Chief Executive Elon Musk reiterated on Wednesday—after announcing a better-than-expected second-quarter loss—that the 14-year-old auto maker faces challenges in learning to manufacture the new Model 3 sedan at much higher volumes than previous vehicles.

“When I said manufacturing hell…I meant it,“ Mr. Musk told analysts on a conference call. ”But we know this—signed up for it, not blaming hell because we bought the ticket.”

Tesla is no stranger to capital crunches as it rolled out ambitious timelines for the production of its vehicles and spent heavily on research and development, equipment and factories in California and Nevada. The company has typically raised equity or issued debt offerings to replenish its stockpile, and Mr. Musk on Wednesday suggested he is thinking about tapping the debt market.

The company finished the latest quarter with $3 billion in cash and plans to spend $2 billion in the second half to make way for the Model 3. While Tesla said its cash and increased revenue during the second half should cover all of its spending projects, analysts raised doubts about that cash cushion. Tesla in the past has suggested the company should always have a minimum of $1 billion on hand at the end of each quarter.

Cash BurnTesla’s free cash flow shows a company investing a lot as it evolves into a mass-market manufacturer.

During Wednesday’s call, Ryan Brinkman, an analyst for J.P. Morgan , asked if Tesla expected to generate enough cash to meet such a goal at year’s end. Mr. Musk replied that Tesla has negotiated better payment terms with suppliers and aims to build the Model 3 faster than previous models so the company can sell the vehicles before having to pay the bills for parts. But he noted that having “a cash cushion” for unexpected events is wise.

“We are thinking about debt, but we’re not thinking about an equity raise,” Mr. Musk told analysts.

Deepak Ahuja, Tesla’s financial chief, said the company hasn’t yet tapped $800 million of its credit lines and that it could draw $700 million in tax equity funds and debt from its newly acquired solar business. Tesla finished the first quarter with outstanding debt of $9.67 billion, including long-term notes and capital leases, according to S&P Global Market Intelligence. It raised more than $1 billion through debt and stock earlier this year.

Analysts afterward flagged the prospect of a cash shortage as Tesla boosts capital spending the second half. It “begs the question of whether another capital raise is on the horizon,”  Brian Johnson, an analyst for Barclays , wrote in a note to investors. The additional capital spending “will make your eyes water,” Adam Jonas, an analyst for Morgan Stanley , told investors. “Time will tell if they are tears of joy.”

“Another debt offering this year wouldn’t be a shock and neither would a capital raise next year,” David Whiston, an analyst for Morningstar Research, said.

Full story