The Strategist

Three months before the bankruptcy of Tesla: Will Elon Musk save his brainchild?

03/19/2018 - 14:05

This summer can become a point of no return for Tesla. The manufacturer of electric cars made a bet on the mass market, investing in the Model 3 billion dollars, but these investments have not justified themselves so far. The company continues to lose an unacceptably high volume of funds, and it is impossible to reach a sufficient level to generate profit - the terms of its achievement have been postponed twice already. The third transfer may result in bankruptcy for Elon Musk’s company.

Jeff Cooper via flickr
Jeff Cooper via flickr
Elon Musk launched a Tesla car into space and put it in an underground tunnel, which would make it possible to travel around the city traffic jams at a speed of 200 km/h. However, the eccentric billionaire hasn’t managed to make his brainchild profitable so far. The company is suffering losses and burning billions of dollars: since its launch on the stock exchange in 2010, Tesla has spent more than $ 10 billion. This is an unusually large amount for a public company of this size, Bernstein analyst Toni Sacconaghi told to The Wall Street Journal. However, the moment, when the company will either have to start earning, or be threatened with bankruptcy, is approaching.

Tesla's financial statements for the past year showed that the company spends about $ 1 billion in cash per quarter. By the end of 2017, there was about $ 3.4 billion at the disposal of the manufacturer. This means that at such a rate of costs, the company will run out of cash in the autumn of this year. Musk spent most of this money to launch the budget electric vehicle Model 3, which is assembled on a new platform, different from the previous models of the company. Last autumn, the company started to implement the first supplies of Model 3. However, the company as a minimum needs to reach the level of production of 5 thousand cars a week to start generating profits. This is the goal that Elon Musk set for his company. Initially, it was planned to reach the mark of 20 thousand cars produced per month by the end of 2017, but the company could not cope with this task and already twice missed the deadlines for achieving this goal. Now the manufacturer expects to reach the level of 5 thousand cars a week before the end of June.

Elon Musk is doing everything to hit the goal. In particular, works at the plant in Fremont, engaged in the production of Model 3, were recently suspended for technical works to improve the production process. In the coming months, according to the company, several more pauses are expected. If Tesla does not cope with this task, it will be very difficult to make both ends meet. Tesla itself stated that it has another $ 2 billion of unused credit, but some of the money can be used only for certain purposes. In addition, the company will face an increase in the interest rate on debt bonds by $ 10 billion and an increase in expenses for growing production rates. To top it off, Tesla is threatened with a loss of confidence from investors in the event of another failure. And they have already started to leave the project: three out of the ten largest shareholders recently reduced their presence in the company's authorized capital, as evidenced by the reporting for the last quarter. For example, Fidelity Investments, which is the second largest shareholder after Elon Musk himself, has significantly reduced its share in Tesla in the last three quarters of 2017. In such conditions, the company, which was considered the most successful in the market of electric vehicles, may find itself in a desperate situation and become bankrupt. Elon Musk has just three months to save his company.