Elon Musk and the boys at electric vehicle manufacturer at Tesla Inc (NASDAQ:TSLA) had a great April Fool’s day and tweeted a series of funny images, including one were Musk was lying in the gutter. A big “Bankrupt” sign was hanging around his neck in a nod to the firm’s financial position Overall, the series of tweets were pretty funny and were 100% an April Fool’s joke.
Except when you actually view them in context of the fact that Tesla is struggling and does need to raise money.
All joking aside, Tesla is starting to struggle in a bad way. The firm faces manufacturing snafus, wrongful deaths and rising debts/ballooning interest payments. Let’s not forget the lack of profitability. It seems that investors have finally caught on to this fact.
For those still holding on, the Tesla hope-machine may finally be running out of electricity.
Production Problems At TSLA
The woes for Tesla start with its production or in this case, the lack of. The firm’s model 3 was designed to be its first electric vehicle for the masses. With a $35,000 price tag, the Model 3 is targeted towards consumers who can’t afford Tesla’s more pricier options. The car was first announced back in 2016 and hundreds of thousands of customers gave the firm a $1,000 deposit for the privilege of buying one later on.
Unfortunately, that privilege has taken forever to get here.
Tesla has continued to push back the vehicles roll-out due to manufacturing concerns. Originally, TSLA had promised its customers and its investors that it would be making 5,000 Model 3’s every week by the end of last year. However, Musk & Co. only produced a total of 222 cars in the third quarter of 2017 and another 1,542 during the fourth quarter.
Lately, production hasn’t been that great either. Bloomberg built a Telsa-tracker in which it looks for new issuance of vehicle identification numbers (VIN) issued by the NTSB. Based on new VINs, TSLA is only averaging 1,073 new Model 3 cars per week as of the end of the 1st quarter. That’s about half of the 2,500-unit weekly target Tesla wanted to hit for the first quarter and well below the 5,000-per-week original target.
This wouldn’t be such a huge deal if Tesla wasn’t facing a cash crunch or some big debt payments coming down the line.
In order to ramp up production, TSLA has taken on a lot of debt and it has done several secondary offerings. But even these have not been enough to satiate its needs. In fact, analysts at Moody’s estimate that the car producer will run out of cash before the end of the year and will need to raise over $2 billion to cover its needs. Moreover, the company has more than $1.2 billion in loans coming due over the next 12 months.
With such a serious cash problem, Moody’s downgraded Tesla’s bonds further into junk status, while Standard & Poor’s has placed the firm on credit watch negative.
In a nutshell, TSLA needs to start selling cars as fast as it can. But its production goals aren’t even in the same ballpark as its estimates or what it needs to do.
Another Complication At Tesla
As if lower production wasn’t enough, Tesla could be getting itself into some serious component hassles as well. To start with, TSLA recalled more than 123,000 Model S cars due to faulty power steering equipment. Recalls are generally expensive, but for a firm that is burning through money, it can be a huge cash sink.
Also, a huge cash sink that is quickly growing into a major problem is issues related to the firm’s autopilot system.
As Musk was tweeting, reports began to surface that a Model X SUV was involved in a fatal crash while the car’s Autopilot system was in use. This is now the second time a person has died using autopilot in a TSLA. The crash is being investigated by National Transportation Safety Board and lead to more recalls and questions about the safety of Tesla’s systems.
Too Many Issues At Tesla
Given all the problems facing Tesla, it’s no wonder why shares of TSLA stock plunged by more than 22% in March. And the problems are pretty serious. Tesla has to start really selling cars in order to make money and fix its cash problems. Meanwhile, those looming debt payments are coming due at a fast clip. Without some real sales in the books, it may have a hard time paying that back or rolling that debt over. Add in higher interest rates and you don’t exactly have a recipe for success.
With that, it may be time for long-term Tesla bulls to come back to reality.
Shares have had an amazing run-up over the last few years, but with the markets getting dicey, high-growth names like TSLA will be the first to fall on any sort of bad news. And with that, it might be time to take gains in Tesla shares and regroup.
In the end, the problems are serious and lead to some significant further declines in shares.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
