The winding story of Tesla (NASDAQ 🙂 becomes overwhelming for investors and analysts who follow the shares. This is a company with a promising product, electric cars, run by a terrible manager, Elon Musk. The events of recent weeks have brought this reality to grim relief, raising serious questions about whether it is possible for Musk to lead the car manufacturer in its most crucial developmental phase
On March 10, Tesla retreated via a blog post to his main marketing strategy and said it now plans to keep a large number of its showrooms open and raise the prices of its expensive models by 3%. This came just 10 days after Tesla announced it was planning to liquidate everything but a small number of its stores in an effort to save costs in trying to find a cheaper version of its Model 3 Sedan, the first mass-produced car from the automaker.
"By moving all online sales, combined with other ongoing cost savings, we can lower vehicle prices by around 6% on average, which enabled us to realize the $ 35,000 pricing model earlier than we expected," Tesla said on February 28 . The abrupt decision to close his stores was difficult for both his employees and investors. No matter how good the Tesla fans are, it would be naive to think that their cars would attract a large number of buyers without a physical presence.
Musk & # 39; s habit of sending half-baked and sometimes incorrect information via its Twitter feed remains an ongoing issue, seriously undermining its image. It has also led to a lawsuit against Securities and Exchange Commission securities fraud.
We believe that these latest events clearly show a company in financial need. Exchanging at $ 288.96 at the end of yesterday, Tesla shares have lost about 6% of their value last month and 7% since early 2019, demonstrating the nervousness of investors who now increasingly believe that Tesla is on-the -fly makes decisions and responds to challenges without deep thought.
Tesla Weekly Chart
Shrinking money cushion
In our opinion, at the heart of this nervousness and haphazardness is the small money cushion of the company, which runs the risk of being exhausted in the event of a significant slowdown in car sales. The economic aspects for every car manufacturer are very simple: sell cars at large volumes with margins sufficient to justify the huge investments that have been made.
For Musk, this basic comparison is becoming increasingly difficult to achieve in a global market where growth is coming under pressure. According to InsideEVs, a blog Musk has repeatedly cited in its Twitter posts, Tesla sold around 5,750 Model 3's in February and 6,500 in January, a significant reduction from a record of 25,250 in December. This bearish spell affected exactly as the federal tax benefit available to Tesla buyers was reduced to half from January 1, 1945.
Tesla had approximately $ 3.7 billion in cash and equivalents on December 31, before making bond payments of $ 920 million on March 1, the largest debt payment to date in Tesla's nearly 16-year history. If Tesla's car sales in North America continue to slow down and if Musk's European and Chinese sales plans do not live up to what he hopes, chances are that the company's shares will be tested even more in 2019.
Selling model 3 in Europe and China is important for Tesla to counteract a slowdown in North America. "We are excited to bring Model 3 to Europe and China early next year, given that the market for medium-sized premium sedans in that region is even larger than in North America," said Musk during the income call of October according to Bloomberg. ]
Bottom Line
In accordance with our earlier opinion, Tesla is too large a battlefield that investors can deal with. With the company's small cash reserves, the marketing strategy in difficulty and the CEO in a constant battle with the US regulator, we do not see Tesla shares stabilizing quickly.
On the contrary, we see a large number of downside risks if the global economy continues to slow down and car sales in North America do not increase. With these uncertainties on the horizon, we think it's better to stay away from Tesla.
