Wednesday, August 29, 2018

The lurches of Elon Musk baffle Tesla investors

The lurches of Elon Musk baffle Tesla investors

The titles of the company of electric cars lose 7% since its founder announced on August 7 its exit from the Stock Exchange

Tesla is still under pressure. Investors, not very happy with Elon Musk , take the situation with due caution, despite the fact that the founder of the electric car manufacturer has decided to abandon the idea of ​​removing the stock company.

The company's shares fell on Wall Street yesterday at around 2% in mid-session. Even the most faithful ask him to change his attitude to recover his credibility. Since last August 6 - when, in a new outburst, Musk said he has the funds to get the company out of the park - he loses 16%.

There is no middle way in Tesla and the questions accumulate. Gene Munster, analyst at Loup Ventures, is still betting on Musk. But he says that in order for the company's value to continue to grow, "investors' confidence must be earned." Rajvindra Gill, from Needham, believes that it is false to say that he was unfairly criticized. "It has been four years saying that it will be profitable," he says.

Tesla loses more than 7% since the end of August 6. On the 7th, Musk said he had the funds to get the company out of the market in an operation that valued society at $ 420 per share. He explained that it was backed by Saudi Arabia.

But both the stock market and the debt market were skeptical from the start. On the day of the announcement, the securities shot up more than 10% and the stock market regulator suspended the price at 379.57 dollars. But since then, it has not done more to deflate. On Monday, Tesla closed at $ 317.6, a drop of 1.6. Since the peak of the exit announcement, the collapse is 16 and 7% from the previous day.

In the second quarter, the company had losses of 718 million dollars (615 million euros). It is worrying how quickly the company burned cash to scale the production of Model 3. It spent $ 1.8 billion in the first half. The accounts published at the beginning of the month showed that it had 2.78 billion dollars available.

This situation is complicated by 1.3 billion in convertible debt that has to be repaid in November and March. The long-term debt amounts to 11,000 million. Therefore, Wall Street follows closely all the projections made by Musk both in public presentations and through his Twitter account. So does the stock market regulator.

The big challenge of Musk is to demonstrate that it can sustain the production of the Model 3 above a level that guarantees the profitability of Tesla.

For this, it should assemble more than 5,000 units of the utility a week, something that it already achieved at the end of June. The executive anticipated in the last conference with analysts that the company would start making money in the third quarter.

The Model 3, in addition, is selling well above the base price of $ 35,000 (30,000 euros). This helps improve the profit margin per vehicle. But Musk is known for being especially optimistic when it comes to anticipating the progress of the business, so analysts tend to take their ads with caution. In the parquet they project that the profitability will arrive in 2019 as soon.

"It will not be in this quarter that closes in September or December," Munster ventures, "but it will manage to generate positive cash flow." It also anticipates that demand for the Model 3 will escalate as more affordable cars reach the market.

 Gill admits that Musk is a brilliant person, but notes that the battery pack is still too expensive for the base model and the competition grows.

Musk repeats that he does not need to go to the market to provide himself with additional liquidity, despite analysts' pessimism about his financial situation.

One option is that the debt that is going to expire in the short term be paid in shares instead of in cash. That way I would be able to earn half a year of time and preserve capital.

The other possibility is that it directly sells shares in order to regain the confidence of investors. But that would enter into a clear contradiction with his message that Tesla is well capitalized. Gill recalls that it would not be the first time Musk has to bite his tongue and points out that it is an increasingly complex company, citing the complex he wants to set up in China.

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