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A lot of people are peeved at Elon Musk, one of this era’s premier entrepreneurs. After all, the chief executive of electric car pioneer Tesla has plenty to answer for. Consider:
The red ink is mounting. While the company’s revenue is expanding—because, let’s face it, there’s a demand for his trendy cars—net income sure isn’t. Last year, the loss deepened to where it almost hit the $2 billion mark. Its first quarter earnings were negative $709 million, more than the loss for all of 2016.
Tesla, seeking to turn around this dismal performance, recently announced that it was trimming 9% of the workforce and was pulling back on capital spending.
So is the debt. The carmaker has borrowed extensively to develop its vehicles and meet production targets, with the latest bond offering of $2.8 billion. Last year, the debt load topped $10 billion. Next March, an $800 million issue comes due. Moody’s downgraded Tesla’s junk bonds in March.
Production snags are chronic. The journey of the Model 3 sedan, meant to to be Tesla’s more affordable line at $35,000 each, is disturbing. Originally, Musk promised to churn out 5,000 of them per week, but that schedule kept slipping. When the car debuted in mid-2017, he said he’d produce 20,000 by yearend, although only a fraction of that figure were delivered.
He also said he’d produce 500,000 Model 3s in 2018, but manufactured less than 10,000 in 2018’s first quarter, according to CtW Investment Group. Software glitches, battery breakdowns and other problems keep plaguing its manufacturing process.
Unabashed, Musk told stockholders June 5 that reaching a 5,000-unit output by the end of this month was “quite likely.” What are the odds he’s right this time? Um, slender.
Tesla’s long-term business strategy is dubious. The company benefits from both trendiness (which can be ephemeral) and government largesse (in a Republican-dominated Washington, ditto). Tesla’s other major models, the S and the X, are costly ornaments for the wealthy, with base prices in the range of $75,000 to $80,000. Electric cars are supported by $7,500 federal tax credits, and likely would sell less without the government subsidy.