The End of Tesla:

First off I admire Elon Musk and his endeavors with the utmost respect and bringing about an all-Electric Vehicle (EV) to the masses has to be one of the greatest feats anyone can embark on in the 21st Century. The road to EV dominance is littered with less than spectacular spectacles. Other titans have tried and tumbled in this same industry; Fisker Automotive famously filed for bankruptcy protection, Faraday Futures primary financial backer Jia Yueting is currently wanted by the Chinese authorities, Lucid Motors had a lukewarm reception and is struggling to raise capital. And then there are startups that have yet to even make a splash in the industry and no one has yet to hear from including; EVelozcity and SF Motors.    

However, the company’s activities have been less than stellar and their stock has finally started to stop defying and mystifying common logic. The slightly charismatic and often worshiped evangelist of at least five multi-million dollar companies and several smaller entities, Mr. Musk seems to be a bit distracted with too many obligations.

As of December 2017, Tesla had $3.4 Billion dollars of cash on hand at the end of 2017, there is an additional $550 million from bond backed by lease payments in February (not all available) and refundable customer deposits topped $850 million at last count. Those funds were to used as a tool to bring production numbers up on the Model 3 Electric car to 5K per week by the end of the second quarter.

The company current run rate averages out to about $1 billion dollars per quarter with a negative EBITDA of $11.63 per share. Essentially meaning that if their numbers don’t cross this vital inflection point in order to at least break even they are going to have to turn to the debt markets once again and ask for funding. By the end of the year, capital markets will be very tight if they have not made good on promises and resulting in the ability to borrowing money very difficult.  The company made only 2,425 Model 3s in the fourth quarter of 2017, according to New York Times, equating to just about 27 cars per week. At the end of March 2018 when Bloomberg sample the batch request from the National Department of Motor Vehicles of VINs requested by Tesla they estimated that the company is currently producing 810 Model 3 vehicles per week.

Elon Musk has also pull workers off of the Model X and Model S production to work on the Model 3 exclusively.  Doug Field, the engineering chief, in one of the memos asked for “volunteers” to join the effort to ramp up production levels to 300 Model 3 per day, the memo states they are currently at 200 per day. That would increase the carmaker production levels from 1400 to 2100 per week in a seven-day work week Fremont factory (it appears the factory is open 24/7 based on worker shifts).  Doug Field also pleaded with workers that they should find it insulting as he does and called attention to prove haters wrong by saying “Let’s make them regret ever betting against us. You will prove a bunch of haters wrong.” Although the memo asks for volunteers, production for the Model X and Model S will be temporarily suspended on Thursday and Friday, workers who don’t move to Model 3 production will have to take unpaid leave or utilized their own vacation days to maintain a full salary, said Peter Hochholdinger, vice president of production, in an email obtained by Bloomberg.  If factory workers are successful in their efforts by working day and night, seven days a week (legal working conditions of course) they will be rewarded with the pride and satisfaction of a job well done, meanwhile Tesla shareholder just approved Elon Musk for the largest payout of any CEO if all of the metrics are meet and he will be rewarded with $55 billion dollars.

The company troubles extend far beyond its production numbers. The company has also experienced the exodus of several key upper management exposes a chaotic environment in which the supply chain management is just not up to the challenge of producing the number of cars demanded by the company’s most loyal devotees. The company also recently confirmed the worst accident on record for the company, fatally injuring the driver and having its Autopilot engage. The National Transportation Safety Board has opened its second investigation into a Tesla crash and is probing the fatal car crash of the Tesla car. The company last week announced that it was physically recalling 123,000 Model S for bolt replacement, most of the previous engineering issues were isolated to the software and could be fixed over the internet as a software update. Tesla said the recall is expected to be a minimal cost to the company as the supplier is paying for parts but they are paying for all other costs including labor. Combined with the other egregious news the company is beginning to lose goodwill with the public and if they miss their production numbers, it will effectively make reaching out to the capital markets a necessity they will have to do from a position of weakness.    

This moment in time is everything for Tesla and their CEO is battling opposition from several different directions which all require his attention and most have opposing objectives.  Between the extra companies, feuding with Facebook CEO and aggravating the issue by deleting Tesla and SpaceX Facebook Page, dealing with the government requirement for SpaceX, trying to get approval to dig tunnels for the Boring Company, building out a Gigafactory, Battery Powered Semi Trucks and going to court over a lawsuit by the investor for Tesla for the acquisition of SolarCity.

Tesla needs to raise more than $2 Billion to stay in business, be able to pay debts and other financial obligations, according to Moody’s. Tesla has $200 million in convertible loans due at the end of this year, $900 million due in early 2019, and one that will mature in 2025 with an issuance size of $1.8 billion. Investors have already begun shorting the bond that will mature in 2025 and as the bond has touched a low trading price of 86 cents most traders have not covered to lock in profits believing the bond will continue to deteriorate.

The competition is catching up quickly offering from the likes of Nissan Leaf, BMW i3, Audi E-Tron, Chevrolet Bolt, and Volt are already on the streets of soon will be on the streets. Alphabet the parent Company of Google has pledged to buy 20,000 cars from Jaguar Land Rover to deploy its line of autonomous driving vehicles a direct competitor to Tesla.  

Meanwhile, the Tesla has racked up 10 billion in long-term debt and 23 billion in total liabilities. And will have to undertake a large near-term capital raise in order to refund maturing obligations and avoid a liquidity shortfall. Tesla has to stop overpromising and scale back its ambitions to goals it can achieve if it wants to regain the confidence of the people and doesn’t have to file for bankruptcy.