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Elon Musk's Later-Landing Model Y Reignites Concerns About Tesla Cash

Dana Hull

(Bloomberg) -- Elon Musk’s unveiling of a new electric vehicle that Tesla Inc. won’t deliver to customers for another year and a half rekindled concerns about the company’s cash position.

The Model Y crossover that the chief executive officer debuted late Thursday in Hawthorne, California, will start being delivered to customers in the fall of next year. The company immediately began taking $2,500 pre-orders, a bigger ask than the $1,000 it charged at first to reserve a Model 3 sedan.

“More expensive customer deposits for Model Y are likely to reinforce bear concerns about Tesla’s cash,” Toni Sacconaghi, an analyst with Sanford C. Bernstein Co., said in a report Friday. “We expect initial orders to be notably lower than Model 3.”

Tesla shares fell as much as 5 percent and traded down 3.8 percent to $278.82 as of noon Friday in New York. The stock is down about 16 percent this year.

At Tesla’s design studio, Musk showed off a blue prototype of the mid-sized Model Y, which is roughly 10 percent bigger than its best-selling Model 3. Initially, three higher-end editions of the new vehicle will be available, with a standard version scheduled to arrive in spring 2021 that will be priced at $39,000 and equipped with a 230-mile battery.

By showing the Model Y now and yet keeping most customers waiting until the second half of next year, Tesla risks undermining momentum for the Model 3, which catapulted the automaker up the sales charts and helped Musk post back-to-back quarterly profits. Investors are counting on the Model Y to help the company better meet the demands of consumers who are increasingly ditching sedans for roomier crossovers and SUVs.

“Prior to the Model Y launch a number of OEMs will be launching direct competitors, including the Audi e-tron, BMW iNEXT, and Mercedes-Benz EQC,” John Murphy, an analyst for Bank of America Merrill Lynch, wrote in a report. “As such, TSLA appears to be late to the game, which puts the theoretical profit/cash flow opportunity for the Model Y at risk.”

Missing Buzz

Musk, 47, took the stage before a crowd of customers and fans, but was uncharacteristically subdued. He spent much of his presentation talking about the company’s struggles with manufacturing.

“He was not the usual charismatic Elon Musk. He was super low-key,” said Michael Harley, executive editor of Kelley Blue Book, who was at the event. “He was almost apologetic. It was a bit of a reality check. People in the crowd like the car, but Musk only spent a fraction of his time talking about it.”

Only one of the new models was driven onto the stage, where it shared the limelight with other, older vehicles. At the 2016 unveiling of the Model 3, by contrast, Musk showed off three cars and flashed the rising number of customer deposits on screen as they rolled in from people eager to be among the first in line to reserve them.

At the Model Y’s unveiling, Musk said nothing about taking orders or deposits, although Tesla’s website allows people to submit fully refundable pre-orders. Whereas Model 3 customers put down $1,000 deposits and then had to pay $2,500 to configure and order, Model Y buyers will pay only the latter amount, according to the company.

Still, the costlier initial charge to Model Y customers “suggests Tesla remains in a precarious cash position,” Jeffrey Osborne, an analyst at Cowen & Co. with the equivalent of a sell rating on the shares, wrote in a report. “We remain concerned about the company’s liquidity.”

The Model Y is making its official debut after a rough patch for both Tesla and Musk. In late February, the company announced it would finally offer a $35,000 version of the Model 3, though it linked the ability to do so with a plan to close almost all of its stores and pivot to online-only ordering.

This blindsided employees and investors alike, and Tesla backtracked 10 days later, saying in a blog post that more stores would remain open but vehicle prices would have to rise by about 3 percent on average worldwide.

Tesla ended last year with about $3.7 billion of cash and equivalents, but has since had to pay off a $920 million convertible bond. Musk has warned a loss is likely this quarter, and the carmaker has a $566 million note coming due in November.

Analysts are now again skeptical of Tesla executives’ claims that they’ll be able to service upcoming debt obligations with cash.

“We continue to believe that Tesla will likely raise cash in 2019,” Gene Munster, a managing partner of venture capital firm Loup Ventures, wrote after the event. “While a raise would be viewed as negative in the near term, it would be positive in the long term, potentially putting to rest longer-term investor cash concerns.”

(Updates with analyst’s comment in seventh paragraph.)

To contact the reporter on this story: Dana Hull in San Francisco at dhull12@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, David Welch

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