Will Tesla Survive in 2019?

Tesla is a brand that has proven to the world that electric cars do have a future. In the early 2000s, Eberhard and Tarpenning, two inventors and entrepreneurs, decided to start production of vehicles equipped with AC asynchronous motors, earlier developed by Nikola Tesla. Such electric cars have all the advantages and characteristics of high-end sports cars at a lower cost ratio to the end consumer. To start production, Eberhard and Tarpenning had to raise dozens million dollars, so they invited the charismatic and ambitious innovator Elon Musk along for this purpose. He became a principal investor and chairman of Tesla Motors, Inc., which was founded in July 2003.

During the first years, conflict flared up between Elon Musk and the original founders, who eventually decided to leave the company. Musk managed to rebuild the entire Tesla brand, control and production system from the ground up. Even before the release in 2008 of The Roadster, the first electric car, the whole world knew about Tesla. However, the creation of the first electric car took much more funds than it was expected. Elon Musk launched an intensive advertising and promotional marketing campaign to attract new investors. He did everything in his financial toolbox to make sure that Tesla survived.

The first Tesla car demonstrated successful sales. In 2012, more than 2,600 cars were sold by preorder requests made to Tesla. The second model, Tesla S, was presented in 2009 at the Frankfurt Motor Show. In 2015, Tesla began serial production of its first full-size crossover, Model X. Over time, Musk managed to bring reality closer to the mission declared by Tesla. As the cost of electric cars becomes more affordable, and their characteristics are considered to be less inferior to vehicles powered by internal combustion engines, the market may invert in favour of electric cars. In 2017, the Company released an economy model, the Model 3, the price of which was about $35,000 and comparable to most conventional gasoline engines.

Musk did not stop there, in 2017-2019, Tesla presented a hybrid-electric truck, the mass production of which is scheduled to start in 2019, as well as its first SUV, Model Y, whose planned production is scheduled for in 2020. Currently, Tesla has three plants in the USA. They also have acquired land to build a plant in Shanghai, China, that has been already purchased. Tesla has many showrooms, and service centers around the world. At the same time, the question of Tesla’s survival is ever present.

Tesla Stock Performance

In 2010, Tesla earned $26 million on its IPO for shares presented on the NASDAQ. In this way, the Tesla became the first public automobile company in the USA after Ford, which had been listed on the stock exchange in 1956. After this initial IPO, Tesla stock performance increased in price by a factor of 12 until present.

At the same time, the Tesla never really showed a profit, except for the profitable third quarter of 2018. Moreover, over the past 15 years, Tesla has accumulated losses of approximately $5.9 billion. In 2018, Tesla stock performance decreases by $970 million.

According to Forbes, the Tesla capitalization was $28 billion in 2014, and over the past five years, it has reached $50 billion. This increase was due to the additional issuance of shares, and Tesla stock performance that managed to attract $22 billionmore in investment.  Investors used the new offering to buy new shares, even though the Tesla had not shown positive financial results for the previous years.

Last summer, the company’s shares reached $350, but they fell below $200 in early 2019. This fall is explained by factors, such as a supply reduction of new cars, an increase of expenses, a total loss ratio, as well as several incidents of car fires and battery explosions. Three Model S sedans that had caught fire during road accidents in 2013, and Tesla’s shares dropping by more than 20% affected Tesla’s investment outlook. A year later, the company’s shares from a low of 20% to a high of 47%.

Then in the spring of 2019 the Florida courts began investigating the causes of two road incidents involving Tesla cars. In April 2019, Elon Musk lost $1.1 billion for the first two minutes of trading on the NASDAQ. That day, Tesla shares fell by 11%. However, Tesla was able to increase sales up to 95,200 cars in the second quarter of this year. This news has definitely had a positive effect on the company’s stocks, and Tesla stock performance has strengthened by 15% since the beginning of June. Currently, Tesla stock price has remained stable at $253.

Tesla Stock Projections

The years of Tesla leadership under Elon Musk became infamous for his careless, dubious, and often contradictory statements. More than once, he was convicted of offering unrealistic promises of increased sales and raising the profitability of Tesla shares. After court the proceedings concluded for spreading false information in September 2018, Musk was dismissed from the post of chairman of the board of directors and was obliged to pay a fine of $20 million. The latest blow to Tesla today was a special commission report that an updated AI autopilot system for Tesla cars was considered dangerous due to AI decisions that are contrary to common road rules.

Although Tesla has produced more cars and sales and had an increase of 51% in the second quarter of 2019, many experts have started to call Tesla a “bubble” waiting to go bust.  At present, some Tesla stock projections have predicted that Tesla shares could fall to $100 in the next year. The reasons are due to stock overvaluation and existing competition within this industry. Elon Musk’s failure of leadership and blatant emotionalism have led many to question his leadership capabilities.

Since the beginning of the year, Tesla Motors shares have already lost about 40% of their value, but experts at Morgan Stanley claim that the worst scenario could be ahead. Tesla bankruptcy is possible in the very near future. Professor Scott Galloway from New York University announced his Tesla stock projections that he believes that “stock may become as cheap as $10 under unfavorable circumstances”.

How Tesla Avoids Crash

Tesla is currently going through tough times. Judging from past indications and speculation, this may become a loss-making enterprise with high capital costs. How can Tesla avoid a crash? Financing investment projects as a start, Tesla has to borrow Capital. Tesla is also experiencing difficulties with refinancing their old debts. The ratio of debt and equity is actually at 240%, while bonds that were issued are around $7.5 billion. In these circumstances, it is highly likely that Tesla will issue additional shares for an additional $2 billion, which means capital dilution relative to their stocks.

To increase the production of electric cars, Tesla expects to launch a plant in China with average sales of 165,000 vehicles a year. The Chinese market itself may bring the Tesla an additional $9 billion annually from 2020 to 2024. This is how Tesla hopes to avoid a crash in the coming future. However, if sales are less than half of the expected sales,Tesla  will suffer losses of $16.4 billion. The ongoing trade war between the US and China is not over yet and may affect their recapitalization strategy.

Tesla is trying to solve problems with cash flow by attracting new investors. Elon Musk has thought about the best ways Tesla can avoid crash, and is very active in promoting the latest innovations not only in the automotive industry, but also in the space, renewables, and medtech.

Is Tesla Going Under?

Will Tesla survive, or it is going to disappear? At present, the Company has fewer tools to enhance demand of their cars. It has already released a cheaper Model 3, launched leasing operations, started taking orders for right-hand drive cars, etc. The Tesla stock price is going down, car sales have been declining, and reforms that Tesla has tried to implement have not yielded positive results. Experts familiar with this situation still recommend that traders sell Tesla stocks in order to reduce the target value to $158.

Tesla’s ability to achieve higher sales is hardly probable. So, the shares will continue to fall, as the stability becomes more evident for the demand of cars in the models offered which is lower than was expected. The question many investors in the market are asking is; Tesla going under? Is it true that Tesla could be sold and purchased by new owners due to their brand’s significant value and recognition. Experts believe that the sum of the possible deal can range from $20 to $25 billion.

TSR Warrior

TSR Warrior

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