Tesla Motors, for those not following Elon Musk’s Twitter feed or any of the breathless coverage in the tech press, has had a good couple of weeks.
The electric-car maker ended the first quarter of 2016 with the introduction of the all-new Model 3 sedan. You know, the long-awaited “affordable” Tesla whose volume is essential to the long-term health of the brand.
Demand for the Model 3 -- pegged to start at $35,000 -- has outstripped nearly everyone’s expectations, including Tesla’s. In the first eight days since the company opened the reservation process, more than 325,000 people globally have put down a fully refundable $1,000 deposit to get in line for the 3. Tesla’s stock price is also up 8.8 percent since the debut.
So what happens to all that deposit money now?
First of all, it’s important to point out that Tesla has not presold $14 billion worth of Model 3s, despite a tweet from Musk saying as much. That figure assumes every one of the 325,000 people who put down a deposit actually follows through and buys a Model 3 at Tesla’s expected average price of just over $43,000.
Remember, these are fully refundable deposits. They’re not even orders because Tesla doesn’t have anything to order yet. The 325,000 deposits are hand-raisers with some cash rather than people saying, “I want one in blue with all-wheel drive and AutoPilot, here’s $47,000.” Pricing and powertrain details are a long way away.
The real number of Model 3 buyers could be far lower, and it’s one we won’t know for several years. While Musk insists the first Model 3 deliveries will start at the end of 2017, most analysts don’t expect meaningful volume until 2018, possibly 2019. A lot could happen to those hand-raisers’ wallets, the rest of the EV industry or Tesla and the even Model 3 that could prompt people to ask for their money back.
But for now, the headline-grabbing 325,000 deposits means Tesla has a tidy $325 million in extra cash that it didn’t have beforehand. That’s a healthy amount of money for any automaker, but especially one like Tesla that has yet to reach a sustainable business model.
Tesla says it isn’t counting those $1,000 deposits as revenue until that customer takes delivery of a car. Until that happens, each of the deposits is added to Tesla’s cash holdings, where they’re labeled as liabilities on the balance sheet.
Tesla is free to spend that money as it sees fit, including on Model 3 development (something it’s done with previous deposits on the Model S and Model X). But all the while, every deposit sits on Tesla’s books as debt until it delivers that customer’s particular car.
Fortunately, this isn’t the only cash Tesla has lying around; the company ended 2015 with $1.2 billion in cash on hand.
So if for some odd reason someone like BMW comes out with a $25,000 EV tomorrow that has 972 miles of range and styling that makes Ian Callum weak in the knees, Musk’s Tesla will live on to tweet another day.