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Is Tesla Motors running out of money — again?

Tesla's recently revealed Model X crossover electric vehicle. The company has just announced a new sale of shares to raise money — and avoid payment problems with a Department of Energy loan.
Tesla's recently revealed Model X crossover electric vehicle. The company has just announced a new sale of shares to raise money — and avoid payment problems with a Department of Energy loan.
Jordan Strauss/Getty Images for Tesla

Tesla Motors, the startup electric carmaker whose CEO, Elon Musk, also runs private space-exploration firm SpaceX, is having another one of its periodic financial near-heart attacks. The latest news is that the company, which staged a $226-million IPO in 2010, wants to sell additional stock. A second offering of 6.9 million shares would bring in close to $150 million. [UPDATE: As a commenter notes, the offering was rather less than 40 million shares. Don't know where I got that... Also, this is Tesla's second secondary offering. So really, it's the third offering, including the IPO.]

Why? Yet another cash crunch for the company, which was pretty close to checking out in 2008, before Musk managed to find additional funding and do a deal with Daimler. The critical issue this time around involves the Department of Energy and it controversial loan program for greentech companies. Who can forget Solyndra? But electric cars are also a substantial part of the program, with both Tesla and Fisker Automotive — the two biggest names in alt.transportation — winning loans.

Solyndra was a disaster (although not flawed in its ambition — as I've argued, the DOE was acting as a "super venture capitalist," attempting to create an entire sub-industry for solar, and besides, the loss was a small percentage of the overall portfolio). Tesla, on the other hand, has defied the naysayers. 

That said, it's interesting to learn from Tesla's most recent SEC filing that the company is "dependent upon" its loan facility — $465 million, all of which the company has drawn down. Earlier this year, Musk said that it was the Daimler deal, not the DOE, that saved Tesla. But now it's the DOE that Tesla is depending on.

And that's where the problem comes because Tesla isn't building or selling enough of its new luxury sedan, the Model S, to meet its obligations. The company's September 25 8-K (a document it has to file with the SEC) is technical, so I've highlighted the parts that you need to pay attention to:

Our DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the project be conducted in accordance with the business plan for such project, compliance with all requirements of the [DOE] ATVM Program... These restrictions may limit our ability to operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint or that we otherwise believe are necessary to grow our business....

Based upon our current financial forecast, we currently anticipate that if we do not raise the proceeds anticipated from this offering and do not otherwise adjust our operations accordingly or amend the DOE Loan Facility, we may not be compliant with the current ratio covenant for the quarterly period ending March 31, 2013. For the quarters ending September 30, 2013 and December 31, 2013, we currently anticipate that without taking advantage of additional revenue opportunities or making adjustments to our spending, we expect that we will need to seek an amendment from the DOE to modify the fixed charge coverage ratio covenant....

If we do not comply with the requirements of the DOE Loan Facility, such failure, if not waived by the DOE, could cause a default under the DOE Loan Facility. In the event of a default, the DOE could declare the existing outstanding loan amounts to be due immediately. Any acceleration of the repayment of outstanding loan amounts would materially and adversely affect our business and prospects.

The bottom line is that Tesla needs money to keep pace with its payments to the DOE and expects to be able to raise said moolah with the second offering. But the hard reality is that the auto industry is a capital-intensive business for even the established automakers, who can burn through a billion a month to keep going. Tesla has to spend a lot less to stay in business, but as startups go, its burn rate — how fast it blows through cash — is impressive: The company has lost over $850 million since being founded in 2003.

Southern California is a potentially big market for Tesla. Its first dealership was opened here, and Musk routinely does show-and-tells of new models at SpaceX HQ in Hawthorne. Hollywood and Silicon Valley are where many of his customers live — and are the two most important cities for staging the revolution in electric cars, which has lately retreated somewhat from it's highs of 2010, when General Motors rolled out the Chevy Volt and Nissan introduced the Leaf. 

Of course, the competition is also paying attention. Fisker is headquartered in SoCal and has suffered by comparison with Tesla (Tesla got to the IPO stage, while Fisker has struggled to get its cars on the street). But Fisker recently hired the GM exec who oversaw the Volt program to be its CEO.

Meanwhile, non-nonsense CODA has opened what it calls an "experience center" on L.A.'s Westside, is expanding its dealer network, and — rather notably — isn't depending on the DOE. The company withdrew its loan application earlier this year.

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