Is Tesla about to go bankrupt?

This Marketwatch link isn’t particularly special – there are many covering this story. It’s as good as the next one, I reckon.

Anyway, it seems like some big shot investors are beginning to have doubts that Tesla is the next Amazon and it caught me by surprise. I’m a very passive investor so I admittedly don’t always know what’s going on with individual stocks. But while grumbling about Tesla’s stock is nothing new, the volume and intensity of it sure seem to be.

I remember they had a really good year financially back 2013 and it seemed like they were going to clear profits. But they’ve been running in the red ever since. Despite larger nearly doubling revenue every year they keep sinking deeper and deeper, to the point where even bond holders are starting to get a little spooked (assuming I’m reading the news correctly).

Are there any economic brains here who’ve been following and tracking Tesla? And if so, thoughts about the company’s future? In particular, I’m curious to know how Tesla plans to be a “household” company beyond their cars and Solar City paneling. I don’t see their supposedly game-changing home batteries at Home Depot - am I missing something?

Well, I can’t say I’m any sort of economic brain, but Tesla has been in trouble for a while, and the delays and shortfalls in delivering their latest offering are certainly ringing alarm bells. I don’t know if they are about to go bankrupt, but they are certainly over extended right now, and a lot of the buying frenzy wrt their stock is more wishful thinking for folks who just know that the electric cars time has come than sound investment. Hell, their valuation was (perhaps still is for all I know) greater than traditional car manufacturers, despite the fact that they deliver an order of magnitude or two less actual cars to the marketplace.

Still, their battery technology is sound and they have leveraged it well, so I don’t know if the sky is falling just yet. I wouldn’t invest in them, though if I had the money I’d love to have one of their sports cars, so there is that.

No. They still have money for quite a while.

Please note that the guy who keeps screaming about this and raising the issue has a very large short position in his all of $25 million dollar fund that he manages, so he’s going to lose a LOT of money if the stock doesn’t tank.

this cannot have helped

I’m still hoping for them to start creating their own batteries so they can drop their prices down to something affordable for most people. Around the 20-30k range.

I’m no economist but I’ve felt that this is really where they ought to be doubling down on their efforts. Their automobiles just seem like toys for Bay Area 30-somethings with six figure salaries. OTOH, putting a super battery in people’s homes and possibly getting people off of a grid could be a revolution.

Yes, I’m afraid that sealed their fate. Too bad too.

Even worse, if the Huangs can produce solid evidence that he had taken his car to the dealership, then it contradicts Tesla, which says there were no service done to the vehicle. It’s not just a tragedy but a PR problem.

Nah, all Musk need do is announce a new Tesla motorcycle that looks like a Tron bike and people will be lining up to buy Tesla stock and to put a deposit on the bike years ahead of the release date.

I have two of their home batteries. After the projected credit the net cost to me is about $200 each. The current problem is keeping up with demand for them - we had to wait over a year.

Sadly, I have to agree with you.

When I was younger, I was convinced (based on my own naive views and a couple introductory econ classes) that the market did a pretty good job of setting values for stocks and other investments based on real factors, like returns, assets, and market analysis for future growth.

After many years working with corporate clients, I’ve come to realize that there’s a lot more Barnum & BS than I first thought. A CEO is going to retire? First he makes sure that he makes some announcement about the acquisition of another company or the possibilities for a new drug treatment the company is developing. Got to pump those options up somehow. “Bigger fools” is a lot more common than “best business practices.”

Two major problems with Tesla: First, Musk seriously underestimated the difficulty of setting up a production line that can produce high quality cars in large volume. I’ve worked on automobile automobile assembly and automation projects, and the big automakers have decades of proprietary manufacturing data they have used to fine-tune their assembly lines. They also apply the same rigor to suppliers and integrators. Tesla had to stand all that up from scratch. That was always going to be a major source of risk.

Second, Tesla’s delays and missteps have given the competition time to catch up. When a Tesla could go 300 miles on a charge and the competitors were managing 40-70 miles, they had a massive advantage. That’s the difference between a usable car and one that gives you constant range anxiety. But now the other auto makers have stepped up their electric game.

A Tesla vs a first gen electric from other automakers was a slam-dunk for Tesla. A Model 3 vs a Chevy Bolt or a Ford Focus electric is a much closer proposition. The Bolt has a 238 mile range. The Focus has 115, but the Focus also has Tesla-like fast charging and only costs $29,995, before tax incentives. With the Federal tax incentives, you can get i to an all-electric car with dcent range for just over $20,000.

Given that Tesla is also at a disadvantage in terms of service networks, aftermarket support and the like, its cars have to be substantially better than the alternatives from traditional manufacturers. I’m not sure that’s the case any more. And it certainly won’t be if they can’t deliver the model 3 soon in quantity with high quality.

Another serious problem Tesla faces is protectionism. Car Dealers have had decades to form relationships with politicians, and as a result it’s actually illegal in some states to sell new cars direct from the factory. Crony capitalism at the local level may kill Tesla’s business plan even if the quality of the competition isn’t quite good enough on its own.

I would not be investing in Tesla stock right now.

Yes, the MarketWatch guy is still the one ringing the bell the loudest, but they definitely have production problems.

I bet Musk wishes that was their market. The median household income in Santa Clara County is six figures.

This was the case in Utah. It took until this year for us to fix that.

The problem with that is that if the intent of Tesla is to actually bring in enough revenue to match their market valuation they can’t just sell to the niche market of wealth Bay Area tech wealth, or Seattlites, or even all of Norway. They have to be able to produce a car in sufficient volume and with low enough costs to compete with the medium range of near-lux sedans which is what the Model 3 was shooting for, and if they’d hit their production numbers or even gotten close they’d be sitting pretty; however, with the massive delays and some of the quality problems that have been expressed they’re getting order cancellations which is a good thing in the near term as it eases a bit of the pressure on deliveries but doesn’t bode well for the long term where other carmarkers with existing production infrastructure and dealer networks can move into eletric vehicles and compete on merit.

The issue with the few number of Autopilot-induced crashes is not so much of a practical problem as it is one of perception, and a result of marketing what should be considered a driver aide system as a quasi-autonomous pilot (even as they try to claim it isn’t). This is an example of Telsa moving forward rolling out a technology without thorough testing in an actual use environment that a traditional manufacturer would have known to do (hence, why the driver assist systems provided by other manufacturers are more limited in their features) but the actual number of accidents and claims are essentially insignfiicant in the scope of things, and Musk-apologists are willing to dismiss the issues as being caused by inattentive drivers (which is true but fails to acknowledge that an unoccupied driver is going to drift to inattention). The recent recall is a far bigger hit financially, but every volume carmarker has recalls and that has to be built into the business model.

I continue to maintain doubt that the Gigafactory is going to result in dramatic reductions in battery costs, especially since after a period of plateauing the costs of lithium-ion batteries has been dropping. The Gigafactory might be a smart investment in terms of assuring that access to batteries is not a bottleneck, but setting up the manufacturing process for making batteries is a huge investment in not only capital but also all of the processes necessary to ensure a quality product, and it is easy to underestimate the cost and difficulty of getting to the point of high volume low marginal cost production. Batteries are going to be one of the principal cost drivers in electric vehicles for the foreseeable future just because there are essential limits on how inexpensively they can be made. However, the total cost of ownership of an electric vehicle should be significantly lower on the back end, and if the commuter model goes from ownership to a subscription or pay-for-use model with the advent of autonomously piloted vehicles, the low maintenance requirements and ability to directly recoup the investment makes the initial purchase cost far more palatable.

As for bankruptcy, I’m of two minds; on one hand, there are a lot of people heavily invested in the success of Tesla and who are likely willing to throw more capital into a company that is actually producing product, even if the production rate is not where it was promised. The caché value of the Tesla brand is probably waning somewhat just through familiarity, but in absence of an immediate competitor they still seem like a good bet in the next ten years of dominating their higher end segment of the electric vehicle market until companies like Volvo, Audi, and Toyota produce viable competition with vehicles that provide comparable performance and more mature ergonomics.

On the other hand, if you can’t pay your suppliers, they are going to stop delivering parts until you can come up with cash. Tesla would not be the first company driven out of business through not being able to keep production lines running, and despite the ridiculously overstated market evaluation is certainly not “too big to fail”. I don’t think the investors will let that happen in the next year, but it could certainly be the case that the investors lose confidence, vote out members of the board who stand with Musk, and replace him with someone who will do a strategic sell off of intellectual property and branding to an existing manufacturer hoping to get a foothold into the market with an existing product. This, in fact, used to be the essential business model of the automotive industry before consolidation into the Big Three, so it is hardly unprecidented.

All of the focus is on Tesla’s consumer vehicles, which is somewhat perplexing because it is actually the long haul semi-autonomous OTR transportation which offers what is potentially the most lucrative market for Tesla. Although I once dismissed the use of electric vehicles for long haul trucking based upon recharge times, it makes sense if you can provide a network of trucks and stations where trailers can be swapped out for nearly continuous transport, and the real efficiencies to be gained in long haul add up into real money, as is the reduced maintenance costs. The Tesla cars are very flashy and appealing but once market saturation is reached it isn’t clear whether they’ll be able to reduce costs enough to reach the mid-level or below, whereas the evident savings in OTR transportation makes it fiscally appealing from the start for the major corporate players in trucking as long as an infrastructure is in place to support it, and that can work even if that infrastructure is pretty narrowly scoped, e.g. just along major routes between transportation hubs, so you don’t have to have a nationwide rollout or extensive dealer network.


Here is an article discussing Tesla’s remarkable cash burn rate.

Tesla has been burning money like a drunken sailor for it’s entire life. Investors up till now have been willing to finance the dream. While many companies are not profitable, Tesla has been living off of investor goodwill for longer than just about any company I can think of. Think house of cards. It may continue for much longer, or it may collapse very quickly.

I completely agree with Sam Stone regarding his automotive industry points. Making automobiles is very difficult, and while Tesla cars are “relatively” easy to build, it is still much more difficult to scale than Tesla appears to have the expertise for. (I wouldn’t call myself an expert, but I supplied software, solutions, my customer included all the global majors, and I personally visited every major joint venture factory in China at least once during my 8 year stint in that role. Tesla are rookies given amazing breaks by the financial markets in an intensely cut throat and complex industry.)

It’s a crony-capitalist enterprise that can’t deliver an over-marketed under-delivering “luxury” product with a cheap interior.

The supposed range on these things is based on grandma-style driving in optimal temperature conditions. It drops like a rock in the cold, and after a few interstate-merging level accelerations. Hard pass.

Fossil fuel technology is far superior and the global infrastructure is already in place. Tesla is a product of years of economic stimulus and interest rate manipulation.

Damn it, what was I thinking? In retrospect, it was obviously gonna be flying cars.