Tesla’s unfettered ambition will drain finances: analysts

Posted by: Admin | Posted on: November 17th, 2017 | 0 Comments

(Reuters) – Tesla Inc (TSLA.O) may have to ask creditors and shareholders for more capital to fund development of an electric semi truck, a new roadster and accelerated production of a high-volume electric sedan, analysts said on Friday.

Musk unveiled one flashy strategy for generating cash during the launch event Thursday for the Semi truck, surprising the audience with a prototype of a new generation of the Tesla Roadster. Musk promised the Roadster will be the fastest production car available. The first 1,000 cars will cost $250,000 each, paid in full upfront, with later models starting at $200,000.

Those deposits would put $250 million into Tesla’s cash drawer today for a car that is likely to go into production in 2020.

Musk did not offer details about how Tesla would generate additional funds to deliver the semi truck and the roadster, and overcome production problems that have hobbled production of the company’s high-volume sedan, the Model 3.

Tesla spent $1.1 billion on its auto business in the third quarter, and expects expenses of $1 billion in the current one. It had about $3.5 billion in cash and cash equivalents as of Sept. 30.

At the current cash-burn rate, it would likely be down to about $1 billion in cash by the end of the first quarter.

“In essence, all last night’s event did was add to Elon Musk’s shopping list of things he needs to spend money on at a time when the company is having difficulty making its base vehicle (Model 3),” said Cowen analyst Jeffrey Osborne.

Despite such concerns, Tesla shares were up about 1.4 percent at mid-day. While the shares are up more than 40 percent this year, they have fallen 20 percent from record highs in mid-September.

Shares in heavy truck diesel engine maker Cummins Inc (CMI.N) fell 4.7 percent, and shares in Class-8 truck makers Paccar Inc (PCAR.O) and Navistar International Corp (NAV.N) also fell.

Tesla this month pushed back its target for volume production on the Model 3 sedan – widely seen as crucial to the company’s long-term future – by about three months to fix production bottlenecks.

Osborne said Tesla’s cumulative capex announcements now exceed $15 billion to $20 billion over the next few years.

Some analysts fear the trucks will be an expensive distraction for the company, which has never posted an annual profit and is in self-described “manufacturing hell” related to the $35,000 Model 3 sedan.

Jefferies analyst Philippe Houchois estimated that Tesla would need to raise $2.5 billion to $3 billion to keep production running smoothly.

“Longer term, we continue to think the capital intensity of the business model will keep returns below best-in-class auto(makers),” Houchois said in a research note.

Tesla’s last debt sale in August was well-received in a hot bond market, allowing the company to increase the offering to $1.8 billion from $1.5 billion. But the bond has underperformed in the secondary market, suggesting it could be more challenging for Tesla to tap the high-yield debt market again so soon.

“They are losing $1.5 billion a quarter and the bond is unsecured so it is not of interest to me,” said Jim Brilliant, chief investment officer at Century Management.

Reporting by Supantha Mukherjee; Additional reporting by Sonam Rai in Bengaluru and Davide Scigliuzzo in New York; Editing by Saumyadeb Chakrabarty and Nick Zieminski

Wall Street pulls back at week’s end with tax changes mulled

Posted by: Admin | Posted on: November 17th, 2017 | 0 Comments

NEW YORK (Reuters) – Wall Street ended the week on a sour note on Friday, with major indexes slipping modestly as investors weighed the fate of the Republicans’ tax overhaul plan.

Investors have been hopeful that a tax bill under debate in Congress will boost corporate earnings and further fuel the stock market’s record-setting run.

Congressional Republicans took important steps on Thursday toward the biggest U.S. tax-code overhaul since the 1980s, with the House of Representatives approving a broad package of tax cuts. The debate shifts to the Senate, where a bill has already encountered resistance within the Republican ranks.

A Reuters poll showed that nearly two-thirds of more than 60 economists said they were not confident the Trump administration would get the legislation passed this year.

“I think there is a fear that they are not going to be able to get enough support to really get something on the president’s desk to sign,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

“The week started with a lot of optimism for tax reform and I think we are ending the week a little hung over,” Dollarhide said.

The Dow Jones Industrial Average .DJI fell 100.12 points, or 0.43 percent, to 23,358.24, the SP 500 .SPX lost 6.79 points, or 0.26 percent, to 2,578.85 and the Nasdaq Composite .IXIC dropped 10.50 points, or 0.15 percent, to 6,782.79.

The benchmark SP 500 has rallied more than 15 percent this year, supported by corporate earnings growth and solid economic data.

With nearly all of the SP 500 companies reporting results, third-quarter earnings are expected to have climbed 8.2 percent, according to Thomson Reuters I/B/E/S.

“The earnings in the third quarter are pretty good,” John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston. “There remains a little bit of uneasiness around political risk, domestically and internationally.”

Abercrombie Fitch (ANF.N) jumped 23.9 percent and Gap (GPS.N) rose 7.0 percent after the apparel retailers reported results that beat estimates.

Shares of sports retailers soared on better-than-expected earnings. Foot Locker (FL.N) jumped 28.2 percent, Shoe Carnival (SCVL.O) surged 29.7 percent and Hibbett Sports (HIBB.O) gained 15.2 percent.

Twenty-First Century Fox (FOXA.O) shares rose 6.2 percent after two people familiar with the situation said both Comcast (CMCSA.O) and Verizon (VZ.N) were interested in buying parts of its studio and TV operations.

Advancing issues outnumbered declining ones on the NYSE by a 1.83-to-1 ratio; on Nasdaq, a 1.50-to-1 ratio favored advancers.

About 6.3 billion shares changed hands in U.S. exchanges, below the 6.8 billion daily average over the last 20 sessions.

Additional reporting by April Joyner in New York and Sruthi Shankar in Bengaluru; Editing by Anil D’Silva and James Dalgleish