There only seems to be two schools of Tesla (NASDAQ: TSLA): Those who love the electric car manufacturer and those who despise it with a heated passion.
And there are plenty of aficionados who belong to each party.
There’s been a lot in the press lately condemning Tesla’s future success.
With a disappointing production schedule for the highly anticipated Model 3, plummeting stock prices, failed IISM crash ratings, and an ever-growing competitor market, Tesla has a lot of work to do if it wants to ever get back on top again.
The Slippery Slope
Not too long ago, it seemed like CEO Elon Musk could do no wrong.
This month was supposed to be Musk’s big break with Tesla’s first Model 3 sedan rolling off the assembly line as its crown jewel.
Newly emerged competition and lingering concerns about Tesla’s ability to mass-produce shot the company’s stock down 17% just a few weeks ago.
Despite some modest gains, trading has still left shares on course for the company’s steepest drop since February 2016, placing its market value below General Motors (NYSE: GM).
The fall reduces the company down to $50.7 billion, just below GM at $52.6 billion. And it may make it harder for Tesla to pass GM a second time.
The blow to Tesla’s stock came just after regular trading stopped right before the July 4th holiday.
The California-based electric carmaker posted a quarter-by-quarter drop for both the Model S sedan and Model X SUV for three months, ending with June.
Musk desperately needs the revenues from both models to keep funding up for the costly Model 3.
Musk and his team have to get production levels up to put their company back on track to make a profit (which has obviously eluded Tesla for the past few months), let alone support the company’s $50 billion market cap.
In May, Musk even told the Guardian that Tesla’s valuation, which used to top manufacturers that sell substantially more vehicles than it does, was completely unwarranted:
I do believe this market cap is higher than we have any right to deserve.
But with the recent bouts of bad news, investors are shying away, and the stock dropped another 3% after the publication of the Guardian article.
Nobody wants to invest their hard-earned dollars in a company that spends too much, isn’t turning a profit, and can’t keep promises.
Production Problems
Last year, Musk promised that Tesla would sell about 100,000 Model 3s this year.
With numbers like that, investors flooded in and thousands of customers preordered the new mid-class sedan.
But a few weeks ago, while outlining a production plan on Twitter, Musk said that the company was expecting to make 30 cars this month, 100 in August, and 1,500 in September.
He expected that production would to climb to about 20,000 cars by December.
That would leave production numbers significantly short of the promised 100,000.
And nearly 400,000 Tesla customers are starting to get heated. They want to know when they’re going to receive what they paid for.
Tesla said that a battery production problem was the primary reason for reduced deliveries, but this statement was not enough to save its market value from falling.
The carmaker suffered similar carnage last year when it was revealed that a Model S owner, Joshua Brown, died in a self-driving car accident.
But soon after the news broke out, the company came up with “Master Plan, Part Deux” and announced that it would increase its production to 500,000 vehicles per year by 2018 in hopes of a drastic turnaround.
It looks like Musk is going to have to come up with something similar to get the stock moving upward again and to increase the company’s depleted market value.
If not, we may just see another massive drop from Tesla, as it is already losing out on cash and failing to achieve profitability.
If Tesla takes another hit like this, it just might not recover.
Failed Safety Tests Mean BIG Trouble
The electric carmaker was off to a relatively rough start the morning after the Insurance Institute for Highway Safety (IIHS) released information regarding the Model S.
Unfortunately for Tesla, the news illuminated the luxury sedan’s failed safety test ratings, which caused a shock wave of concern to ripple through investors, driving the company’s stock lower and lower.
The issue lies with the performance of the seat belts in the vehicles.
During the tests, the Model S’ seat belt allowed the crash test dummy’s torso to move too far forward.
As a result, the dummy’s head hit the steering wheel through the airbag.
While the Model S did earn Tesla an “acceptable” rating, the car failed to earn the top safety award. And this was something that investors and consumers were both really banking on.
Subpar safety ratings will make consumers really shy away from the pricey luxury models, now.
Musk and his team can’t afford to lose more sales on these models because they’re funding the already delayed Model 3 production.
New Market Saturation
In a move that is considerably more threatening than GM’s Chevy Bolt, Volvo (OTC: VOLVF) recently announced that it plans to have its entire vehicle lineup running on some form of electric battery power by 2019.
This is a move that should definitely worry Tesla and its shareholders.
Volvo is an incredibly respected car manufacturer that’s praised for both its quality and safety.
The company also has the infrastructure and know-how to by far out scale what Tesla can put together.
Tesla has to learn how to mass-produce vehicles and quickly for any hope of survival. Whereas its competitors simply need to swap out engines…
Daimler (OTC: DDAIF) has also been working on its own lineup of electric vehicles (EVs).
The combination of the competition from two of its rivals should say a lot about Tesla’s long-term feasibility.
We can assume that Musk and his team have only a small window of opportunity to reestablish its place within the electric automobile industry before competitors like Volvo, Daimler, and other American manufacturers take Tesla out altogether.
The Bottom Line
There’s something to be said about a company that basically had the Rolls Royce of electric cars with the Model S but failed to make a profit from it.
Something can also be said about a company that promised shareholders and consumers over 100,000 cars by now but, currently, barely has anything to show for it.
Tesla is notorious for burning through cash. And with falling share prices and decreasing sales, the company is riding the fast track to ruin.
Unless something changes, and soon, we might not see much more from Tesla…
That’s all for now.
Until next time,
John Peterson
Pro Trader Today