In 13 years in business, and Tesla (NASDAQ-TSLA) has never made a dime of profit. Its best year ever was a $74 million loss. Moreover, even those days are behind it and Tesla is about to crash and burn.
The company is now headed for even bigger trouble as a number of major financial and operational issues pile up.
First off the company is in deep financial trouble. Tesla is in deep debt to the tune of $10.3 billion according to its most recent annual report. The debt wasn’t a problem when interest rates were at near 0% but interest rates have been steadily marching up over the last couple of years.
Moreover, the OIS-LIBOR spread has been widening. This is important because a widening OIS-LIBOR spread means corporations need to pay a higher premium on their interest expense because of increased credit risk in financial markets. Tesla will be hit particularly hard because its finances are in shambles.
Indeed, Tesla’s is burning through cash so fast that it will run out of money in five months if it doesn’t find more financing. Accordingly, Tesla is teetering on the edge of financial ruin.
That’s a problem because …
Tesla is about to crash and burn due to operational and leadership problems
Tesla founder and CEO Elon Musk is every short-side trader’s dream. He is full of hubris, arrogance and is reckless to the point of endangering his company. For instance, Musk has pushed the company towards excessive automation of its vehicle production. The result is that the Tesla Model 3 has huge production issues.
Indeed, Musk admitted that the Model 3 is in “production hell” because Tesla used too many robots. “It’s worse than I thought,” Musk said, “We have this crazy complex network of conveyor belts and it was not working so we got rid of that whole thing.”
Falling behind the production is a potentially fatal problem for a company that’s also burning huge amounts of cash at the same time.
Moreover, Tesla’s electric vehicles continue to have problems post-production. For instance, the company recalled 123 thousand Model S vehicles due to faulty power steering just last month.
That might not sound like a lot but Tesla only produced 101,000 vehicles last year. Accordingly, this is a hefty recall relative to Tesla’s overall production.
Indeed, Tesla vehicles are 3.7-times more likely to be involved in a fatal car accident than other competing luxury cars. In short, they are not safe.
Finally, the company is wildly overvalued relative to its peers. Tesla is only worth about $20 per share. That’s 15-times its current stock price of $300.
Moreover, that valuation is based on the generous assumption that Tesla would eventually end up with a return on assets similar to industry leader Toyota. At its current cash burn rate, it is more likely to go out of business.
In conclusion, Tesla is going to be an epic short as Tesla is about to crash and burn over the course of the next year. Be smart, be nimble, wait for good entry to short with put options.