Twelve months ago Tesla was the darling of the automotive business and was a rising force, set to revolutionise the cars and trucks we drive.
Its flagship Model S sedan was the must have amongst luxury-car buyers, the Tesla Autopilot system seemed far ahead of its competitors in self-driving technology. Its chief executive, Elon Musk, was promising that the more affordable Model 3 would soon roll off its assembly line and bring emission-free driving to the masses and a truck was on its way as well.
Financial markets were overjoyed and the company’s market value rose to outdo both General Motors and Ford, two companies both with more than a century of experience and success in the business.
That was a year ago but it seems the last 12 months has been a much more bumpy ride for Tesla.
On two days last week the Tesla share price plummeted 16 per cent in value. The shares dropped eight per cent on Tuesday and then another eight per cent the next day and while they regained some ground the next day, they have lost almost a quarter of their value in less than three weeks.
This comes on the back of massive problems with the manufacture of the less expensive mass market Model 3 which saw a myriad of glitches and delays in what founder Elon Musk described as manufacturing hell, while Tesla’s efforts at producing and testing its driverless technology have been overshadowed with crashes and deaths, while the company has continued to lose money quarter after quarter.
Tesla’s troubles have intensified in the past seven days with ratings agency Moody’s downgrading the company’s credit rating concerned with the rate it is burning through cash. Those concerns have grown so dire that some analysts are asking whether the company could run out of money by the end of 2018.
“I’ve said for some time that Tesla is far from a sure bet, or a stable company for that matter,” said Clement Thibault, a senior analyst at Investing.com. “Tesla has been living on borrowed time and money for quite some time.”
On the truck front Musk unveiled his plans to build a battery powered heavy duty prime mover in front of a screaming audience of several hundred acolytes and guests in November 2017. Mr. Musk unveiled the battery-powered truck along with a two-seat high performance roadster.
He vowed to begin producing the truck by the end of 2019, even though the company does not have a factory to build it in and is still trying to work the kinks out of the Model 3 assembly process at its manufacturing plant in Fremont, California.
Tesla’s troubles extend beyond the balance sheet with US Federal investigators looking into the crash that that killed a Tesla driver last week in California, including the possibility that Autopilot was in use.
Then on Thursday Tesla issued a recall for 123,000 Model S cars made before April 2016 to replace bolts that hold a power-steering motor in place. The bolts can become corroded and break, leaving drivers with only manual steering.
The company said no crashes or injuries related to the issue had been reported. Tesla’s reversal of fortune is a jolt for both the company and its chief executive, who had built a reputation not only as a visionary but also as an achiever, masterminding an automotive brand, breaking ground on a battery plant that would be the world’s biggest building, and launching rockets through his SpaceX venture.
Tesla has ridden a wave of enthusiastic support from its customers and investors, even though it has generated virtually no profit in the 15 years since its founding.
Company events to present new models tend to have the feel of a religious revival, with hundreds or thousands of owners cheering wildly at each new pronouncement from Mr. Musk.
The announcement of the Model 3 prompted nearly 400,000 prospective customers to put down deposits of $USD1,000 each generating close to $USD400 million for the company before a car was even built.
Karl Brauer, a senior analyst at Kelley Blue Book says that a huge part of Tesla is simply presentation and not substance and that Musk is a master at messaging.
“The problem is the reality is starting to stack up, and that’s a reality of accidents the cars have had, quality issues, and massive misses on Model 3 production numbers. You add all that up and there’s a real question about whether this company can deliver what it promises,” said Brauer.
There’s no doubt Tesla has achieved some breakthroughs that have left the established automakers scrambling to catch up. It has proved that there is a viable market for electric cars, and that they can command premium prices. It has pioneered methods of upgrading cars through software updates beamed over the air, the way iPhones can download new operating systems.
Autopilot is the system that set off a race to develop advanced driver-assistance systems that can guide cars under certain circumstances and actively prevent collisions — though Tesla’s technology appears to have been surpassed by the self-driving systems from other companies, including GM and the Google spinoff Waymo.
However Tesla has repeatedly failed to meet its own targets and deadlines, especially with the Model 3. Mr. Musk originally predicted that the Model 3 would arrive in 2017 and that the car would push the company’s sales to 500,000 cars a year by 2018. He later lowered his prediction to 100,000 Model 3s in 2017. Backtracking again, he said last August that the company hoped to make 20,000 a month by December, and added that “people should have zero concerns” about Tesla’s ability to increase its output of the Model 3.
But in the fourth quarter of last year, Tesla built just 2425 Model 3s , its most recent plan says that it hopes to lift production to 2,500 Model 3s a week. The company is expected to release first-quarter production totals in the next few days.
The Model 3 is crucial. The company needs to ramp up its Model 3 business to generate revenue so that it can pay back investors and fund development of future vehicles including the electric truck.
Moody’s concluded that Tesla probably needed to raise more than $USD2 billion from investors to be able to finance its operations, continue capital investment and pay debts and other financial obligations that will come due soon. According to Moody’s, Tesla has $USD200 million in convertible bonds due later this year, and $USD900 million due in early 2019.
“Liquidity is going to be very tight by the end of the year,” Bruce Clark, a senior vice president at Moody’s, said in an interview. “They need to re-establish credibility with the capital markets.”
