According to the news report by Forbes, Tesla’s troubles are just getting worse. First, the news of the Model X crash which led to the death of the driver; the car was on Autopilot mode. Additionally, Moody’s downgraded the car maker and the company had to recall every single Model S manufactured before 2016 because of a possibly faulty bolt in the car’s steering system.
The bad news didn’t end there. The electric car maker is now on track to miss yet another Model 3 production target. This is the third quarter in a row that the company had missed its promised production target.
The car maker’s stock price dropped 12% last week and another 4% on Monday. For the month of March, the company’s stocks have dropped by 22.4%. And for the last 12 months, Tesla stocks are down by 4.4%. The company’s current price of $261.35 represents a more than 30% drop from its all-time high in September 2017, when it touched an intra-day high of $389.61 per share.
The biggest challenge that Tesla now faces is not what is in the news – it is its mounting debt. The company’s mountain of debts mature in the next 20 months. And that is the time that the electric car company is going to need extra funds to carry on with its operations.
Moody’s Investor Service downgraded Tesla’s debt, stating, among other reasons, the pressure on the company for liquidity because of its negative cash flow. The problem that the company now faces is that its fixed-income “story” only work as long as the company’s shares were going up.
Tesla has a combination of $3.5 billion in negative cash flow as well as $1.8 billion of debt that are going to mature at the same time in November 2019. The reason this is so critically dangerous for the company is because running an auto manufacturing business requires huge amounts of capital.
This is true of any auto maker, not just one that is trying to revolutionize a 100-year-old industry. Typically, General Motors and Ford spend about 5% to 6% of their sales on capital expenses. The question now becomes one of where will Elon Musk get that kind of capital to keep running the manufacturing process.
The only way out for Tesla is that the company starts generating huge amounts of free cash flow. Which does not seem possible at this time.
Interestingly enough, despite all the trouble that the company is in, in an interview with CNBC, tech analyst Gene Munster stated that he still had faith in Elon Musk and Tesla.
According to Munster, Elon Musk deserves credit for steering his company through the teething pains that every other company is going to go through in the near future as they switch to the new electric technology in the auto industry. He feels that all companies are going to go through this pain as the entire industry will need to go through a massive transformation.
Munster feels that all these “bad headlines” are distracting investors and the general public from a key fact – that Tesla is still very well positioned to handle this upcoming transformation the auto industry is going to go through. He said that Tesla, is, in fact, going to impact much more than just the transportation industry.
The company’s mission statement is not restricted to the auto space. The mission statement of Tesla is to speed up the world’s adoption rate of renewable energy – not to make electric cars. And the end of the interview, he said he still believes that Tesla and Musk will be successful.