Investors are still learning a lot about Tesla, and Elon Musk’s company isn’t done surprising everyone. However, there’s no doubt that the company has reached a critical juncture. The electric carmaker is in need of billions of dollars after burning through more than $1 billion every quarter for the past year. So far, Musk has managed to pull cash out of investors’ pockets by offering equity and debt sales that he hopes will bring the amount raised up to $3 billion by the end of 2019. But if Tesla burns through all that money—and it likely will, given its track record—it will likely have to go back to investors again in 2020 or 2021. And if investors keep throwing good money after bad, they could end up watching their investment evaporate before their very eyes.
Tesla’s big problem is its founder.
Elon Musk is a fine engineer, but he’s a terrible manager. He has demonstrated time and again that he can’t manage the company he created. And it’s not just me saying that—it’s everyone else who works for him, too.
When you’re considering making an investment in Tesla stock, remember that Elon Musk has failed to prove himself capable of leading any enterprise successfully over time (he was fired from Paypal and SpaceX). Instead of being motivated by building great products or making money for shareholders, Musk has always been motivated by ego and the desire to be famous and adored by people around him. This means that instead of focusing on what matters most (building great cars), his focus is often on things like using Twitter as a platform for personal attacks against other CEOs or calling Tesla customers “boneheads” for buying their cars from dealers rather than directly through Tesla itself.
Its solar business is a total mess.
If you are interested in investing in Tesla on the theory that its car business is going to explode, and you want to diversify your portfolio with a smaller investment in solar power, then you may want to consider buying shares of SolarCity instead.
SolarCity seems like an ideal partner for Tesla: they both have a strong focus on technology innovation, they share similar cultures (and are both headquartered in California), and they’re both led by Elon Musk. However, there are three problems with this idea:
- The solar business distracts from its main focus on cars. The two companies have different management structures—SolarCity was founded by Lyndon Rive (the company’s CEO) and his brother Peter Rive (its CTO). While Elon Musk serves as chairman at both companies and sits on their boards, he doesn’t actually run either one day-to-day. It’s true that Elon Musk spent ten years as chairman of SolarCity before stepping down earlier this year after being named CEO at Tesla; however since then all we’ve seen from him are tweets about other things like space travel or electric skateboards…
- The solar business isn’t making money yet—or growing fast enough for investors who want high returns from their investments.* When it comes time for investors who own shares of Solar City Corp., which itself owns shares of other subsidiaries including Sunrun Inc., Vivint Solar Inc., and Zscaler Inc., there will be more paperwork involved than simply selling those same shares directly over again through another brokerage account.”
The company is losing oodles of money.
The company lost $2.2 billion in 2018, according to Bloomberg. It lost $619 million in the first quarter of 2019 and $1.7 billion in the second quarter of 2019, according to CNBC. During its third quarter, which ended September 30th, Tesla reported a loss of $2.2 billion dollars—the largest quarterly loss it had ever seen up until that point in time. The reason for all this money-losing? Well, some say it’s due to poor management decisions made by CEO Elon Musk himself (for example: buying a floundering solar panel company called SolarCity). Others think that Tesla has just been spending too much money on things like new offices and factories around the world—a luxury that few other companies have access too due to their need for profits rather than growth prospects like Tesla does at present time (or so they say). Either way you slice it though…
Tesla has done a terrible job of delivering the cars it sells.
Tesla is notorious for delays when it comes to delivering cars. In 2016, the company delivered just 76% of its vehicles on time and even that number was down from 89% the previous year. In 2018, Tesla has been struggling with delivery problems once again.
In September 2018 alone there were more than 200 complaints about delayed or missing Model 3 deliveries from customers who had ordered their cars months earlier — most notably actor Kevin Spacey and his manager Richard Thomas. These problems aren’t unique to Tesla: other luxury carmakers like BMW and Audi have also been criticized for poor customer service in regards to delivery delays in recent years.
Tesla’s cars are very expensive.
Tesla’s cars are very expensive.
A Tesla Model 3 starts at $35,000 and can get as high as $55,000 with options. That’s a lot of money to pay for a car that has been called “the least reliable car in America.” The Model 3 was awarded the title based on several factors: low reliability ratings from Consumer Reports, poor performance in crash tests performed by the National Highway Traffic Safety Administration (NHTSA), and an overall low owner satisfaction rating—only 51%. In addition to all this bad news about Tesla’s quality, there is also bad financial news for consumers who want to own one of their vehicles. With such poor resale values (according to Kelley Blue Book), you’re better off buying a new model every year or two than holding onto your old one.
Autonomous driving isn’t going to happen tomorrow.
Tesla’s autonomous driving program is an expensive distraction. The company has long insisted that it will be the first to produce a self-driving car, even though companies like Waymo and General Motors have been testing their own automated vehicles for years. In 2016, Tesla founder Elon Musk announced that he expected fully autonomous cars to be available by 2017. A year later, he revised his prediction to 2019; and in 2018, he said 2020 was more realistic.
However, Tesla’s technology appears inferior to its competitors’ offerings—but what’s worse is that it doesn’t appear as advanced as Tesla would like us to think it is either. In November 2018, Consumer Reports performed side-by-side tests of cars equipped with various levels of driverless tech: The magazine found that each manufacturer was able to steer around obstacles at roughly the same rate (and some were far better than others). But when it came time for automated braking systems on those vehicles—which should be able to stop themselves much more quickly than humans can—Tesla wasn’t one of them; only Mercedes had managed such functionality among the automobiles tested by Consumer Reports.*
Tesla buyers are getting fed up.
In recent weeks, Tesla customers have been complaining about the quality of Tesla’s cars. Some customers have said that their vehicles were not properly assembled and had to be returned for repairs. Others have complained about the lack of service at Tesla’s stores, which are often poorly staffed with young employees who are unable to provide satisfactory answers to questions about their cars or get parts in a timely manner. Customers also criticize Tesla for its lack of communication, even when there are problems with orders or deliveries — some customers say they waited months before receiving their vehicles because no one from the company would answer their calls or emails.
You should not invest in Tesla
If you’re thinking of investing in Tesla, you should reconsider. Tesla is not a good investment to make right now and it probably won’t be a good investment for the long term either. The company is facing challenges on multiple fronts and has yet to prove itself as an effective money-maker. In fact, if you invest in Tesla today, there’s no way to know whether or not it will be worth the cash later on—but there’s also no way of knowing if it won’t be!
So why should we believe that buying into Elon Musk’s electric car company will do us any good? Because he wants us to? No thanks! The only thing worse than being wrong about whether or not we made money from our investments would be being wrong because someone else wanted us too much money from them (unless they were trying something illegal).
In summary, this is not a company that has its act together, and I would urge investors to avoid it. If you are looking for a disruptive idea in the automotive space, try Toyota.