Electric car pioneer Tesla has been coming back down to Earth quickly, with its share price barely above the US$200 mark this week.
Tesla’s recent fall began in December 2018 and continued after the company posted a startling US$702 million loss in the March quarter.
The fall has continued in recent days, with one prominent analyst issuing a note suggesting June 2019 quarter profit targets are “a Kilimanjaro-like uphill climb”.
The analyst, Dan Ives of Wedbush Securities, wrote: “We continue to have major concerns around the trajectory of Tesla’s growth prospects and underlying demand on Model 3 in the US over the coming quarters which is putting more heat in the kitchen on Musk & Tesla to reign in expenses at an accelerated rate.”
Highlight: @Wedbush’s Dan Ives on why he downgraded $TSLA: “The issue here continues to be hockey stick ramp into the second half… Right now, the bloom’s come off the rose, and investors wanna see the numbers.” pic.twitter.com/x9PJye4i1x
— Yahoo Finance (@YahooFinance) May 20, 2019
The company raised a net US$2.7 billion in early May. Audio obtained by the Financial Times shows Musk telling investors at the time: “We don’t expect to spend this capital. We expect to fund our activity out of ongoing cash flow.”
But within three weeks and after the March loss announcement, Musk issued a stark warning about Tesla’s rate of cash burn. That burn rate is so high, he said, that if it continued, the company would go through all its remaining cash in 10 months.
Musk warned staff to trim costs and said that “going forward, all expenses of any kind anywhere in the word [sic], including parts, salary, travel expenses, rent, literally every payment that leaves our bank account must (be) reviewed.”
“This is hardcore,” Musk said, “but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable.”
It’s not the first time Musk has issued a cost-cutting edict; he sent a similar email in April 2018.
Tesla laid off 9% of its staff in June 2018 and a further 7% in January 2019.
It also recently restructured its hard-pressed Autopilot team, responsible for Teslas’ autonomous car capabilities, reportedly after firing several staff. Musk currently claims Tesla will have full Level 5 autonomous driving capability by 2020.
Analysts and investors now worry about Tesla’s ability to ramp up production and sales far enough to make a sustainable profit.