Elon Musk's growth story is looking more like a fable as Tesla Inc. enters survival mode.
Just over two weeks ago, Musk boasted to stock analysts and big investors that the company was on course to reach half a trillion dollars in market value. Since then, Tesla's stock price has dropped 19.5%, vaporizing $8.8 billion in market value. The remaining $36-billion market capitalization is 7% of what Musk is telling the world Tesla will be worth.
On Friday, Tesla's stock price dropped below $200 a share for the first time since December 2016. On Monday it fell as much as 7% before finishing at $205.36. The spark was provided by Dan Ives, an analyst at Wedbush Securities, who was once an enthusiastic Tesla supporter. On Sunday he cut his price target for the stock to $230 from $275 and issued a note to investors that said Musk faces a "code red" situation on his finances and a "Kilimanjaro-like uphill climb" to hit profitability goals in the second half of the year.
"There are dark clouds forming over Fremont," Ives said in an interview, referring to the site of Tesla's car factory in California.
A storm was already brewing in January, when Musk announced that 2,500 workers, 7% of the workforce, would be laid off. That came after 9% were laid off the previous June, with Musk saying, "We are making this hard decision now so we never have to do this again." After two profitable quarters in late 2018, it seemed the time had come for Musk to buckle down and make good on his promise to deliver a mass-market car efficiently and profitably. Then came the first quarter from hell.
Tesla's financial condition has only deteriorated since then. Musk has responded on two tracks: He's watching every penny of expense, while talking up a series of projects with varying degrees of likely completion -- from a new Model Y crossover to a robo-taxi service he employed to pitch the recent stock and bond sale. In the past such products, like the Tesla semi, while derided by critics as vehicular vaporware, have managed to boost the stock price. No more.
Although Ives said he does not believe Tesla is on the brink of bankruptcy, he said the company is headed toward a cash crisis without another capital raise, even after the $2 billion it raised from stock and convertible bonds sold earlier this month.
"Demand has been extremely disappointing this year," Ives said. The Tesla story has shifted from "glass half full to glass half empty." Patience, he said, "is wearing thin."
The grim situation was laid bare in March, when Tesla turned in a disastrous first quarter. At a time when the company should have been ramping toward the "exponential growth" long promised by Musk, automobile revenue was down 41%, leading to a $702-million net loss and $640-million negative operating cash flow.
While cash on hand fell to $2.2 billion at the end of the quarter, what many analysts saw as a dangerously low level, Musk raised some more. On the May 3 call about that stock-and-bond deal, Musk told investors, "We don't expect to spend this capital. We expect to fund our activity out of our growing cash flow" as a "buffer" to a possible recession or automobile industry downturn.