Founder Elon Musk Continues Self-Inflicted Damage (Chart of the Day 21)
Elon Musk and Tesla shareholders endured a rough week. First Quarter sales fell far short of expectations and below those of the 4th Quarter. (https://www.zerohedge.com/s3/files/inline-images/ttd%20m3.png?itok=j-aL57e0).
The schedule of Federal price subsidies explains why. A “rebate” of $7,500 per vehicle until January 1st, 2019 was offered to buyers. That subsidy was cut in half. Interested buyers bought cars before the reduction, leaving lower demand in Q1.
Tesla slashed prices of its fleet and earned much smaller margins to keep demand stimulated.
On July 1, 2019 the subsidy will be halved again to $1,875 and eliminated completely on January 1st, 2020. The new Model 3, promoted to be an affordable $35,000 car, runs buyers closer to $50,000 when basic options are included.
Tesla Will Need To Raise MORE Capital
Tesla had roughly $4 Billion in cash at the end of the year. The company’s $900 Million Convertible Bond Issue matured on March 1st. The decline in stock price made conversion not beneficial to holders, forcing the company to redeem it in cash. In addition, it is thought that Tesla has burned another $1 Billion in the 1st Quarter, slicing its cash balances in half and necessitating raising more. (https://www.zerohedge.com/news/2019-04-04/substantially-worse-expected-tesla-plunges-analysts-throw-disastrous-deliveries).
Even the ardent fans of Musk are calling for a new CEO but want Musk to stay on as a “visionary”.
Musk’s Legal Battle With the SEC Intensifies
Musk settled an SEC violation case last September. Musk falsely tweeted that financing for a going private transaction at $420 per share was secured. The number 420 is commonly used to mean Marijuana, a Musk vice. As part of the settlement, Tesla’s general counsel is required to approve any tweets in advance.
On February 19th, 2019, Musk tweeted some very misleading production figures for the full year. The tweet triggered a “war” with the SEC. Musk and his legal team fought the matter in court. The judge gave them two weeks to work out a settlement. Musk often tweets about the SEC in a disparaging way, calling the SEC an embarrassment to justice. (https://www.zerohedge.com/news/2019-04-04/musks-day-court-sec-seeking-escalating-fines-judge-order-new-settlement-agreement).
Musk Threatens To Nuke An Employee
In a prior post, we noted the extreme turnover among key executives, including 2 General Counsels. “The Tesla Mess-la”. (https://markonomics101.com/2019/03/08/the-tesla-mess-la-chart-of-the-day-16/).
A Tesla employee who quit recently so enraged Musk that a physical altercation between the two took place at Tesla’s Fremont facility. It’s not the first time that Musk bullied an employee who quit. Musk was overheard threatening to “nuke” the employee. (https://www.zerohedge.com/news/2019-04-05/i-will-nuke-you-musk-raged-physical-altercation-after-tesla-worker-quit).
Tesla’s Mounting Fatal Crashes
Musk’s claim that his autonomous driving mode is safe is questionable. To the contrary, it is very likely that autopilot is far less safe than human driving. There are a number of fatal crashes that occurred in autonomous driving mode. (https://www.greencarreports.com/news/1119936_tesla-fatal-crash-rate-with-autopilot-still-no-better-than-with-human-drivers).
To date there have been 7 fatal crashes of which at least 1 is autopilot related. Others are still under investigation.
Tesla is still a stock to avoid. The outstanding short interest is EXTREMELY high at 15% of outstanding float. Because short sellers will eventually “cover”, this group will be a continual source of future demand.
Musk’s credibility is very low. The information released by the company is often very misleading. That’s enough to pass this stock by and be an observer.
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