The real motivation for Elon Musk’s desire to travel to Mars might be found in the financial numbers of Tesla Motors (NASDAQ: TSLA).

The latest earnings report; that for first quarter 2016, reveals a very sick company which could be close to collapse. The major fact we can learn from those financial numbers is that Tesla is burning through cash at a staggering rate.

The highlight of Tesla’s financials numbers is the money it is losing. The company reported a negative net income of -$1.02 billion (-€910 million) on March 31, 2016. Instead of a net income, Tesla is facing massive losses that are growing; on March 31, 2016 Tesla reported a net income of -$398.42 million (-€354.67 million).

The negative net income gave Tesla a negative free cash flow of -$466.46 million (-€415.24 million) on March 31. The company also reported losing $642.31 million (€571.78 million) from its cash from operations in the first quarter. Those losses are growing too; Tesla reported a cash from operations number of -$247.85 million (-€220.63 million) in March 2015.

Can Tesla Ever Make Money

The earnings report raises an obvious question that investors should be asking: can Tesla ever make money? Judging by the earnings report, the answer seems to be no.

Although media reports indicate the company has some interesting sources of income. Tesla had received 325,000 preorders for the Model 3 as of April 7, 2016, Computerworld reported. Each of the preorders came with a $1,000 (€890.19) deposit; which generated Tesla $325 million (€289.31 million) in additional cash. That cash will not translate into float with the company’s other losses.

Those preorders point to a large potential market for Tesla’s vehicles and a possible revenue source that could save the company. The only way Tesla could ever make money is to put large numbers of vehicles into production and sell them. Therefore, Tesla’s future depends on the Model 3; which would sell for around $35,000 (€31,156.81).

How Tesla Could Make Money

The only way Tesla might be able to make money is if it brings the Model 3 to production; and finds several hundred thousand buyers for the vehicle. Tesla estimates that it could make $14 billion (€12.46 billion) in revenue if every one of those preorders would turn into a sale. Since Telsa’s revenue for first quarter 2016 was $4.253 billion (€3.79 billion); that would potentially give Tesla around $18 billion (€16.02 billion) in revenue.

The exact source of the additional revenue is fairly obvious: auto financing. Most new vehicles in the United States are purchased through finance or leasing, which can give automakers a great deal of float. The float comes from the monthly payments car buyers make to keep their wheels from getting repossessed.

Auto financing can generate a lot of cash; the largest US carmaker General Motors (NYSE: GM) reported making $17.81 billion (€15.85 billion) in cash from financing on March 31, 2016. The number two US auto company; Ford (NYSE: F) reported earning $14.07 billion (€12.53 billion) in cash from financing on the same day.

Tesla itself is generating $2.053 billion (€1.83 billion) in cash from financing on March 31, 2016. That number increased by $1.54 billion (€1.37 billion) between 2015 and 2016. On March 31, 2015; Tesla generated $512.73 million (€456.43 million) in its cash from financing. Auto finance does not automatically translate into cash, another US automaker; Fiat-Chrysler Automobiles (NYSE: FCAU) reported losing -$2.81 billion (-€2.5 billion) from financing on March 31.

Tesla’s website does not say what will happen if that business plan fails. Nor does it account for the possibility of competition.

Tesla Cannot Compete

Even public acceptance of electric cars might not help Tesla make money, because other far-better financed companies are moving into the market. Ford; which reported having $67.71 billion (€60.28 billion) in cash and short-term investments on March 31, is planning to invest $4.5 billion (€4.01 billion) in electric car development.

Volkswagen (OTC: VLKAY) is to planning to spend $11.4 billion (€11.4 billion) to develop its own battery factory to compete with Tesla’s $5 billion (€4.45 billion) gigafactory in Northern Nevada. The Telegraph reported that Volkswagen plans to market one million electric vehicles by 2015. Volkswagen reported having $50.2 billion (€44.69 billion) in cash and short-term investments on December 31, 2015.

To match that Tesla reported $1.442 billion (€1.28 billion) in cash and short-term investments on March 31, 2016. Companies like Ford and Volkswagen can easily afford to spend billion dollars on electric car development and lose it all. One has to wonder how Tesla could compete with that.

Why Musk might have to move to Mars

Musk might need to flee to Mars to escape irate shareholders; some of whom have paid as much as $280.2 (€249.43) a share for the stock. That was the high Tesla reached in July 2015. Tesla was trading at $218.92 (€194.88) a share on June 15, 2016, or over 20 times the price of Ford which was trading at $13.14 (€11.7) a share on the same day. Ford reported revenues of $153.38 billion (€137.07 billion) on March 31, 2016.

Tesla’s share price was also 10 times that of General Motors; GM was trading for $29.18 (€25.98) a share on the morning of June 15, 2016. General Motors reported revenues of $153.91 billion (€137.01 billion) on March 31.

Musk has effectively bet the future of his company on public acceptance of electric cars; and a naïve hope that he will have no competition. He has created an overpriced stock; hordes of investors with unrealistic expectations, and an all or nothing business plan. If Tesla’s business plan fails, Mars might not be far enough for Musk to run.


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