Elon's latest letter sends shock waves through Wall Street
Published on January 20, 2019 |
by Steve Hanley
20. January 2019 by Steve Hanley
When Tesla went through "production hell" with model 3 last year, Elon Musk tweeted that he had underestimated the value of human workers. The model 3 assembly line was the most automated in the world, but many of the machines were not properly calibrated or broken down, leading to a decline. Tesla responded by hiring more workers and expanding its workforce by about 30%.
On January 18, the company announced that it is about 7% of its full-time employees and warned that profits in the fourth quarter would be lower than in the previous quarter. Q3 had a modest profit for the company of just under 4%. For the fourth quarter, Elon says that the company will again be profitable, but that the profit will be "small". The actual figures will not be released officially until the next investor conference in early February. (Meanwhile, if you are interested, Vijay has published its estimates.)
Musk justifies the decision to lay off 3,000 workers by saying that the company must find ways to reduce the cost of its cars. "We look forward to our mission to accelerate the advent of sustainable transport and energy, which is important for the entire life of the Earth. We face an extremely difficult challenge: to make our cars, batteries and solar products competitive with fossil fuels.  "Although we have made great strides, our products are still too expensive for most. Tesla has only produced cars for about a decade, and we are facing massive, anchored competitors. The network effect is that Tesla must work much more difficult than other manufacturers to survive while building affordable and sustainable products.
"[T] He is very difficult in the future. This is not new to us – we have always had great challenges – but it is the reality we are facing. There are many companies that can offer a better balance between work and life, Because they are bigger and more mature, or in industries that are not as green competitive, attempts to build affordable clean energy products will necessarily require extreme effort and relentless creativity, but it is important to succeed in our mission to ensure the future is good, so we have to do everything we can to promote the cause.
"Higher volume and production design improvements are crucial for Tesla to achieve the economies of scale required to produce the standard range (220 mil), standard interior model 3 of $ 35k and Still be a viable company. There is nothing else. "
The news sent the Tesla share to free fall, throwing 13% during the trading day on Friday and knocking Tesla down a few notches on the list of most valuable car manufacturers – from # 4 to # 7.
And of course it brought the usual assortment of "I told you many years ago that Tesla would never make any" naysayers on Wall Street. One of them is Forbes contributor Jim Collins , who wrote that it is lagging behind in quarterly profits, is exactly the opposite of what investors will hear.
"This margin reduction will indicate that the benefits of scale are not at all at Tesla, and it is a virtual death blow for those The bullish arguments for the stock. Auto companies are generally perceived to have a huge amount of fixed costs that can be amortized over production, thus more production should be equal to both higher dollar profits and higher profit margins. "(Collins ignored what someone who follows Tesla knew very closely – Tesla sold a large number of very high, high margin versions of Model 3 in the third quarter, and then many of the more affordable Model 3 Mid Range in the fourth quarter.)  Bret Kenwell, writes for The Street was worried that the decline in the stock price would make it difficult for Tesla to pay $ 920 million in convertible bonds to come out on March 1. In the third quarter, Tesla was cash flow positive and profitable, and as long as that is the case in the fourth quarter, Tesla should be able to make the payment in March, even if it is all the money, but it is an unfortunate time for Tesla, as it tries to get its Shanghai factory open before year-end, continues to expand its Supercharger Network and has a number of new models underway. "
Tesla has done a high-wire action for the past 15 years. Many analysts and journalists claimed Tesla's affordable death 10 years ago. Its stock is one of the most volatile and has always been. Chances are, it will continue to be. The convertible bond conversion price is $ 359.88. "[I] t is always possible that the Tesla stock will be able to rally over the conversion price in time to pay a portion of the debt with shares. After all, it is more than a month away and we have seen bad things than a 20% rally in Tesla's share price shortly, Kenwell says.
What comes down to it, you trust Elon Musk or not? Some very big investors – such as Tencent, Baillie Gifford, Ron Baron, and Larry Ellison – have made bets on Elon and Tesla Perhaps jittery shareholders should be more aware of what the company's big investors are saying than a few so-called analysts who get paid to touch the forehead.
As Elon says, the way forward will be difficult. Not to be very excited to be out of work, despite the pressure and difficult working conditions, Tesla is still considered one of the best places to work in the industry, the bottom line being that Musk knows that his overall plan is dependent on making electricity ecstatic cars that more people can afford. There is good news for the electric car revolution going forward, but the path will not always be smooth.