Capex spend to likely ramp during Q2.

Q1 might not be as bad as expected.

Company hoping for run in stock price?

Most investors expect Tesla (NASDAQ:TSLA) to raise capital at some point this year. In fact, some are surprised that the company hasn’t already done so. With huge capex needs for the upcoming Model 3 launch, CEO Elon Musk has stated that a capital raise would probably be wise to de-risk the business a little. So when will one come?

I think timing and stock price were a key factor in the decision to not raise capital at or just after the Q4 report. First, there were a lot of investors that wanted to see the 10-K filing come out, especially given the acquisition of SolarCity. By the time that document came out on March 1st, Tesla shares had lost about $35 from their post-earnings highs. I doubt management would announce a capital raise right after such a large fall in shares.

Plus, there is a possibility that Q1 results may not be that bad overall. Tesla ended Q4 with over 6,000 vehicles in transit, its largest quarterly end ever, so it had a solid buffer of sales to start the period. Also, gross margins should rebound a bit in Q1 as the company starts to recognize autopilot 2.0 revenues that could not be accounted for in Q4 as the feature was not really out. The one potential caveat here is the number of vehicles that may not be delivered due to Tesla needing EPA approval for the newest model.

But let’s assume for a moment Tesla still loses around $200 million in the quarter, similar to Q4 2016. That quarter ended up with cash usage from operations of $448 million. I don’t think inventory needs will be as much in this period because the vehicles in transit number is likely to decrease, which could free up around $100 million in cash flow. Tesla is also scaling down SolarCity’s growth in the near-term ahead of the solar roof launch, likely reducing the amount of solar energy systems needed. In the worst case scenario, Tesla’s operations in Q1 would see a cash outflow of $600 million, and that’s a 34% jump from what was seen in Q4.