Can any rational person look at the following timeline of events and not come to the conclusion that they’re all connected?
Dec 10, 2018 – Tesla launches 11 new stores in new retail offensive
Mar 1, 2019 – Tesla pays off $920 million debt to convertible senior note holders
Mar 2, 2019 — Tesla announces the closures of most of their stores and launch of $35K Model 3
Mar 8, 2019 —Tesla announces a $500 million increase to their ABL loan credit agreement
Mar 10, 2019 — Tesla announces that they’ll leave half of their stores open
Tesla’s adoring press keeps repeating the bogus assumption that Tesla has $3.7 billion in the bank. For a few days at the end of December that was true. However, if you really look at their financial statements and crunch the math you come up with an average daily balance that is almost half of that. And that was before the $920 million dollar bond repayment. This company is in deep trouble.
It appears that Tesla is dangerously low on cash and was forced to turn off the spigot on their largest expense, sales and service costs. Then when they were thrown a new lifeline of credit, they suddenly decide that they can keep some stores open. They must have been panicking that they weren’t going to get that increase in credit. Tesla only has Musk to thank for that. With an SEC contempt charge looming over them, who wants to lend them more money until the dust settles?
The whole excuse about trotting out the $35K Model 3 was a façade. That is not the real reason that they announced an online-only sales strategy. Elon Musk is simply trying to conceal the fact that they are dangerously close to insolvency. He’s taking drastic measures to shore up cash and trying not to spook shareholders.
As recently as February 19th in their 10K filing, less than 2 weeks prior to the “online only” strategy reveal, Tesla was touting their retail stores as pivotal to their future success. Do you think they really wanted to close any stores? Of course not. And if they had the money, they’d not only keep them all open, they’d expand to more locations.
Tesla also didn’t have an about-face regarding closing their stores because they suddenly realized that they couldn’t get out of their leases. Tesla is in a fight for their very survival. They don’t care about stiffing a bunch of relatively small property owners. The larger ones can sue for repayment and the smaller ones can go pound sand. Maybe they’ll get their money in 2022 if Tesla is still around. Right now, Tesla is worried about having enough cash to operate for the next 90 days. They don’t even care if they show a profit at this point. They just need to keep the lights on.
Tesla doesn’t have enough money to keep more than half of their stores open. How long can they survive on their $500 million ABL credit increase? Tesla needs a lot more than that to last to the end of the summer. Either more loans, another stock offering, or a buyer. Something needs to happen, and fast.
For the past few years you could make both a credible bull or bear case for Tesla. However, it’s getting harder and harder to make the bull case. The Model 3 failed. There is no fully-automated assembly line that allows Tesla to drastically reduce cost of production. Further, demand for the Model 3 appears to have failed to cross over into the general public outside of their tech-nerd fan base.
2019 is going to bring a finality to the argument for or against Tesla. Before the clock strikes 12 on December 31st, one side will obviously be right and the other wrong.
Mar 1, 2019 – Tesla pays off $920 million debt to convertible senior note holders
Mar 2, 2019 — Tesla announces the closures of most of their stores and launch of $35K Model 3
Mar 8, 2019 —Tesla announces a $500 million increase to their ABL loan credit agreement
Mar 10, 2019 — Tesla announces that they’ll leave half of their stores open
Tesla’s adoring press keeps repeating the bogus assumption that Tesla has $3.7 billion in the bank. For a few days at the end of December that was true. However, if you really look at their financial statements and crunch the math you come up with an average daily balance that is almost half of that. And that was before the $920 million dollar bond repayment. This company is in deep trouble.
It appears that Tesla is dangerously low on cash and was forced to turn off the spigot on their largest expense, sales and service costs. Then when they were thrown a new lifeline of credit, they suddenly decide that they can keep some stores open. They must have been panicking that they weren’t going to get that increase in credit. Tesla only has Musk to thank for that. With an SEC contempt charge looming over them, who wants to lend them more money until the dust settles?
The whole excuse about trotting out the $35K Model 3 was a façade. That is not the real reason that they announced an online-only sales strategy. Elon Musk is simply trying to conceal the fact that they are dangerously close to insolvency. He’s taking drastic measures to shore up cash and trying not to spook shareholders.
As recently as February 19th in their 10K filing, less than 2 weeks prior to the “online only” strategy reveal, Tesla was touting their retail stores as pivotal to their future success. Do you think they really wanted to close any stores? Of course not. And if they had the money, they’d not only keep them all open, they’d expand to more locations.
Tesla also didn’t have an about-face regarding closing their stores because they suddenly realized that they couldn’t get out of their leases. Tesla is in a fight for their very survival. They don’t care about stiffing a bunch of relatively small property owners. The larger ones can sue for repayment and the smaller ones can go pound sand. Maybe they’ll get their money in 2022 if Tesla is still around. Right now, Tesla is worried about having enough cash to operate for the next 90 days. They don’t even care if they show a profit at this point. They just need to keep the lights on.
Tesla doesn’t have enough money to keep more than half of their stores open. How long can they survive on their $500 million ABL credit increase? Tesla needs a lot more than that to last to the end of the summer. Either more loans, another stock offering, or a buyer. Something needs to happen, and fast.
For the past few years you could make both a credible bull or bear case for Tesla. However, it’s getting harder and harder to make the bull case. The Model 3 failed. There is no fully-automated assembly line that allows Tesla to drastically reduce cost of production. Further, demand for the Model 3 appears to have failed to cross over into the general public outside of their tech-nerd fan base.
2019 is going to bring a finality to the argument for or against Tesla. Before the clock strikes 12 on December 31st, one side will obviously be right and the other wrong.
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