The tragicomedy of Tesla’s finances
Investors are abandoning EV company as errors, misjudgments and empty promises pile up
“Humour,” said Leo Rosten, an American humorist, political scientist and screenwriter who wrote Captain Newman, M.D., “is the affectionate communication of insight.”
More scientifically, according to Peter Marteinson, University of Toronto PhD and author of Thoughts on the Current State of Humour Theory, “Comic stimulus consists of nothing other than the perception of a human subject as he fails to grasp the normative cultural reality of his present social situation.” That would seem nothing more than a long-winded, pedantic and boring way of noting that which everyone already knows, namely that the very best punchlines combine comedy with biting reality.
For instance, we can probably all agree with Will Rogers’ assertion that he didn’t really need to tell jokes (besides being Hollywood’s biggest star in the 1920s and ’30s, he was also America’s leading political satirist).
“I just have to watch the government and report the facts,” he said.
Closer to home, there would have been absolutely no drama to Elon Musk’s April 1 tweet that, “Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt,” if Tesla were not truly deep in the doo-doo.
The biting reality that made his stock dip some 4.5 per cent the morning after his lame attempt at humour is that, according to marketwatch.com, March was Tesla’s worst month in seven years, its stock plummeting dramatically. And even though the stock has recovered, Tesla’s market cap is still some 23 per cent lower than it was last September. Poorly penned puns notwithstanding, the stock market, once Musk’s salvation, would no longer seem a friendly place for Tesla.
The headlines feeding this rout have not been pretty. Reports of 123,000 Model Ss being recalled never make investors happy. Ditto the revelations that Tesla’s (semi) self-driving Autopilot system was involved in another fatal accident.
Despite the sensation of these headlines, Tesla’s bigger problem has been its inability to ramp up production of its long-promised Model 3. At one point, Musk was promising that Tesla would produce 20,000 Model 3s per month by December 2017; the company barely produced 2,500 for the whole year. Indeed, according to Bloomberg’s online tracker, Tesla has yet to build 2,500 Model 3s in any single week and has delivered fewer than 16,000 so far, which means the 500,000 cars Musk initially promised he would sell in 2018 is a pipe dream.
As Bloomberg concludes, “if Tesla can’t figure out how to make more cars soon, it could open a lane for rivals to establish the high-volume market for a US$35,000 electric car.” Already the blogosphere is alight with angry Tesla intenders abandoning ship for more readily available rivals.
What’s particularly worrisome to professional investors — but little mentioned by the mainstream media — is Musk’s reaction to these crises. Rather than sticking to the traditionally proscribed mea culpa with respect to Walter Huang’s fatal collision last month with a California highway median, the company seemed to blame the driver for the accident. This so angered the National Transportation Safety Board (NTSB) that, according to TheVerge.com, Tesla “has been booted from the investigation.”
More troubling, however, is Musk’s reaction to the Model 3 production crisis. In a page right out of the Donald “I’m-my-own-best-adviser” Trump handbook for executive management, it seems Musk’s solution to the issues at hand is to sack or demote his managers and take on all the duties himself. So not only is Musk reportedly now in charge of sales — the previous manager, Jon McNeill, left for Lyft in February — but according to CNBC he has pushed aside senior vice-president Doug Field, formerly in charge of Model 3 production, and has now taken direct control of manufacturing.
Corporate history is littered with the remains of CEOs unable to delegate, but more than most, Musk’s attentions would truly seem to be needed elsewhere. Besides said pummelling of stock price, the Model 3 holdup is burning through an enormous amount of cash. Until now, financiers have been willing to fuel Tesla’s incredible cash burn — at my last count about US$11 billion — on the promise of rampant Model 3 profits.
But investor sentiment seems to have turned a dramatic corner. According to Yahoo Finance, fully 30 per cent of Tesla’s available shares have been borrowed by short-sellers, which, according to CNBC, makes TSLA “the biggest short in the U.S. stock market.”
Basic budget analysis would seem to be the impetus behind this pervasive doom and gloom. According to theinformation.com, Tesla “had $3.67 billion in cash in the bank at the end of 2017 and owes $10 billion in long-term and convertible debt, with $1.4 billion coming due at the end of 2018.” And according to one former Tesla manager quoted by the author, Amir Efrati, “If you didn’t know anything else about the company” aside from its recent financials, “you’d be, like, ‘This company will go out of business.’ ”
Tesla proponents have heard all this before, their defence is to compare Tesla to other Silicon Valley favourites such as Amazon, Google and Netflix that have weathered similar, if not quite as debilitating, financial storms, rather than traditional car companies. But this time it feels different.
Car companies, once fearful of Tesla battery nous, are now, if not openly dismissive of its technological advantage, then at least far less afraid of direct competition. Analysts, even those once bullish on Tesla’s future, now openly joke about whether Tesla “will be around” for the next step in the auto industry’s electric revolution.
Considering it is still valued at an incredible US$50 billion, that’s no laughing matter.