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| Tesla's Debt Is Up As Cash Flow Drops (click here to enlarge) |
With all the ruckus Elon Musk caused an update of an article written in early 2017, merits an update. Of course, this is on the heels of the shorts again getting burned on some rather ambiguous numbers flowing from Tesla during its most recent quarterly earnings release where it revealed a whopping 718 million dollar loss yet the stock rallied on claims it was making solid gains in production as Musk pushed a rosy scenario of future growth. It has been a while since we have heard any good news flowing from Tesla and shareholders should be worried. In a recent head-to-head comparison in Motor Trend, three reviewers compared the Tesla Model 3, Chevy Bolt, and Nissan Leaf in a test, and only one person picked the Tesla. Many people would be surprised to know that the reviewers were comparing the base versions of the Leaf and Bolt, which cost $30,000-35,000, to the fully loaded Model 3 that costs more than $60,000. On top of this Tesla has had huge production problems plague the Model 3, seen several Tesla's involved in gruesome crashes, general quality concerns, and the fact the company has been burning through cash at a massive rate.
Elon Musk stands as one of those iconic figures the world occasionally conjures up to wow and entertain the masses. As media generated symbols of success go he ranks up there with the best of them. Much of the aura that surrounds Musk comes from his success at PayPal. Musk co-founded X.com., an online financial service and e-mail payment company, in March 1999. One year later, in a 50/50 merger, X.com joined PayPal a company that operated an auction payment system similar in size to X.com. Musk was instrumental in organizing this deal due to his belief in emerging online transfer technology. The combined company at first adopted X.com as the corporate name, but in February 2001 changed its legal name to PayPal Inc. Musk is credited in driving the new PayPal to expand and focus on a global payment system, in October 2002, PayPal was acquired by eBay for $1.5 billion in stock, Musk, the company's largest shareholder, owned 11.7% of PayPal's shares.
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| Elon Musk, Visionary And Wonder-Boy? |
An example of how deep these subsidies feedback into the numbers is that as of early 2017, Tesla had already collected more than $517 million from competing automakers by selling environmental credits. In a regulatory system pioneered by California and adopted by nine other states, automakers must buy the credits if they fail to sell enough zero-emissions cars to meet mandates. I have written several articles about Tesla and Musk over the years but as I continued my research for this update and a more in-depth piece my eyes literally began to glaze over at the magnitude of the subsidies. Government support is a theme of all three of these companies, and without it, none of them would exist. Then comes the issue of corporate incest, in August of 2016 Tesla formally announced it would be acquiring ailing SolarCity in an all-stock $2.6 billion merger. At the time Musk owned 22% of SolarCity which was founded by his cousins. The merger was promoted on the idea that Tesla's mission since its inception was part of Elon Musk's overall "Secret Tesla Motors Master Plan" to expedite the world's transition to sustainable energy and away from a fossil fuel economy. Musk called the merger a no-brainer and said it was an accident of history that Tesla and SolarCity were ever separate companies.
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| In 2017 Only About 1 In 5,000 Cars Was A Tesla! |
The value of Tesla's stock dramatically changed years ago following the report where it made its first quarterly profit, its market value soared to more than $10 billion. It should be noted a large part of the increase in the stock price occurred when people that had short positions in the stock were caught in a short squeeze and forced to buy back their stock. At the time Musk said, “I thought it would be quite difficult to raise the capital for Tesla.” he went on to state his realization the electric-car maker could retire its U.S. loan nine years early didn’t arise until Tesla shares unexpectedly surged. Since that time Tesla's fortunes have moved in lockstep with a surging stock market. In an upbeat article published by Inside EVs shortly after that time, it was pointed out that Ford stock had fallen 23 percent from 2015-2017, however, Tesla stock was on the rise, approaching an all-time high which gave the electric startup a market value of $43 billion compared to Ford’s $49 billion.
Tesla currently has a market cap of around 65 billion dollars while Ford its much large competitor languishes around 40. It is important to note that in January 2016, Ford Motor sold 173,723 vehicles in January 2016 while Tesla made a little over 80,000 cars in all of the prior year. As for Tesla's stock which continues trading at incredibly high multiples, much of that can be contributed to the historically low-interest rates and the luck of being in the "QE moment" rather than the company's financial success. Bears and those that doubted if the company could hold together ironically have pushed up the stock adding to the image that Musk lives a charmed life. Remember the company had received a huge government low-interest loan to kick start its existence, also note that it has no legacy cost or issues that plagued so many of its competitors. Now thanks to the gobs of money looking for any kind of return, Tesla can borrow cheaply. Like several other high flyers lead by self-promoters and propelled forward by media hype Tesla has been on a roll.
It does not take much research to see public subsidies for Musk’s companies stand out both for the amount, relative to the size of the companies, and for their dependence on them. No effort has been spared to spin Tesla and Elon Musk as a finished success, of course, the "proof will be in the pudding" when we look back years from now. Time will most likely determine whether Musk is viewed as an unabashed promoter or a serious visionary. Using government programs and loans as well as money from investors Musk has built a pulpit from which to position himself for praise and at times ridicule. David Stockman wrote in May of 2015, "In a world saturated with excess automotive capacity and dominated by some of the most formidable engineering, manufacturing and marketing organizations on the planet—Toyota, BMW and Ford, to name just three–There is no way that an amateurish circus barker like Elon Musk will ever make a profit selling electric vanity cars to the 1%." Stockman went on to state, "You might describe Tesla as $30 billion of capitalized hopium, but that would be too generous. In an honest free market, Tesla would have long ago been carted off to the chapter 11 junk shredder."
Tesla entered 2017 with the goal to launch a new car, open a large battery factory, and perfect autonomous driving but has encountered several setbacks. When all the hoopla ends, the question is whether larger competitors will simply overwhelm and crush Tesla, or will Tesla instead position itself to grow and maybe take over a competitor to help propel it forward. Remember this is a field where many have failed, one great example was the Delorean. I have become predisposed to discount, and have actually grown a massive aversion to "media hype", this is one reason you should color me skeptical. The city where I live, like other cities across the world, have a long list of bold men herald and declared to be "gods gift to business," many in the end flew too close to the sun only to crash and burn. Success has a way of making us humans giddy, creates a feeling if euphoria and can manifest into the illusion that we are invincible. In any case, what has happened at Tesla Motors and to Elon Musk's other ventures up until this point might be enhancing the meaning of the phrase, "I would rather be lucky than good!"
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Footnote #1; Another company in the same that was not so lucky and saw its fortunes fall was Fisker Automotive, for more on this folly read the post below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
http://brucewilds.blogspot.com/2013/04/fisker-automotive-another-government.html
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