Tesla is having a disastrous month. Following the fatal accident which involved a Tesla vehicle on autopilot, numerous companies have come out and suspended autonomous driving programs. Shares of Tesla have plummeted 22% in March as the company also experienced a credit rating downgrade.
Morgan Stanley on Wednesday came out and warned Tesla shareholders that this freefall could only be the beginning…
Analyst Adam Jones warned:
A lower share price begets a lower share price … For a company widely expected to continue to fund its strategy through external capital raises, a fall in the share price can take on a self-fulfilling nature that further exacerbates the volatility of the share price
Jones went on to say that the company must increase production for its model three if the company wants to raise capital at an attractive valuation, as he continued:
The precise timing of when Tesla can achieve a 2,500/week and then a 5,000/week production run-rate for its mass market sedan can make the difference between whether Tesla is potentially raising capital from a position of weakness at a price near our $175 bear case or whether it can access capital from a position of strength with a stock price near our $561 bull case
The company has burned cash at an alarming rate, as it lost $2 billion last year and burned $3.4 billion in cash after capital investments in 2017. At the end of the year, it had 3.4 billion left in cash or cash equivalents.
With $230 million of debt due in the latter portion of 2018 and an additional $920 million in 2019, many analysts believe that the company will need to raise capital soon.
On top of the backlash from the fatal accident, Tesla just issued a recall of more than 120,000 model S vehicles due to the risks of power steering failure. Tesla announced this news after the close on Thursday, forcing institutional investors to report holdings without giving them the chance to modify their positions on this news as it was the last day of the quarter. (Well played, Elon)
However, what is even more alarming is the numerous reports that Tesla’s senior VP of engineering Doug Field is encouraging the acceleration of production of Model 3s in a short timeframe. Field who has criticized short-sellers, for having production concerns should probably just stay out of the limelight before people realize that he has backed up the truck by unloading Tesla shares himself (Latest March 5th):
Source: Zach Marx on Twitter
The big question is, will Elon be able to tweet his way out of this mess?