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Tesla Motors, which has teetered on the brink of collapse before, has landed a fat federal loan and hopes to score $100 million from an IPO, but the financial picture will get worse before it gets better.
We already knew the Silicon Valley automaker lost $31.5 million in the first nine months of 2009. Although the company has been steadily cutting its losses, it has lost $236.4 million since its founding in 2003. Tesla turned its first and only profit in July, 2009 but concedes in the Form S-1 filed with the Securities and Exchange Commission: "We expect the rate at which we will incur losses to increase significantly in future periods from current levels."
That is to be expected. Tesla is developing the Model S sedan, a process it admits will require every cent of the $465 million loan it received from the Department of Energy and almost certainly a good chunk of the $100 million it hopes to raise from an initial public offering. You'd expect fiscal performance to deteriorate as a company pumps money into developing a new product. But the situation will be exacerbated when Tesla stops building the Roadster next year. Lotus, which builds most of the car, is retooling its factory. Tesla won't have a replacement for the Roadster until one year after the Model S is scheduled to begin production in 2012.
That will leave Tesla with no cars, and no revenue, for at least a year — or more, if the Model S is delayed. As foreboding as that may sound to potential investors, David Milstead of the Globe and Mail found something even more troubling in the paperwork Tesla filed with the SEC.
According to the filing, the company has taken a full valuation allowance against its deferred tax assets, "essentially writing them down to zero," Milstead writes. Tesla had about $183 million in federal and $161 million in California tax operating loss carry-forwards available at the end of 2008 to offset future profits on its income taxes. Using them requires Tesla to post a profit. By taking the full valuation allowance, it is "more likely than not," Tesla said in the filing, that it won't be able to use the state deductions before they begin to expire in 2019 or the federal deductions before they begin to expire in 2024, Milstead writes.
What does that mean in English?
"The fact that the company is taking a full valuation allowance against its deferred tax assets indicates that the company has little confidence in its ability to generate taxable income in the foreseeable future and, thus, it has little confidence in its ability to 'realize' its deferred tax assets," Robert Willens, a corporate tax analyst at Robert Willens LLC, told Milstead. "It seems to me you can only draw one conclusion from a full valuation allowance: that the company's near- and medium-term profit outlook is, to put it charitably, far from assured."
Photo of Tesla CEO Elon Musk: Jim Merithew / Wired.com
