1/ In this thread I will show, through simple arithmetic and logic, that if $TSLA experiences a material drop in demand in Q4, it will have very little choice but to urgently raise capital. And if it can’t raise capital? Big trouble.
2/ Before diving in, my typical disclosures: I’m long Tesla puts, this is not investment advice, do your own research, Elon is a baby jaguar, etc. $TSLA
3/ Let’s start by estimating $TSLA’s cash balance at the end of Q3. We turn to the infamous WSJ article from mid-August. Let’s take $TSLA at its word. Assume $TSLA ended Q3 with $2.5B in cash, up from $2.24 at the end of Q2. 
4/ Next, let’s estimate accounts receivable (AR). For $TSLA, AR is small and relatively flat over time. Here are the last six quarters. Let’s assume AR stays flat at Q2 levels. That means that at the end of Q3, cash ($2.5B) plus AR ($570MM) equals $3.07B.
5/ This is a critical point. $TSLA runs what it calls a ‘virtuous cash flow cycle’. It collects cash from customers before it pays its bills. That’s great when you are still growing. However, the moment growth slows, your bills grow faster than your revenue. See this FingerChart:
6/ Let’s estimate what those bills might be at the end of Q3. First, we examine accounts payable (AP) plus accrued liabilities (AL). By design, your AP plus AL grow in lock step with revenue when you run the virtuous cash flow cycle. $TSLA
7/ Here is (AP+AL)/Revenue for $TSLA for the past six quarters. Based on this progression, I’m assuming 1.25 for Q3.
8/ Furthermore, $TSLA’s current portion of long-term debt reached $2.1B at the end of Q2. We can hold that number flat. The debt has become even more ‘current’, of course, especially those convertible bonds.
9/ To complete our analysis, we just need $TLSA’s Q3 revenue. Let’s call it $6.6B, up an impressive 65% from Q2 2018! But, here’s the thing. At $6.6B, if my analysis above is correct, AP+AL balloons to $8.25B. Add in the current debt, and you reach $10.35B in urgent bills. $TSLA
10/ While there are other current liabilities on the balance sheet, with just payables, accrued liabilities, and current debt there will very likely be more than $3.3 of urgent claims against each $1 in $TSLA’s bank account or receivables.
11/ What happens if demand falls substantially in Q4? $TSLA will face declining revenues into the teeth of these bills coming due, and their cash will disappear very rapidly. In fact, it is highly likely that substantially more than $1B in payables alone are due EACH MONTH.
12/ To make matters even more dire, a large chunk of their cash is in the form of customer deposits. Imagine what happens if there is a wave of deposit refund requests. We know they stretched refunds to 45 days in Q3. $TSLA
13/ Is $TSLA’s demand set to drop in Q4? It’s clear from VIN registrations that the U.S. rear-wheel drive (RWD) order book is largely depleted, and U.S. all-wheel drive (AWD) isn’t far behind. Here’s where things stood at the end of Q3.
14/ We also know $TSLA pulled out all the stops for Q3. It is inevitable that some demand was pulled forward. Tesla also went to great lengths to warn about China and how the tariffs are hurting. When will Tesla sell the Model 3 in Europe or elsewhere outside of North America?
15/ There is a real difference between stock demand (pent up over two years) and flow demand (achieved once backlog is cleared). How does Q4 flow demand compare to the very strong Q3 deliveries? $TSLA
16/ What must $TSLA do? IT MUST RAISE CAPITAL URGENTLY. And a lot of it. And if it can’t raise capital? Well, if Tesla’s Board cares about creditors and employees, the Board members had better be on the horn with Alvarez & Marsal. And soon.
17/ We will need to see the Q3 balance sheet and observe demand in October and November to assess my analysis. In the meantime, trade carefully - even you bulls. $TSLA <end of thread>
