Can un­pre­dictable Tesla CEO hold it to­gether to see off chal­lengers?

The East African - - OUT­LOOK -

By NEAL E. BOUDETTE

FOR THE past year, Elon Musk has waged a bit­ter war of words with short-sell­ers, the in­vestors who are bet­ting bil­lions of dol­lars that Tesla will fail.

On Twit­ter and in in­ter­views, he has called them haters and jerks who know lit­tle about elec­tric cars. He has ac­cused them of spread­ing false in­for­ma­tion and am­pli­fy­ing neg­a­tive news about Tesla in the hope of drag­ging down its stock price. Their goal, in Musk’s view, is noth­ing less than Tesla’s de­struc­tion.

Ge­orge Noble does not fit that de­scrip­tion. Man­ager of his own hedge fund, Noble Cap­i­tal Ad­vi­sors, he rarely com­ments on Tesla in pub­lic or on Twit­ter, and he comes with an im­pres­sive pedi­gree.

He has been fol­low­ing and investing in car com­pa­nies for nearly 40 years, hav­ing started his ca­reer as an auto an­a­lyst and then a ris­ing fund man­ager at Fi­delity in the 1980s.

There is no doubt Tesla and Musk, the com­pany’s high-profile chief ex­ec­u­tive, have plenty of de­trac­tors, es­pe­cially on Twit­ter, where some crit­ics trum­pet vit­riol and un­sub­stan­ti­ated in­for­ma­tion about the com­pany and its busi­ness.

But many of those who be­lieve that Tesla is des­tined for a ma­jor re­struc­tur­ing — or even col­lapse — are but­toned-up in­vestors. They base their view not on an­tipa­thy for Tesla or Musk, but on fi­nan­cial cal­cu­la­tions, in­clud­ing its heavy debt load and vo­ra­cious cash burn.

“This is not only about Musk,” said Mark B. Spiegel, a man­ag­ing part­ner at Stan­phyl Cap­i­tal, which has a large po­si­tion short­ing Tesla.

Here are some of the rea­sons scep­tics of­fer for their po­si­tion:

The stock is over­val­ued

Un­like Noble, Mr Spiegel reg­u­larly tweets about Tesla and makes no se­cret of his scep­ti­cism about the firm and Musk. He ac­knowl­edges that his fund was “mas­sa­cred” by the surge in Tesla’s stock price in the sec­ond quar­ter, but be­lieves his short po­si­tion will pay off in the end.

The main rea­son Tesla is the most shorted stock on Wall Street is its mar­ket val­u­a­tion of $50 bil­lion.

Un­til re­cent de­clines in its stock, Tesla was worth more than Gen­eral Mo­tors. But in 2017, GM sold 9.6 mil­lion cars and trucks and made $12.8 bil­lion in pre­tax profit. Tesla sold just over 100,000 cars in 2017, and lost $2.2 bil­lion.

Tesla is burning through cash

The ar­gu­ment against Tesla al­most al­ways cites its shaky fi­nances, of­ten ob­scured by the hype over its cars and by Mr Musk’s own tweets and am­bi­tious ideas, such as an elec­tric semitruck and his hope to trans­port peo­ple through net­works of un­der­ground tun­nels.

With cars priced at $70,000 and up, a com­pany sell­ing more than 100,000 a year would nor­mally rake in hefty prof­its. But Tesla still spends more money than it takes in: nearly $1 bil­lion ev­ery three months.

Tesla had $2.2 bil­lion in cash at the end of June but needs more. About half the cash is re­stricted, be­cause it comes from cus­tomer de­posits that it may have to re­fund if cus­tomers de­cide not to buy.

The bal­ance sheet shows Tesla also owes its sup­pli­ers and other con­trac­tors $3 bil­lion. It has a con­vert­ible bond pay­ment of $230 mil­lion due in Novem­ber and an­other of $920 mil­lion due in March.

Mr Musk has vowed that a sharp in­crease in sales of the Model 3 sedan in the cur­rent quar­ter will drive up rev­enues enough to make Tesla prof­itable and pro­vide the funds it needs, but short-sell­ers are skep­ti­cal.

Gabe Hoff­man, a part­ner at Ac­cip­iter Cap­i­tal, says that be­cause of its short­age of cash and all its li­a­bil­i­ties, “Tesla looks worse than Gen­eral Mo­tors one quar­ter be­fore it filed for bank­ruptcy.”

Musk does not in­spire con­fi­dence

Marc Co­hodes, a former fund man­ager now on his own, de­cided to short the stock in Au­gust, prompted by an in­ter­view with

in which Mr Musk was de­scribed as al­ter­nat­ing be­tween laugh­ter and tears while de­scrib­ing an “ex­cru­ci­at­ing” year that had taken a toll on his phys­i­cal and emotional well­be­ing.

Two weeks af­ter the in­ter­view took place, Musk smoked mar­i­juana dur­ing an in­ter­view shown on Youtube.

The chief of any com­pany needs to be dis­ci­plined and to “ex­e­cute at a high level,” Mr Co­hodes said. But the string of re­cent events has con­vinced him that Musk is “not men­tally fit” to deal with all of Tesla’s chal­lenges suc­cess­fully.

“I view Elon as a tragic fig­ure,” Mr Co­hodes added.

There are ques­tions re­gard­ing de­mand for Tesla’s cars

For Mr Noble, the big­gest doubt about Tesla is whether con­sumers are ac­tu­ally clam­our­ing to buy its cars. The com­pany has re­ported that more than 400,000 peo­ple have paid de­posits of $1,000 each to re­serve Model 3s.

“That suggests that ev­ery car they make has a pay­ing cus­tomer wait­ing for it,” Noble said. “That is the heart of Tesla’s story. That is why peo­ple buy the stock, be­cause it looks like they have un­lim­ited de­mand.”

But some re­cent ac­tions by Tesla sug­gest that may not be the case. The weekend af­ter Labour Day, it held a “sales event” at its plant in Fre­mont, Cal­i­for­nia, al­low­ing de­posit hold­ers to stroll among sev­eral hun­dred cars and pick one to buy.

Hun­dreds more have been parked for weeks at lots in Bur­bank and Lathrop, Cal­i­for­nia.

“That’s in­ven­tory. Ev­ery­thing they pro­duce is sup­posed to be de­liv­ered or in tran­sit on the way to the cus­tomer. If there is noth­ing wrong with de­mand, why are there all these cars in Bur­bank? Some­thing does not add up,” Hoff­man said.

Pic­ture: File

Tesla ve­hi­cles stand at a Brook­lyn show­room and ser­vice cen­ter in New York. The elec­tric au­tomaker’s stock dropped af­ter its chief ex­ec­u­tive Elon Musk re­versed his plans to make the com­pany pri­vate.

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