Tesla Has A Fresh $1 Billion -- And Lots of Ways To Spend It - Corporate Intelligence - WSJ

By Joseph B. White

Tesla Motors Inc. just raised about $1 billion in new capital, riding a remarkable burst of investor exuberance. New Tesla shareholders will now get to see just how fast the auto business gobbles up money.

After it pays off a $452.4 million federal loan, Tesla says in a filing today that it will have $678.8 million in cash and cash equivalents, and long term debt of $600 million.

With that cash, Tesla should be able to complete development of its Model X sport utility, which the company had delayed until the end of next year. Tesla CEO Elon Musk has indicated in the past that project could cost about $200 million — which is relatively cheap as new vehicle engineering projects go.

It helps that the Model X will use a lot of the same hardware and engineering that went into the current Model S. Beyond the Model X, however, lies the vision of a more affordable sedan that Mr. Musk has promised. And beyond these, redesigned versions of the Model S and Model X. As Tesla says in a Securities and Exchange Commission filing:

“… historically, automobile customers have come to expect new and improved vehicle models to be introduced frequently. In order to meet these expectations, we may in the future be required to introduce on a regular basis new vehicle models as well as enhanced versions of existing vehicle models. As technologies change in the future for automobiles in general and performance electric vehicles specifically, we will be expected to upgrade or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology and meet customer expectations.”

Yes, this comes from the recitation of risk factors that’s boilerplate in company filings, but it also happens to be true. Keeping pace with shifting consumer tastes isn’t easy, or cheap. Ford Motor Co.and General Motors Co. were both, at one time, companies with killer products and breakthrough business models (mass production in Ford’s case; the concept of using multiple brands to market cars as high-fashion status symbols in GM’s.) Now their CEO’s can only envy the value investors are putting on Tesla, which has had just one quarterly profit. (GM shares today just rose over the $33 a share level of its 2010 initial public offering for the first time in two years.)

Tesla will use some of its new cash cushion to expand sales beyond North America. Mr. Musk, according to the same transcript provided by CapitalIQ, said Tesla could see “probably at least 10,000 units a year from demand in Europe and then at least 5,000 in Asia. But I mean, that could be, obviously, a much bigger number. China is kind of a wildcard here.” Shipping cars overseas, however, ties up cash, company executives said.

Growth also means more employees. Tesla says an SEC filing that its overhead costs during the first quarter rose by $16.4 million, or 53%, to $47 million, in part because of higher sales and marketing headcount “to support sales activities worldwide and higher general and administrative headcount to support the expansion of the business.”

Tesla is also spending money to expand its network of service shops, retail stores and “Supercharger” rapid-recharging stations. Expenses for the expanded consumer sales and service network are one reason why Tesla plans $200 million capital spending for 2013, even as it winds down spending to bring its Fremont, Calif. assembly plant up to a 20,000 vehicle-per-year production rate.

Other car companies let independent, franchised dealers shoulder most of the spending for showrooms and repair shops. But Mr. Musk wants to set up Tesla’s retail network his way, and sell directly to customers. That will cost him — and not just for the facilities. Tesla will need to hire lawyers to counter moves by franchised car dealers in several states to block Tesla’s factory-owned stores, which they see as a threat to their businesses.