For the millions around the world investing online in equities, as well as professional institutional investors, Tesla has offered an enticing combination of qualities. Elon Musk is nothing if not a master of convincing investors to back his vision of business concepts that are presented as an intoxicating combination of potentially huge profits while changing the world for the better. The traditional automotive manufacturers are specialists in engine technology for the age of fossil fuels, that will soon be replaced by renewables. Tesla, so the promise is presented, will dominate the new electric and driverless car market that will soon become a reality.
Tesla’s revenues are relatively insignificant but a year ago the company had a market capitalisation larger than either General Motors or Ford. Both companies have been among the biggest car manufacturers in the world for a century and still sell millions of vehicles a year. Tesla’s model S battery-powered sedan was popular with environmentally responsible upper-end buyers and as well as being zero emission boasted an impressive Autopilot technology ahead of competitors. A new ‘model 3’ for the mass market would soon propel Tesla into a company with serious market share and the technology and innovation to turn that into dominance. Investors piled in with the charismatic Musk like a Pied Piper of Wall Street.
A year later and the model 3 has been held up by manufacturing line problems and technical issues. Other issues have beset the company recently. 126,000 Model S cars were recently recalled to replace bolts in the power steering system that had started to corrode and break.
The company is still haemorrhaging cash with little revenues and the stock market is not the rosy place it was a year ago. Tesla’s share price has plummeted and ratings agencies have downgraded the company, questioning how long it can burn through cash before investors will need more than just Musk’s promises and charisma to keep faith in the company. Tesla’s problems have accelerated with the tech stock sell off of recent weeks. The company’s value has fallen 25% in 3 weeks. The company’s bonds have also plunged as investors start to worry about what Tesla will look like, if it exists, by 2025 unless something changes.
Tesla have had some successes. The company has proven market demand for electric vehicles and has some smart tech that is superior to that of competitors. However, there is growing clarity that much of what the company has been built on is smart presentation and promises followed by trying to then deliver, not always successfully. Moody’s estimates the company needs to raise another $2 billion to finance current operations and near term debt obligations. With financial markets seemingly moving into a more cautious phase, Musk will need to be at his silver-tongued best if liquidity is not to very quickly become a serious issue for Tesla. The company could still deliver on its promise but the risk that it won’t is also rising with every missed deadline and target.Risk Warning:
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