Tesla Inc. is looking for ways to save money in its solar energy business and this was just a few months before the electric vehicle maker planned to make solar panels and cells at their Buffalo gigafactory.
Tesla already has its hands full, after all, with its battery gigafactory’s opening in Nevada and the production of its more affordable sedan (Model 3), which is a $35000 electric vehicle whose failure or success will definitely have a huge impact on the future of Tesla.
Both the ventures, in their entirety, would take billions of dollars to be pulled off and the last thing that Tesla needs is another bank account drain and SolarCity is going to be just that.
Tesla’s CFO, Jason Wheeler said during a conference call on Wednesday that they are now prioritizing the cash preservation for that particular business.
There is still a plan to begin production this summer at its Buffalo factory, but the company is now pulling back on the spending on SolarCity. Tesla is cutting down SolarCity’s high costs on signing up new customers. It is now planning to cut advertising and sell products of SolarCity in their stores.
The earnings report that was highly anticipated showed that there are bigger challenges than SolarCity on Tesla’s plate. The acquisition of this money losing solar energy business was clearly a bailout for one of CEO Elon Musk’s cousins.
Although SolarCity is on its way to its own massive project as they prepare for the opening of the biggest factory of solar panels in the Western Hemisphere in South Buffalo this summer, the amount of funding required for that is going to pale as compared to billions Tesla needs for Model 3 and gigafactory.
Currently, Tesla has $3.4 billion cash on its books after the spending of about half of their expected $1 billion dollar spending in the fourth quarter to begin Model 3 production. But the balance of cash will likely drop very quickly as Tesla expects a spending of $2.5 billion this year for Model 3 and an untold amount of millions on the battery cell, energy storage, and pack production at its Nevada gigafactory.
Now Tesla is going to be put into a position where it has to decide how low it wants to draw its cash balance down before it would have to raise additional money from its investors. According to some analysts, the company will need to raise 1 to 2 billion dollars as the launch of Model 3, their first mass market vehicle, comes close.
Tesla’s share could be a powerful way in bringing in new capital with their stock going up since December by more than 40 percent. Some analysts even believe that Tesla could raise about $2.5 billion by selling more shares.