Over the past year, the previously impervious Tesla Incorporated has been through the ringer. A company that only last April passed Ford to become the highest capitalized automotive company in the United States has gone from weakness to weakness, with its stock price consistently falling and its investors increasingly skittish. That Tesla has reached this low is simultaneously unsurprising when considering economic fundamentals, and shocking, when looking at the erratic behavior of its founder and CEO, Elon Musk.
The story of Tesla this year is twofold: one half is the story of a company finally having to come to terms with its own shortcomings and the other is the slow disintegration of what can only be called a personality cult around Elon Musk. Both have contributed to Tesla’s shaky position, and while they are fundamentally different stories, they increasingly interweaved as 2018 has worn on.
Tesla has always had naysayers, but until 2018, they had consistently been drowned out by personal admirers of Elon Musk as well as consumers happy with the luxury Model S, which despite production delays has been a commercial success. These critics pointed to several factors behind their choice to criticize the company, and in some cases, short its stock.
Firstly, they considered then, and still consider now that Tesla’s stock is massively overvalued. Throughout the year, Tesla’s stock has been valued similarly to that of General Motors’, despite the fact that GM sold 9.6 million vehicles in 2017 while Tesla sold a paltry 100,000. Secondly, GM made a profit of 12.8 Billion USD that year while Tesla lost 2.2 Billion USD. Even if Tesla survives as a company and eventually turns a profit, stock-shorters say that Tesla’s stock cannot remain as high as it is in the medium term.
Other critics focus their attention on Tesla’s continuing inability to meet production targets. Production of the Model 3, Tesla’s affordable electric car, was a paltry 2,425 over the first three months of its run; Musk had stated that by 2018 the Model 3 would be produced at a rate of 20,000 per month. Even worse, in April of this year, production of the Model 3 had to be halted because of numerous issues with Tesla’s factories that disrupted production.
Supporters of Tesla say that this is due to the innovative, all-in-one, automation-intensive struture Tesla is pioneering. Once the issues are ironed out, Musk claims, Tesla’s production lines will be both more efficient and more productive than those of conventional car companies. He has pointed to the re-opening of the Model 3’s production lines in June at a higher capacity as proof of this. Despite these assurances, Tesla’s continued failure to produce enough Model 3’s even for those who signed up for special waiting lists is worrying to many investors.
Adding to these economic concerns are concerns about the mental health of Tesla’s founder and CEO. Elon Musk is well known for being a workaholic who spent an unhealthy amount of time responding to critics and trolls on Twitter, but this year has proven to be a difficult one for Musk personally and for his public image.
The trouble started when Musk flew to Thailand to offer his help (and a submarine his company SpaceX designed) to the effort to rescue a youth soccer team trapped in a cave system by flood waters. While initially well received in the media, some critics, including a diver directly involved in the rescue operation, accused him of having a God complex.
Musk shockingly responded by implying that the diver, a British ex-pat, was a pedophile on the basis that there could be no other reason for a retired British man to live in Thailand. The diver, Vernon Unsworth, threatened legal action against Musk, who initially apologized but week later reiterated his claim that there was “something fishy” about Unsworth. Unsworth responded by making good on his threat by suing Musk on grounds of defamation. This story, in all of its stages, has proven to be disastrous for Tesla’s stock, which fell almost exactly in time with each surge of negative headlines.
To make things worse, and to tie Tesla’s financial woes back in, Musk made an abortive attempt to take Tesla private under the wing of a Saudi investment fund. He blindsided his board of directors and the general public by stating his intention to take the company private at 420 USD per share, which initially sent Tesla’s stock skyrocketing on August 7th, but would later cause it to crash when the deal fell through and reports that the Securities and Exchange Commission was considering investigating the situation on the grounds that Musk may have deliberately manipulated Tesla’s stock price via his tweet.
Musk’s personal brand has also continued to take a beating, both in the public eye and in the financial sphere. A tell-all interview with the New York Times last month revealed the true extent of Musk’s struggles with stress and general mental well-being; a memorable part included Musk’s admission that he was overly obsessed with social media. While this generated some sympathy from the general public, investors worried that Musk, who wields a large degree of control over Tesla, was mentally unfit to lead the company during this period of financial hardship.
Compounding this was Musk’s appearance on the popular web series, the “Joe Rogan Experience” in which Musk smoked what was not explicitly stated to be, (but was plainly obviously) a joint. While that might score Musk some street cred, it didn’t help his reputation with his investors, as once the episode was posted Tesla’s stock sunk even further.
Of course, none of this necessarily means that Tesla has no future as a car company. Even its detractors admit that there is substantial demand for an affordable electric car, and that Tesla lacks much competition for the time being within that niche. But so long as Musk and his company continue to make unnecessary blunders, the continued survival of both the Musk and the Tesla brands is put at risk, as even if no blunders are made, Tesla’s future is still far from certain.
In the short term, the main challenges facing Tesla will continue to be ones of production. Production of the Model 3 has recently ramped up, reaching an all-time high this past week, and may finally reach its long-standing goal of producing 80,000 cars in a quarter. But this is still paltry compared to established juggernauts like Toyota, Ford, and Fiat-Chrysler.
If Tesla is to reshape the industry as Musk hopes it will, it will need to increase production by over an order of magnitude. Doing so may be difficult, as Tesla is already in about 11 Billion USD of debt, with its credit rating falling rapidly in the eyes of Moody’s, one of the largest bond-rating companies. Even if the current debt load can be managed, a difficult task given Tesla’s continued failure to turn a profit, the company has passed the honeymoon phase in which investors would pour money into the firm based solely on Musk’s personal appeal and Tesla’s innovative approach.
At this stage, if the company wants to really break into the auto industry, it must show consistent positive financial results while also assuring its investors that the CEO is not undergoing a mental breakdown in order to secure the funding it needs. Whether Tesla can do that is still an open question.