The Tesla founder is notorious for erratic driving, whether it’s changing forecasts for vehicle production, tweeting then retreating about going private, or veering from showroom to web-focused selling. But Musk has stayed perfectly on course in pursuing a golden prize: raising cost-free funding. Musk is getting a huge portion of the cash that Tesla uses to produce cars and batteries not from lenders and shareholders, but from its own fanatically loyal customers in everything from wait-in-line deposits to pre-paid warranties to advances for self-driving software.

Those billions are a stealth advantage for Tesla. The overriding question is whether Musk will be able to keep deploying OPM (other people’s money) at anything like the current rate in the years to come, and if not, whether the necessity of actually “paying” for many billions in new capital will sink any chance for future profitability.

WHERE TESLA STANDS NOW

One of the best measures of Tesla’s true profitability is EVA, or economic value added. The yardstick applies a “capital charge” for the equity that shareholders have invested in the business, a fee equivalent to what they’d gain from equally risky stocks or bonds. Tesla is much criticized for piling on capital to ramp up production, in part to compensate for an creaky network of plants and suppliers. EVA––the methodology is now owned by governance advisory firm ISS––sets a simple benchmark for success: To reward shareholders, Tesla must generate profits over and above the minimum capital charge that sets the dividing line between creating and destroying shareholder value.

In 2018, Tesla posted after-tax operating profits, using the EVA formula, of $225 million. But after assessing a capital charge, its economic earnings for shareholders, its EVA, dropped to a negative $988 million, or -4.7% of sales. Among the world’s 11 largest carmakers, Tesla placed a poor 9th in EVA margin. It’s a tough business: The only manufacturer that delivered positive EVA was Subaru of Japan.

WHAT TESLA MUST DO TO REWARD SHAREHOLDERS

The EVA system forecasts sales, margins and other key numbers for future years, based on analysts’ consensus projections. Let’s look at what Wall Street expects Tesla to achieve by year-end 2021, then layer on the crucial, mostly overlooked element: How much capital it will have to effectively pay for versus the hoard it will keep getting for “free.” The investment community is expecting heroic gains over the next three years. For 2021, the consensus calls for sales to jump 90% to $40.8 billion.

If Tesla hits that mark, it’s likely that costs per vehicle will drop substantially. For carmakers, raising profits is all about driving ever larger volumes through a high fixed cost asset base. Last year, Tesla’s cost-of-goods ballooned from 66% to 72% of sales as it cast caution to the speedway shoulder in a frantic campaign to swell production of the Model 3. “Tesla’s cars accelerate smoothly, its business does not,” says Bennett Stewart, a senior advisor to ISS who pioneered the EVA concept.

Analysts predict that COGS will fall to 67% of revenues by 2021. If sales do reach $40 billion, and Tesla can work out the kinks in its unwieldy supply chain, it stands a decent chance getting there. Another plus: Tesla’s done a good job on overhead, lowering SG&A from 20% to 13% of revenues in the past year. Tesla also generates loads of excitement from free press coverage, so it gets away with spending a minuscule $50 million a year on advertising and promotion.

TESLA’S PROFITABILITY WILL DEPEND ON HOW MUCH FREE FUNDING IT MAINTAINS

Tesla’s EVA numbers would look much worse without a gigantic contribution from what’s called “trade funding.” Tesla is amassing the cash from customers and other sources in half-a-dozen categories, mainly for future services or purchases. Tesla has collected $2.4 billion in deposits from folks waiting in line for their made-to-order vehicles, a tribute to the hotness of the brand. Cash is also flowing in from upfront payments for such to-be-delivered services as software updates, Autopilot features, and access to the supercharger network. Tesla also collects warranty fees built into the price of the car today for repairs due in the future. Another fount: its guaranteed car repurchase program. Tesla estimates what the buybacks will cost in future years, and takes those amounts as an expense on its income statement. For now, it doesn’t have to lay out the cash, so it can channel the funds to buy robots or finance inventories.

All told, Tesla used $8 billion of OPM last year, amounting to around one-third of the entire $24.4 billion in working capital, plants, equipment and that capitalized research spending that EVA puts on the books, used to produce its cars. Had Tesla raised that extra $8 billion from shareholders and creditors, its EVA last year would have been 60% worse at a negative $1.6 billion, or -7.4% of sales.

“Tesla’s future profitability depends on how much OPM it keeps getting to use,” says Stewart. Looking forward to 2021, if Tesla manages to hold the share of total capital constant at around 30%, it would be assessed an EVA charge on only $22.6 billion of its forecast total capital of $32.3 billion. In that instance, Tesla would generate positive EVA of around $600 million, equivalent to 1.5% of sales.

TESLA’S PATH TO PROFITABILITY IS NARROW

Even reaching that modest number will be a stretch. It’s unlikely that Tesla will continue attracting that share of its total capital free of charge. Advances from customers, as well as other sources, are already falling, shrinking from $10 billion in 2015. Still, Tesla is now collecting much more in warrantee fees, service packages for future delivery, and pre-expensed warrantee costs than its putting out in cash. But each year, that gap will shrink as the carmaker lays of funds for repairs and repurchases of cars. If trade funding falls to 10% of total capital, that trend alone would reduce EVA to zero in 2021.

The second big risk is that Tesla fails to keep sales on the ultra-fast track, so that the economies needed to lower costs per vehicle don’t materialize. Consider that shareholders are shrugging off these unknowns by awarding Tesla a market cap of $50 billion. Few on Wall Street recognize that Musk’s skill at using OPM accounts for a big part of that valuation. It’s the supercharger that may not last.