Tesla has a 'massive cash problem': Investor

Financial Analyst and YouTuber Kevin Paffrath joins Market Domination to discuss Tesla’s (TSLA) stock valuation and what to expect from the company by the end of the year.

“My rule of thumb this year is patience for 2024,” Paffrath says, pointing to factors like the election and CEO Elon Musk’s posts on X that make Tesla a “tough” stock.

“I’d like to get past not only the election — because then I think we’re going to see politics cool a little bit from the Elon point of view — but we’ll also have gotten past the shareholder vote. We’ll have gotten past the robotaxi event. We'll see how much adoption we actually get for full self-driving, ” he explains.

Paffrath also says he’ll be closely watching how much cash Tesla will have by the end of the year: “I think there’s definitely a massive cash problem and that’s why I’m just saying patience this year.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video Transcript

You're talking about momentum, you're talking about when the, when the momentum turns against you and there's bleeding and it tends to continue looking at a chart of Tesla right now, Kevin.

Um you know, because when you talk about momentum stock, that's a momentum stock right there.

Not a me not usually called a meme stock, right?

But it has some memeish characteristics.

Um How you feeling about Tesla these days, boy Tassel has been a tough one.

I think the way I look at it is uh my rule of thumb this year is patience for 2024 hopefully, uh hope and bullishness for 2025.

The reason I say that is the we're right in the midst of an election year and that shouldn't have anything to do with Tesla.

But at the same time as you're in an election year, you've got Elon on X.

You know, he's got a very sort of one sided political point of view.

He doesn't hide that, that upsets a lot of folks who are usually your ev supporters and climate change supporters.

You know, Elon kind of remarks.

Oh, why would climate change activists attack Giga Berlin in, in Germany.

Well, because of his politics.

Right.

So I'd like to get past, not only the election because then I think we're going to see politics.

Cool.

A little bit from the Elon point of view, but we'll also have gotten past the shareholder vote.

We'll have gotten past the Robo Taxi event.

We'll see how much, uh, adoption we actually get for full self driving with the adoption rates are and most importantly, how much cash are they actually going to have at the end of the year.

I'm worried that they're going to have to do a pretty large fundraise and that's why they're cutting 14 to 15% of the staff firing the entire supercharger team.

It, it feels rash but I think it's because they have to running a little low on cash.

So hope for 2025.

But patience for 2024 is my take, Kevin.

That's really interesting.

The idea that Tesla needs to shore up the balance sheet.

How, what do you think is the most likely way they would do that?

Oh, they just issue shares.

I mean, not only do they need the share price to stay up so that Elon doesn't get margin called on his loan uh against well secured by Tesla shares over at X but uh they, they would just issue shares is, is my expectation.

And the reason for that is you look at the balance sheet, they've got payables uh of that.

Well, over $20 billion they've got maybe 3 to $4 billion of free cash available.

And what's remarkable is their free cash flow in the first quarter was negative $2.5 billion.

Then Elon suggested they would spend $10 billion this year on A I for their FSD.

And I'm thinking to myself, where's the money coming from?

It's certainly not coming from increasing deliveries.

So that's why we're seeing the cuts right now.

We're seeing the cuts on employees.

We're seeing the cuts on expanding the business.

Uh For example, two big things that I really enjoyed about Tesla years ago was the idea that we were going to build custom batteries, the 46 eighties.

Now, those are really just a hedge.

That's a word they use, they only use them for the Cyber truck, uh the dojo software infrastructure, they were building out the server infrastructure.

That's a quote long shot for Elon Musk.

These were things that were really, really great and full of hope a couple of years ago that are now hedges and long shots.

And I think again, it's because they have to, they don't have the money to keep throwing into these if they did.

Xa I Elon's A I play would have hired Tesla to do a server stack, build out.

Tesla could pay for that if they had the extra cash.

Uh And they would get the contract as opposed to oracle.

So I, I think there's definitely a massive cash problem and that's why I'm just saying patience this year.

But I do love the company.

I love the people.

I love the cars and full self driving is amazing.

So it pains me to say that obviously you spent a lot of time uh looking into and examining Tesla, interesting stuff, an interesting perspective.

Good to talk to you, Kevin.

Thanks.

Thanks for having me.