Will Tesla Be Bankrupt In 18 Months?

‘It’s with great sadness we report that Tesla Inc. is no longer a going concern. After reviewing their books, it’s clear there’s no money. Even after selling off the immense physical assets there’s just not enough to pay back the debt.

‘The sales of the Model 3 were good. Just not good enough. And the Model Y now in mid-production, will sadly never see the light of day.

‘Model S, X and 3 owners will have a five year window of ongoing service and support. However beyond five years it will be reliant on independent service mechanics to maintain the vehicles.

‘All cars that require new batteries will need to source them from other suppliers.

‘The entire supercharger network has been purchased. A co-operative of car makers from BMW to Mercedes and Jaguar Land Rover will acquire and retrofit the superchargers to suit their full line-up of electric vehicles.

‘All pre-orders for the Tesla Truck will be available for full refund. Production of the truck will also cease.’

This isn’t fact. Actually it’s the sort of statement we would expect administrators to make in the event that Tesla Inc. were in fact to go bankrupt.

If there were no money to pay debts the company would fail to continue. If their debts were recalled, and they couldn’t pay, they would go under. If they were unable to fund their ongoing losses, they would go under.

And when you look through their latest quarterly results…there’s a good chance Tesla may go under.

Imagine that. A $51 billion household name bankrupt within a year and a half. It would be one of the biggest corporate failures in history if it did fail. It would also bring the cult-like following of Tesla owners to their knees.

Many people continue to believe it’s impossible. Many believe there’s no way a company like Tesla could possibly go bust. But then again we’re not most people.

Now we will fess up. We’ve been wrong about Tesla for around the last four years. On December 8 2014 we wrote a piece with the title, ‘Is Tesla the Best or Worst Company on the NASDAQ?

We continued to say:

There’s no doubting the Tesla Model S is an outstanding car. It’s the first electric vehicle (EV) people want to buy.

If you think Tesla is a great company, I agree with you. But will they be a great stock in two years? I don’t think so. 

Tesla might have the market cap, but they don’t have anywhere near the production capability of BMW, Audi, or Volkswagen…’

We were wrong. At the time Tesla’s stock was worth US$207.

Then on February 2 2015 we wrote a piece titled, ‘Why Tesla is a Horrific Investment’.

We wrote:

I do like Tesla as a company. They’re a necessary part of a competitive market. Already they’ve pushed existing car companies into an EV market they might not have touched for another decade.

That’s a good thing. But as an investment? No. Tesla is stupidly overpriced. If you wanted to look into car companies as an investment, every other car maker in the world would be better value.’

Again, we were wrong. At the time Tesla’s stock was worth US$217.

On July 16 2016 we also wrote, ‘If you’ve got the guts, short Tesla’. Here’s the nuts ‘n’ bolts of that one:

I think Tesla has a problem. I don’t think they’re particularly good at producing and delivering cars. Make no mistake, the cars they do make are exceptional. But they’re not good at doing it on a large scale.

I also think the way they manage their cash and debt is dubious.’

We were wrong again. At the time Tesla stock was worth around US$222.

And by around June 2017 Tesla’s stock was trading at a high of US$389.61.

Or…were we right all along?

You’re only wrong until you’re very right

We’ve had a look through Tesla’s latest Form Q-10. That’s the financial results they release to the market each quarter. And next to the line marked, ‘Long-term debt and capital leases, net of current position’ there’s a number. A big number.

It reads: 8,761,070.

Now these numbers are in thousands. And in US dollars. What that means is Tesla’s long-term debts are in excess of US$8.761 billion.

Not great. Their overall net asset position is in the positive. Sort of. You could strip out their solar energy systems, ‘leased and to be leased’, and that figure turns negative.

But that’s not even really the big concern here.

The big concern is their ongoing failure to even look like they’re making money. Automotive sales were $2.561 billion. The cost of those revenues was $2.091 billion.

Compare this to the previous corresponding period from 2017.

Automotive sales: US$2.035 billion. Cost of those revenues: $1.496 billion.

That means on raw car sales alone in 2017 they made a gross profit of US$539 million.

But in 2018 that figure was US$470 million.

This is a company that barks very loudly about their push to a more efficient production line. A company that plans to make 5,000 Model 3 cars per week…

By the way, the big car companies make millions per year. Tesla at best will do a couple hundred thousand…and they still can’t make their cars economical. Tesla releases new models faster than they can make existing ones work. It’s not a great strategy for success.

Yet somehow Tesla ranks as the 3rd most reputable brand in the US. The only companies higher are Amazon and Wegmans (Wegmans is a supermarket chain).

Tesla owners, Tesla ‘fans’, are more blinkered than Apple fans. In fact, we dare say Tesla owners and fans are ‘cult-like’. They can’t see this company isn’t moving forwards at all. They’re heading backwards.

And let’s also not forget that when you get to the bottom line of Tesla’s financials, the picture is worse. They reported a net loss for the first quarter of 2018 of US$784 million. The loss for the corresponding period in 2017 was US$397 million.

This company is increasing losses, increasing debt and making less money per car.

Apparently it’s all going to magically turn around with the Model 3. But that’s what they said with the Model X. And now there’s a potential Model Y to come sometime in the future. So they can say the Model Y will save them all when the Model 3 is a sales flop.

Again, I actually like Tesla. I like them as a disruptor to the car industry. They are ambitious. They push the boundaries. Without them the car industry is very different. They’ve forced global change for the good.

But they stink as an investment. And they now stink as a company.

How long can they kick the can down the road? How long can they fail to deliver on sales and production targets? How long will the fans stick around when other alternatives hit the market?

Their flaws are still on show for all to see. The numbers don’t lie. The story is convincing. But the numbers don’t lie.

In our view the value of the company will plummet. We don’t think we’re wrong about Tesla. Not yet. And if they continue on their current path we’ll be incredibly right. Maybe as soon as late 2019 when the administrators walk in.


Sam Volkering,
Editor, Secret Crypto Network

Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

If you’d like to learn about the specific investments Sam is recommending in either small-cap stocks or cryptocurrencies, take a 30-day trial of his small-cap investment advisory Australian Small-Cap Investigator here, or a 30-day trial of his industry leading cryptocurrency service, Sam Volkering’s Secret Crypto Network here.

But that’s not where Sam’s talents end. Sam specialises in finding new, cutting edge tech and translating that research into how the future will look — and where the opportunities lie. It’s his job to trawl the world to find, analyse, research and recommend investments in the world’s most revolutionary companies.

He recommends the best ones he finds in his premium investment service, Revolutionary Tech Investor. Sam goes to the lengths of the globe and works 24/7 to get these opportunities to you before the mainstream catches on. Click here to take a 30-day no-obligation trial of Revolutionary Tech Investor today.

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