The new round of staff cuts at Tesla and the big bottom line cash issues don’t make for pleasant viewing if you’re an investor. Tesla had built up a pretty respectable, if somewhat bumpy, stock price history, but the last close was down 7% plus on news of cuts and issues with cash.
There are multiple issues:
• Cost of production overall
• Competition from heavyweights like Mercedes, etc.
• High cash flow outwards
• Revenue dropping in the last quarter
• The cash issues have happened despite a $2.7 billion inflow in capital raising
• Major institutional investor T. Rowe Price has dumped its Tesla stock
• Falling demand issues, real or imaginary
Looks like a train wreck, but isn’t, or anything like it, at least not just yet. If you’ve been watching Tesla for a while, you’ll know these are all old issues, except the current cash flow scenario. Musk says the company could run through cash in 10 months, but in a context – “To break even”. That says something quite different.
Let’s not get too Musk-centric
Musk is the front man and the easy target for Tesla. He’s good at it. He could get publicity for blowing his nose. That has absolutely nothing to do with corporate finance issues, the competitive market, or anything else, much.
Tesla is positioned as an upper middle/high-end car maker. That’s a difficult position, as every single top end brand ever made knows only too well. Prices and unit volumes don’t make compromises. Either you’re ahead or behind.
Costing production is a true science. It’s also typically done in a sealed environment, not factoring in new competitor initiatives, rising unit costs, and just about any other unpredictable factor in pricing your production. It’s easy to get it wrong, even with the absolute top prestige brands. (Add Trump’s tariff war, and who knows what else is in the Tesla mix?)
That, unfortunately for Tesla, isn’t much of an excuse. Bottom lines can wait for you to land on them, often quite hard. The mere fact that the bottom line is visible is a worry. It IS an issue, and no amount of spin is going to make it go away.
Musk has made the call, and if he’s right, Tesla needs to rethink a lot of its options. Note that I said “Tesla”, not “Musk”. There’s only so much credibility you can attach to a situation like this where nobody but the target guy gets the flak. These are systemic issues, not personality problems.
You can’t position yourself the way Tesla is positioned and expect everything to be some sort of multi-billion dollar flower arranging exercise. Anyone who’s ever arranged flowers knows the back end is far more important than looking nice upfront, too.
Ah, er, um… Isn’t an adequate response
These are not trivial issues. There’s a lot of problems, all at the same time, and nobody saw all of them coming? Unlikely, isn’t it? All this soul-searching would be far more credible with some background. There are some pretty standard solutions to all these issues:
Reduce costs by subcontracting some production: Nobody would mind being a big brand subcontractor.
Make Tesla models which are cheaper and mainstream market-accessible, not “luxury cars”. Design could be scaled on a budgetary basis, too.
How about defining the big cash burn, rather than saying you’re burning a lot of cash? This spending must have some basis in fact, surely?
Turning off the cash taps? Why not? What doesn’t need to have money spent on it?
More info please, Tesla
The current picture doesn’t even deserve to be described as blurry. People are about to lose their jobs, and investors are now gnawing at their stock prices. More information should be available, and more importantly, proper fixes and times for fixes, not least in market positioning, need to be clearly laid out.
Honesty is fine. Comprehensible honesty, with some hard data, would be much better. Those jobs mean a lot to the employees, and it’s other people’s money, that scarce commodity, at risk.
