The 10-K itself contained several interesting details. There was a reference to a citation from the Securities and Exchange Commission for information on unspecified contracts and financing agreements. Regional data for 2019 showed that sales in the largest market in Tesla, United States, fell 15%. Meanwhile, the full cash flow statement confirmed that $ 204 million of the fourth quarter cash from the operations was largely a mixture of foreign exchange gains and depreciation and amortization effects. As I wrote here, along with a positive change in working capital and sales of regulatory credits, those “other” elements contributed more than half of Tesla’s free cash flow in the quarter.
Let’s keep the free cash flow. Another element in 10-K was the Tesla capital expenditure guide. This is notable because the administration was unusually reluctant about that element when it announced the end of the year results about two weeks ago, and told investors and analysts to wait for the presentation. It is also notable because the new guide implies a jump of between 88% and 164% this year, and perhaps staying there until 2022.
One of Tesla’s strange things is that its valuation and its ambitious narrative are pure matter of growth stock, but its capital expenditure in 2019 was more similar to that of an old car business. With 62%, its share of capital expenditure and depreciation was not much different from the 54% reported by General Motors Co. Now it seems that Tesla will compensate for that and more. Plotting the new directions versus consensus forecasts shows how much stood out last year in this regard.
The final capital expenditure bill for 2019 was $ 1.3 billion. That is approximately $ 1.2 billion less than the original guide given a year ago. Meanwhile, Tesla’s free cash flow in 2019 was $ 1.1 billion.
Which brings us back to the surprise capital increase. It is a surprise because, approximately two weeks ago, Musk answered a question on this same topic by saying “it makes no sense to raise money because we hope to generate cash despite this level of growth.” It is also a surprise because Tesla had $ 6.3 billion in cash and cash equivalents at the end of December. In addition, the company expects “a positive quarterly free cash flow in the future, with possible temporary exceptions.” Certainly, current consensus forecasts for free cash flow imply that Tesla could absorb the jump in capital expenditure without resorting to new financing.
However, it shouldn’t be so surprising. Tesla shares have become parabolic. Only six months ago, a capital increase of $ 2.3 billion would have diluted shareholders by almost 6%; At today’s price, it is only 1.6%. Investors may also be begging the company to sell more shares (Musk’s compensation package also encourages it).
In that sense, Tesla is doing the sensible thing by giving punters what they want and propping up their balance. And yet, along with the stagnant growth in income, losses and the boomerang of the capital expenditure budget, doing the sensible thing also undermines the price increase narrative that Tesla has surpassed self-financing. Even if companies can sell shares at a low price, they tend not to do so unless they think they need the money.
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Liam Denning is Bloomberg’s opinion columnist on energy, mining and commodities. He was previously editor of the Heard on the Street column of the Wall Street Journal and wrote for the Lex column of the Financial Times. He was also an investment banker.