If it seems like Tesla (NASDAQ: TSLA) stock investors can’t catch a break, it’s true. But it’s not just bad luck. We all know super smart people who, no matter how great they were in school, can’t help making poor decisions. Unfortunately for TSLA stock investors, it’s looking more and more like their CEO, Elon Musk, is one of those people.
Solar City Bailout
Elon Musk’s track record was already spotty before a new unsettling Vanity Fair article came out on Sunday. The accusations in the article go far beyond the “quirky genius” label Musk’s followers like to use as an excuse.
Vanity Fair zeroes in on Tesla’s disastrous 2016 acquisition of Solar City. It specifically focuses on the shortcomings of Tesla’s Buffalo, NY plant. That plant may soon be yet another major financial liability for Tesla.
In a nutshell, Solar City was founded by two of Musk’s cousins. The company was a financial mess for years before the buyout. When it struggled to sell solar panels, it shifted to a model that allowed homeowners to pay over time. That model left the company strapped for cash pretty much indefinitely. Musk himself initially bailed out Solar City by buying shares of stock. In 2014, Solar City turned to selling “solar bonds” to stay afloat. Market demand was tepid, and Musk once again stepped in to buy $75 million of these bonds himself. What’s more troubling for Tesla stock investors is that Musk’s unrelated commercial space flight company SpaceX bought $255 million of Solar City’s solar bonds.
Solar City reported a $659 million cash burn in the first quarter of 2016. Later that year, Tesla bought Solar City in a $5 billion deal that included $3 billion in Solar City debt.
In 2014, Tesla announced plans to build “Gigafactory 2” in Buffalo, NY. New York taxpayers invested $750 million in the project. As part of the deal, Tesla would get a 10-year lease on the facility for just $1 per year. Musk promised the factory would create 1,460 “high-tech” jobs, and another 3,400 support jobs at the factory and throughout the state. By April of 2020, Tesla is required as part of this deal to employ at least 1,460 people in Buffalo. If not, TSLA stock investors are on the hook for a $41.2 million annual fine. According to Vanity Fair, Tesla has now investors $400 million in the Buffalo factory and employs 329 people there.
To make matters worse, there is an ongoing Tesla shareholder lawsuit involving the Solar City buyout. The Vanity Fair article comes just days after Walmart (NYSE: WMT) sued Tesla, claiming that Solar City panels had caused fires at seven of its locations.
TSLA Stock Investors’ Biggest Problem
I hate to paint someone like Elon Musk as black or white. I see Musk as neither an evil genius nor the savior of the human race. He’s clearly a smart, capable guy with admirable vision. That’s why so many people like him. But I feel former Buffalo Tesla solar plant employee Dennis Scott likely hit the nail on the head in the Vanity Fair article.
“Musk is a nice guy when you talk to him. But I think he’s full of shit. He’ll tell you whatever you want to hear,” Scott said.
Regardless of what you think of Musk as a person, he has a track record of making claims that don’t come true. From “funding secured” to Tesla guidance to the Buffalo Gigafactory, even Tesla bulls now know they need to take Musk’s claims with a grain of salt. When he promised a fleet of 1 million Tesla robotaxis on the roads in 2020 earlier this year, Tesla stock barely moved. It’s as if the whole market has figured out that those types of statements aren’t to be taken literally. That’s just Elon being Elon.
Critics says Musk is nothing more than a con artist. I tend to think better of him. I think Musk is simply one of those people that is motivated by promising the impossible and then making it happen. Unfortunately, not every impossibility ends up being possible.
I think history will look back very kindly on Elon Musk, much like it does on Steve Jobs. But unfortunately, like Jobs, I think Musk’s passion for his projects, including Tesla and Solar City, has led him to make some terrible decisions. As a result, TSLA stock is down 18.1% over the past five years. The S&P 500 is up 43.3% during that time.
I wish I could say things will get better for TSLA stock investors soon, but I doubt it. I believe Musk is blinded by his passion for his projects. “In willing a reality into existence, he might not stick to the facts,” one Tesla employee who worked closely with Musk told Vanity Fair.
The problem is the market needs facts it can rely on and a CEO it can trust. Until it gets those things, TSLA stock will not get the benefit of the doubt.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.