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Tesla's cash problem may not be a problem at all

Kevin Chupka
Executive Producer/Writer

A little more than nine months ago Tesla (TSLA) hit an all-time closing high of $286 a share before dipping back near its 52-week low of $185 in March. Now Elon Musk’s electric car company is just about $35 from that all-time peak and some are saying that means time is running out to raise the cash they’ll need to meet Musk’s lofty goal of selling 500,000 cars a year in 2020.

The Wall Street Journal tackled the issue this morning, noting that Tesla recently struck a revolving credit agreement with several banks that would let it borrow $750 million. While that sounds like a healthy chunk of change, especially when you add it to the $1.5 billion sitting on the company's balance sheet. Still, it is important to note that Tesla burned through about $500 million of cash in just the first quarter of this year.

One option the Journal notes would be a secondary stock offering. Here is the paper’s back of the envelope calculation:

Assume that Tesla were to issue stock at a steep discount of roughly 25% to the current market price, or at $200 apiece. This would raise $750 million in gross proceeds, while putting only 3.75 million new shares into the market, equal to just 3% of Tesla’s diluted shares outstanding at the end of March.

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“The thing is, people are complaining about them and wondering whether they’re going to run out of money. I don’t think they’re going to run out of money anytime soon,” says Yahoo Finance Editor-in-Chief Andy Serwer.

But more cash is not the only thing Musk will need to reach that half million goal in five years. Right now the automaker's market cap is roughly half the size of GM or Ford but it only has one model to sell. The company’s crossover offering, the Model X, is expected to be released next year, which will double the fleet of offerings.

Along with the new car comes, Tesla hopes, a new group of buyers: women. The Washington Post reports:

Tesla designers gathered a women's focus group at its headquarters in Palo Alto, Calif., last year to survey which aspects of the Model X the group found most appealing. That attention to one of the auto world's most underserved markets seems to be paying off: Earlier this year, Musk said more than half of the Model X's pre-orders have come from women.

A year after the release of the Model X Tesla is planning their third offering, the aptly a named “Model 3.” Expected to be priced in the mid-$30,000 range the more afforadable car could be the lynch pin in the plan to sell 500,000 cars a year. That is if it arrives on time.

Last week the company’s chief technology officer and co-founder J.B. Straubel said the vehicle that everyone was expecting by 2017 was planned for 2018.

Tesla has since clarified, telling TheStreet.com “As we've stated, we plan to show Model 3 in 2016 and begin production in 2017. JB's slide is a high-level look into when Model 3 will be in full production."

“If they don’t have a $30,000 car they’re never going to get [to their goal] so it does raise concerns,” says Yahoo Finance’s Aaron Task. “I think investors are looking - not past that - but in front of it is the Model X that is coming out soon. If that gets delayed they you really have some concerns building up.”

Still, Task is long Tesla stock and has been for some time, saying it’s a bet on Musk’s genius as much as anything else.”It’s not about the cars, it’s about the electric grid,” he says, “and what they can do to transform it. It’s speculative - very - so investors are going to be forgiving as long as other things don’t start to go bad.”