Elon Musk’s quarterly earnings reports for Tesla Motors always offer a little razzle, a little dazzle, soon-to-be-unfulfilled promises, and rationalized failures.
This go-round was no exception, and after yet another shortfall of financial and vehicle delivery expectations, perhaps the biggest surprise was the revelation that $1.3 billion in subsidies from Nevada taxpayers won’t be enough to get the hyped Gigafactory completed.
Spending and construction have only just begun on what is supposed to be Tesla’s battery-making monster. According to its 10-Q filing with the Securities and Exchange Commission, $431 million was spent on the Gigafactory through June of this year, and $520 million is expected to be spent by the end of 2016. Tesla’s partner in the project, Panasonic, said last month it would raise $3.86 billion, with most of it targeted for the Gigafactory. Another $1.7 billion came in via yet another equity sale. Alas, it apparently isn’t enough.
“Given the size and complexity of this undertaking,” Tesla reported last week, “the cost of building and operating the Gigafactory could exceed our current expectations and the Gigafactory may take longer to bring online than we anticipate.”
In addition, the company reported it would need $1.1 billion in cash to meet third quarter obligations, which means Musk almost certainly must raise more capital. That hasn’t been a problem thus far, but some wonder where the bottom of the well of investor good will is.
The announcement was part of what TheStreet.com characterized as a “Friday night news dump,” with Tesla’s SEC filing coming after markets closed. Besides the Gigafactory challenges, upon which much has been stake for its future success, Tesla had more dismal news about production, sales and cash flow. In what has become a familiar pattern, the company reported losses of $293.2 million in the second quarter, which was 60 percent more than the same period in 2015, bringing greater scrutiny to inadequate factory output. Operating losses were $1.06 per share, more than doubling what analysts expected, according to the Wall Street Journal.
As for manufacturing, vehicle deliveries fell short of their 17,000 target by about 2,600 units. Musk told investors the company was in “production hell” the first six months of this year.
“During the quarter ended June 30, 2016, we reached our funding limit with a banking partner where we received cash for the full price of the vehicles, which could adversely impact our liquidity and cash position,” Tesla reported to the SEC. “We anticipate adding new partners in the coming months. When market conditions are favorable, we may evaluate alternatives to pursue liquidity options to fund capital-intensive initiatives.”
Speaking of the SEC, Tesla said it is under investigation by the watchdog agency over a May 18 stock sale, because the company failed to divulge a fatal accident in Florida in which the driver of a Model S was using its autopilot system. The National Highway Traffic Safety Administration and the National Transportation Safety Board have also inquired about the crash. Ever defiant, Musk lashed out after a Fortune article that criticized Tesla for failing to disclose the accident.
“If anyone bothered to do the math (obviously, you did not),” Musk emailed the reporter, “they would realize that of the over 1 (million) auto deaths per year worldwide, approximately half a million people would have been saved if the Tesla autopilot was universally available. Please, take 5 min(ute)s and do the bloody math before you write an article that misleads the public.”
And as he consistently does when bad news emerges, Musk attempts to redirect attention to the latest technology development (and the pliable media usually goes along). This time, on the conference call to investors, he boasted about plans for autonomous driving in future models.
“Full autonomy is going to come a hell of a lot faster than anyone thinks it will,” he said. “What we have under development is going to blow peoples’ minds. It blows my mind.”
Musk also needs the distractions because he is trying to execute a merger between Tesla and another heavily subsidized company he runs that is hemorrhaging cash: SolarCity. Despite Tesla’s own problems, he wants to take on the rooftop solar storage company with a $2.6 billion stock acquisition.
“Musk also founded SolarCity and is the largest shareholder in both companies,” the New York Times reported. “SolarCity’s chief executive is Mr. Musk’s cousin. There are overlapping directors. Critics called it blatant self-dealing and accused Mr. Musk of using valuable Tesla shares to bail out a struggling SolarCity.”
Nonetheless repetitive quarterly losses, except for a few blips, have not harmed Tesla’s stock price. Musk is still adored by the fanboys. It’s a phenomenon that CNBC’s Jim Cramer, host of “Mad Money,” cannot explain, because the traditional investment rules and forecasts do not apply.
“(Tesla)’s made a car people love and done so through orthodox means, gaming the system of tax credits, using grandiose statements to raise money and ultimately delivering far less than what is expected both on financial results and on promises for the future,” he wrote for TheStreet.com.
“I have never seen this in all my life. So forgive me if I throw up my hands and say it’s a cult.
“What the hell else is it?”
Paul Chesser is an associate fellow for the National Legal and Policy Center.