29 March 2018
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Tesla Trouble?

Breaking, Sort of, My Current Events Rule

It's OK, really, since I don't have a current events rule. Since this seems to be Tesla month, and I'm a big fan of Elon Musk, Tesla, and some of his various ventures, I might as well exhibit concern.

Herewith, then, a Pre-cautionary Tale of Potential Woe

Tesla, the company, runs on cash. Several articles I've read in the past few days seem to imply that it doesn't have enough.

  • Tesla stock has plummeted in the past few days. Getting more money by issuing more stock will be problematic
  • Tesla bonds have plummeted in the last few day. People don't buy new bonds if there's doubt about them being paid back, except at very high interest rates. (People may buy old bonds, the ones that have plummeted, in the hope that they will go up. That's of no immediate benefit to Tesla, though.)
  • Tesla's Model 3 cars aren't selling well enough, and they can't make them fast enough. If that sounds contradictory, it's not.* Their production rate, as of last report was much too low to generate a positive cash flow. And if they could speed it up, they would find that many people who pre-ordered their cars with a modest, refundable deposit don't want to take delivery.
  • Tesla's stock, despite the recent plummet, is very expensive because people believe it will become even more expensive. If they lose that belief, as many short-sellers have done, the stock may plummet even more.
  • Short-sellers write articles very much like this one to encourage people to sell their stock so they can buy it back more cheaply.**
  • If Elon Musk isn't the magician I hope he is, Tesla and other Musk enterprises could be in Big Trouble.

How will this play out? Confidence may be restored, since Musk may well be a magician. I don't see him successfully getting much from the capital markets, but I suspect he may be or have already lined up a big investment from some other large company.

It would be tragic if his empire collapsed, and a cautionary tale for those imbued with his kind of ambition and those asked to finance it. I'd like to watch him pull a rabbit out of his hat.

* It also may not be true. I'm repeating here what I read in a Journal column by a journalist who may have heard a rumor himself. Tesla will report production figures soon and we'll find out more when they do.

** I have no Tesla stock and no financial interest in Tesla the company. Like everyone, I wish I had bought some when it was cheap and am afraid to do anything with it now.

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