Tesla seeks $2.7 billion to replenish cash reserves

The S3XY fleet
Photo: Tesla|Timothy Artman

Last month, electric car maker Tesla announced it experienced a 31 percent sales drop between Q4 2018 and Q1 2019. As a result, the firm’s stock price declined by a worrying 11 percent. Subsequently, CEO Elon Musk tried to rally investors by touting the world-changing potential of the company’s autonomous driving program. But, the family of a Tesla owner who died using his car’s Autopilot system is suing the corporation and casting doubt on Musk’s claims.

Now, the car manufacturer is dealing with the fallout of its recent underperformance and legal issues. Earlier this month, Tesla filed to offer shares of common stock in order to raise $2.7 billion in operating capital.

In the latter half of 2018, Tesla’s strong and consistent sales suggested it had reached financial maturity. But the fact the corporation burned through $1.1 billion in the first quarter of this year indicates it has more growing to do.

Cloudy Future

During its 2018 growth phase, Musk stated his company no longer needed to raise capital to sustain its operations. Tesla’s new filing proves that’s not the case and its inability to thrive has some high-profile investors and analysts concerned.

On May 6, Morgan Stanley released a new investors’ note highlighting Tesla’s precarious financial position. The investment firm argued the electric vehicle pioneer’s current funding round is only a “stop-gap” measure. Furthermore, the note said the company needs to overcome two major challenges to realize its potential.

Morgan Stanley analyst Adam Jonas, formally a Tesla booster, also questioned the public’s continued demand for the firm’s products. He argued the corporation’s sales will stay flat throughout the year because its current models are old. He further explained the growing market for used Tesla roadsters, sedans, and crossovers is suppressing new car purchasing.

Jonas also pointed out Tesla’s struggle to deliver its products to China. The manufacturer’s first-quarter profits were hurt because it failed to deliver its vehicles to waiting Chinese customers. The analyst predicted the firm won’t be able to bring significant quantities of its most popular car, the Model 3, to China until early 2020. By that point, Jonas reckoned, local electric car makers may have cornered the regional marketplace.

The CEO who Cried Wolf

Morgan Stanley isn’t the only finance sector heavyweight questioning Tesla’s future. At a recent conference, Greenlight Capital President David Einhorn took the company to task for promising more than it delivers.

The billionaire hedge fund manager slammed Musk for comparing his competitor’s products to horses and claiming his firm’s vehicles will double or triple in value in three years. Einhorn also called the Tesla founder boasts about cracking the autonomous car problem, “horse—-.”

The investor listed the company’s erratic pricing, attempted closing of its retail stores, and “rushed” product announcements as signs of its instability. Last year, Greenlight lost 34 percent by shorting Tesla’s stock but achieved 11 percent return last quarter by betting against its success.

Nvidia, the car company’s former chipmaker, joined the growing number of Tesla skeptics last month. At a recent investors meeting, Musk claimed his firm developed semiconductors that were vastly superior to his old vendor’s. The component corporation struck back by pointing out the misleading and outright false nature of his comments, a revelation that caused Tesla’s stock to drop.

Though his recent purchase of $25 million in Tesla stock helped, Musk could best serve his company by stepping down. A brilliant technologist, the South African inventor simply doesn’t have the temperament to be the CEO of a large corporation. Hopefully, Musk will set his ego aside and realize the thing inhibiting his company’s growth is its leader.