It’s been unprecedentedly bad times for Tesla and its founder, once considered a wunderkind who can do no wrong. The manager of a 1 billion-plus dollar hedge fund with a J.D. from Yale Law School and 30 years of trial experience went on a popular podcast and called Elon Musk a fraud. It’s been hard to argue these days, as Tesla has burned through cash at an astonishing rate, has laid off employees, halted the production of what was supposed to be its bounce-back vehicle, and the company has just generally garnered nothing but bad news for quite some time now.
Elon Musk’s public persona has done little to quell the concerns of investors and those who have spent their vehicle budget on a Tesla, if not multiple Teslas. Musk is guaranteed a pay package that is set to pay him $5 billion per year (you read that right), a salary that is more than every CEO in the S&P 500 combined. With such a salary comes the responsibility to put forth results. Instead of producing the (positive) results that shareholders deserve, Musk has made tone deaf “jokes”, including about Tesla filing for bankruptcy.
It’s not exactly the opportune time to be kidding about bankruptcy, considering that March was Tesla’s worst month in seven years. And what a month it was…
There was a highly-publicized accident involving a Tesla vehicle operating on autopilot which left the operator dead. In that instance, statements issued by Tesla seemed to imply that the driver was somehow at fault for ignoring warnings they say was issued by the vehicle to take control of the vehicle.
‘The electric car maker said the driver, who was killed in the accident, did not have his hands on the steering wheel for six seconds before the crash, despite several warnings from the vehicle…Tesla said its vehicle logs show the driver took no action to stop the Model X SUV from crashing into a concrete lane divider.’ (CBC)
This incident contributed to the downward financial spiral that Tesla continues to experience. Tesla stock was down nearly 25% in March alone. Moody’s downgraded Tesla’s credit rating and changed the company’s outlook from stable to negative. This credit downgrade was primarily attributed to the slowdown in Model 3 production, which was already lagging. The slowdown would eventually become a temporary halt on production, and analysts warned Tesla stockholders that the credit downgrade and massive drop in stock price could kick off a self-fulfilling prophecy of the company’s decline, and potentially demise.
“A lower share price begets a lower share price … For a company widely expected to continue to fund its strategy through external capital raises, a fall in the share price can take on a self-fulfilling nature that further exacerbates the volatility of the share price,” said Morgan Stanley analyst Adam Jones via CNBC.
It’s not surprising considering the rate at which Tesla has burned through cash in recent years. The company took a net loss of $2.24 billion in 2017, including the its largest quarterly loss ever, $771 million. With these figures showing no significant signs of turnaround, analysts believe that Musk will have to return to markets to raise funding as soon as the first quarter of 2019. This will dilute the value of current stockholders’ holdings, and will be quite the reputational hit for the most highly paid CEO on the planet.
"I would expect it to be equity rather than debt, because it is cheaper and you don't have to pay it back," said CFRA analyst Efraim Levy. “The problem with that is, selling more equity will have a dilutive effect on existing shareholders.” (CNBC)
Musk still isn’t panicking. Investors are, for good reason. Tesla is the most shorted stock in the U.S. market.
But Musk’s not panicking. Quite the opposite. He has said he has no plans to raise capital. He’s even resorted to taunting those that are taking a short position on Tesla, viewing the eternally cocky demeanor of its demi-founder, in addition to a bloody balance sheet and lack of vehicular production as ample reason to bet against Tesla.
Musk first Tweeted sarcastically, “Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time.” He went on to Tweet again, “Looks like sooner than expected. The sheer magnitude of short carnage will be unreal. If you’re short, I suggest tiptoeing quietly to the exit…”
It’s an astounding, perplexing amount of seeming arrogance from somebody whose company is in the position that it is currently in. Well, it would be perplexing if it weren’t Elon Musk Tweeting. The man who can do no wrong has done plenty wrong in the past year-plus, and accusations that he has become preoccupied with ventures like SpaceX at the expense of Tesla would seem to be supported by the company’s recent performance.
And, Musk shouldn’t forget that the electric car-friendly administration of years past is no longer in office. If he is banking on a government bailout or further subsidies that have helped the company reach its now-distant heights, he may be sorely mistaken.
Investors and critics know well that Musk has made promises before, most of which have not been kept. Those promises included a vow never to need financing again, a promise which was followed by several rounds of funding. For many, his status as a visionary has given way to the image of an overpaid CEO who is far removed from his once-bulletproof image.
Whether this is the beginning of the end of Tesla’s glory days, if not its pre-bankruptcy existence (not to prematurely plant the company’s headstone), it’s apparent that Tesla has more critics today than it has ever had. If Musk can turn it around, he may just earn his massive paycheck and demi-god status. If not, Musk and his baby, Tesla, will never be seen in the same infallible light that they once resided in.