Tesla Sells More Shares After Latest Production Shortcomings

Tesla logoElon Musk still hasn’t given up his quarterly earnings schtick – in which he glosses over ongoing failures and points to his latest tech idea (which is not really new) – and why should he? No reason to quit until it’s clear Wall Street has stopped worshiping.

Oh, sure, after another dismal performance (operating loss of $47 million) for Tesla Motors during the most recent quarter, its stock price took an immediate dive of 9-10 percent. But while that merely returned the electric automaker back to irrational exuberance territory – as compared to the drunken sailor highs it has enjoyed in recent months – it didn’t take long for some market analyst to restore the inflation.

Regardless, last week cast more doubt on Tesla’s condition. After Reuters reported that the company loses more than $4,000 per Model S it markets and sells, the electric automaker announced it would raise $500 million by selling 2.1 million shares (then immediately upped it to $650 million and 2.7 million shares). Rather than sense any alarm over concerns about cash flow, the immovable bulls remained entrenched in their belief in Tesla’s future prosperity.

“Tesla's (offering), combined with existing credit lines, will provide the company with more than enough cash for operational purposes into 2016,” said Standard and Poor’s Capital IQ analyst Efraim Levy.

That’s a nice, moderate response. But Morgan Stanley’s Adam Jonas – who a lot of people seem to pay a lot of attention to – apparently took his anticipatory Ecstasy pill this week. The source of his enthusiasm was Tesla’s expected ability to produce a self-driving vehicle in the next decade or so, and make it marketable to “shared mobility” services such as Uber.

“If Tesla wants to make good on its mission to accelerate the world’s transition to sustainable (i.e., electric) transport,” Jonas wrote, “we see the move to a shared mobility model as critical.”

Maybe so, and if Tesla can pull it off without special government favors, tax breaks and crony capitalism, then more power to Musk and company. But that hasn’t been the case so far.

The Reuters report provides background for the sudden need to raise capital. Tesla has been burning cash at a rapid rate, which Musk warned would happen when he said in February, “we’re going to spend staggering amounts of money,” which he hoped he could “do…without any significant dilution to the company.”

Much of the spending is undoubtedly going to the heavily subsidized construction of its Nevada “Gigafactory” and production of its next automobile, the “Model X.” But some (other) analysts are becoming increasingly skeptical, noting that the Silicon Valley upstart sheen is wearing off and auto manufacturing expectations are starting to burden Musk and Tesla. This was before Jonas issued his effusion.

For example, respected auto industry consultant Edward Niedermeyer (former editor of the blog The Truth About Cars) wrote that while the tech sector might generate excitement, Tesla is finding out how difficult and expensive it is to be a successful auto manufacturer. He criticized Musk for paying too much attention to building hype and dazzling with innovation, while being almost dismissive of the mundane requirements needed to make cars.

“Musk’s breezy dismissal of the challenges associated with scaling up betrays his weak grasp on the brutal realities of manufacturing, even as those challenges push Tesla behind schedule at one-tenth the volume it is targeting in five short years,” Niedermeyer wrote for Bloomberg News. “This reality will become clearer as Tesla runs out of ways to keep burnishing its Silicon Valley halo.”

And analyst Matthew Debord went so far as to say Tesla “is entering another crisis,” while at the same time saying that is nothing new, as he chronicled how the company has lived through three previous “crises” in its dozen-year existence. Echoing Niedermeyer, he characterized the current cash-flow problems as part of an “identity crisis” in which Musk seeks to elevate Tesla from a tech company to a legitimate automotive company. Investors will often throw millions of dollars at a Silicon Valley darling, but mass-producing six-figure vehicles is entirely different.

“Being in the car business is very difficult, as the General Motors, Fords, Chryslers, Toyotas, and even Ferraris of the world will tell you,” Debord said. “Mass-production of mobility, created for fickle, choice-addled consumers and driven by credit flows, is unforgiving.”

Still, he thinks this “crisis” also will be a mere blip on Tesla’s road to success. Unfortunately few (other than Niedermeyer) are addressing Tesla’s substantive dependence on taxpayer dollars, as shown (for examples) in its (diminishing) California Zero Emissions Vehicle credit sales and its $1.3 billion in corporate welfare from Nevada for the Gigafactory.

The hype-making Musk extracted those concessions from gullible, easy-pickin’ politicians. Now he’s had to go to the well again for another round of stock financing, putting that public “investment” further at risk. One of these days the lack of actual performance and production could hit all involved very hard.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.