With its Model 3 sedan in what Elon Musk called “production hell”, its share and bond values down significantly, its credit rating downgraded last week by Moody’s Investors Service, its vaunted Autopilot under federal investigation after a fiery highway crash last week, and 123,000 of its early Model S vehicles under voluntary recall, news reports are suggesting that high-flying Tesla Inc. may be about to come crashing back to Earth.
“For years, Tesla has ridden a wave of enthusiastic support from its customers and a certain set of investors, even though it generated barely any profit in the 15 years since its founding,” the New York Times reports. So “Tesla’s reversal of fortune is a jolt for both the company and its chief executive, who had built a reputation not only as a visionary but also as an achiever, masterminding an automotive brand, breaking ground on a battery plant that would be the world’s biggest building, and launching rockets through his SpaceX venture.”
Now, some analysts “are asking whether the company could run out of money by the end of the year,” the Times notes.
“I’ve said for some time that Tesla is far from a sure bet, or a stable company for that matter,” said Investing.com senior analyst Clément Thibault. “Tesla has been living on borrowed time and money for quite some time.”
“There is a huge part of Tesla that is simply presentation and not substance, and Elon is a master at messaging,” added Kelley Blue Book senior analyst Karl Brauer. “The problem is the reality is starting to stack up, and that’s a reality of accidents the cars have had, quality issues, and massive misses on Model 3 production numbers. You add all that up and there’s a real question about whether this company can deliver what it promises.”
Tesla “has achieved some breakthroughs that have left the established automakers scrambling to catch up,” the Times acknowledges. “It has proved that there is a viable market for electric cars, and that they can command premium prices. It has pioneered methods of upgrading cars through software updates beamed over the air, the way iPhones can download new operating systems.”
However, “the company has repeatedly failed to meet its own targets and deadlines, especially with the Model 3,” a line that is “crucial” to Tesla’s future. “The company needs to ramp up its Model 3 business to generate revenue so that it can pay back investors and fund development of future vehicles, including its electric truck.”
To meet that challenge and “prove a bunch of haters wrong”, as engineering chief Doug Field wrote in an email obtained by Bloomberg, Tesla announced a two-day production push Friday and Saturday in which workers were pulled off the Model X and S production lines to work on the Model 3.
“Let’s make them regret ever betting against us,” Field wrote. “The world is watching us very closely to understand one thing: How many Model 3s can Tesla build in a week?” he added, in an email exhorting production teams to work toward an “incredible victory”.
But so far, according to Greentech Media, Tesla is still scrambling to reach output of 300 Model 3s per week, after the company twice delayed its target of 5,000 per week. “In its announcement on downgrading the company’s credit, Moody’s noted that Tesla produced 2,425 Model 3s in Q4 2017,” Greentech reports. “Moody’s also warned of a further downgrade if Tesla falls short of its updated production goals.”
In one more strike against Tesla, a Delaware judge ruled last week that a group of shareholders can proceed with a class action suit against the company’s 2016 acquisition of SolarCity, a company co-founded by Musk’s cousin Lyndon Rive.
“Tesla bought solar panel installer SolarCity for $2.6 billion in an all-stock deal in 2016,” according to a Reuters report cited by CleanTechnica. “Musk was then biggest shareholder in both Tesla and SolarCity, and his SolarCity shares were converted to $500 million of Tesla shares. It is ‘conceivable that Musk, as a controlling stockholder, controlled the Tesla board’ during the SolarCity deal, the judge said.”
“The idea behind the lawsuit is reportedly that the firm’s leadership breached their responsibilities to shareholders by pursuing the acquisition,” writes CleanTechnica’s James Ayre. “Tesla execs have of course come out in response and argued that the acquisition provides the firm with product and sales synergies that wouldn’t exist otherwise.”
Late last year, TechCrunch columnist Jon Evans suggested Tesla could still be a winner in the bigger picture, even if it eventually goes out of business.
“We tend to assume that a company’s purpose is to make money for its shareholders, or at least ‘not go bankrupt,’ because money is how we measure success,” Evans wrote. “This is in fact true of most companies. But it is not true of Tesla.”
Even if the company fails to roll its various innovative products into a conventional, profit-making enterprise, “Musk will have used the capital markets to essentially subsidize Tesla with free money. (And, interestingly, open-source the resulting patents.)” In which case, “more power to him for managing to fund a loss-making investment in what is not so much a car company as it is infrastructure for our shared future.”