by selling 20,000 flamethrowers – in reality, pimped-up, overpriced roof torches. SpaceX is likely to benefit from another of his stunts: on Tuesday its Falcon Heavy rocket ship put a Roadster into space - an effective pitch to companies needing to take payloads out of the Earth’s atmosphere.

He and finance chief Deepak Ahuja have also taken Tesla on a successful trip to the asset-backed securities market, raising almost $550 million last week with a deal that reduced the company’s funding costs a tad.

Keeping the carmaker’s focus solidly on the road ahead, though, requires more than just tinkering. Another multibillion-dollar stock sale is fast approaching.

Breakingviews

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