Tesla: Hype Colliding with Reality?

Tesla has been making news recently and for all the wrong reasons. This has impacted their stock price which hit a 52-week high of $389.61(per Yahoo Finance) last year, but over the last few weeks has slammed lower and as of end of day trading Thursday (29 March 2018) was at $266.13.

Now, of course, people have been betting against Tesla for awhile. As per Bloomberg (13 December 2017), James Chanos has been betting against Tesla for more than a year. From the article, it seems to date back to at least September 2016. (Let's be honest, the stock was trading around $200 at the time.) The money quote is: Tesla "is headed for a brick wall."

Here are some other quotes from the article:

When Tesla was in the process of merging with SolarCity Corp. in September 2016, he said the combined company would be a “walking insolvency.”

Chanos said he also believes that Tesla is behind when it comes to self-driving vehicle technology.



He said Wednesday that the spate of executive departures Tesla has endured this year is reminiscent of Enron before its fall.

Chanos said Tesla will need to go back to the markets to raise money in order to bring out its Semi truck and Roadster sports car.

It would appear that a lot of Chanos' criticism is now hitting the mark as a string of bad news came out over the last couple weeks that appear to validate each of these statements.

Tesla/SolarCity

USA Today has this quote:

Investors in Musk's Tesla electric-car company may press on [via a Delaware court decision] with their lawsuit that challenges the firm's 2016 acquisition of SolarCity on grounds that the $2.6 billion deal was flawed by potential conflicts of interest involving Musk and other company directors, the court ruled late Wednesday.

Technology

We've had Tesla crashes before and car crashes happen all the time. Yet the recent crash that caused the death of an Apple engineer came just after the Uber accident that killed a jaywalker.

Via BBC:

Electric carmaker Tesla says a vehicle involved in a fatal crash in California was in Autopilot mode, raising further questions about the safety of self-driving technology.

Executive Departures

Tesla has been dealing with executive departures on a regular basis (as validated by Chanos' comments) so having a couple more leave isn't unusual, but it just adds to the recent bad news. Also, having two finance/accounting executive leave always brings up questions about financial performance.

Per Bloomberg we have this quote:

Then Tesla disclosed in a tersely worded regulatory filing last week that that Chief Accounting Officer Eric Branderiz had left for personal reasons. On Tuesday, Bloomberg News reported that Susan Repo, corporate treasurer and vice president of finance, had become chief financial officer of another company.

Finances

And in regards to financial performance we have this via CNBC:

Given the company's cash burn rate and how it has $230 million of debt due in Nov. 2018 and another $920 million in Mar. 2019, Moody's believes the company has to raise new capital soon.

To me, lack of cash is a big one. No cash, no production. No cash, vendors start getting nervous about being paid back. No cash and no future prospects of being cash flow positive make bondholders and stock owners concerned.

Of course, Tesla isn't sitting around and just taking the hits. They're attempting to fight back.

Via Bloomberg:

Tesla Inc. exhorted its factory workers to prove wrong the “haters” betting against the company and is letting a small number of volunteers join the effort to ramp up output of the crucial Model 3 line.

It's good that they're trying to hit production quotas, but I wonder if anyone noticed the following:

Tesla will suspend Model S and Model X production Thursday and Friday because it’s ahead of target on building those this quarter . . .

One can take that as a positive or a negative. Let me take it as a negative. Hmm, are they ahead of production, because production is going so smoothly? Or are they ahead of production, because they hired too many workers to work on the Model S and Model X, which would imply operational control issues? Or perhaps Model S and Model X demand isn't there?

But when the New York Times hits you, ouch:

“There is a huge part of Tesla that is simply presentation and not substance, and Elon is a master at messaging,” said Karl Brauer, a senior analyst at Kelley Blue Book.