Since Tesla Motors Inc. (TSLA) went public in 2010, it has earned its place at the center of discussion in the public markets. According to Tesla, the company’s mission is to accelerate the world’s transition to sustainable energy. Unfortunately for shareholders, nowhere in the company’s mission does it specify that it aims to do so profitably. Innovation—not profitability—has been the spirit of Tesla, and, for that reason, Tesla is a martyr in the market.
The unfortunate fate of Tesla can be attributed to Elon Musk. Musk founded Tesla, runs the company as the CEO, and holds approximately 25% of the company’s outstanding shares. As a result, Musk and Tesla are practically inseparable. Elon Musk is an incredible visionary and an inspirational public figure. He has driven his companies to make astounding advancements in the field of engineering; however, Musk’s desire to innovate has led Tesla to cash starvation time and again. To stem their cash problem, they have issued copious debt and new shares over the last seven years. However, with cash spending of nearly $1 billion per quarter, the company can barely keep up.
In 2013, Tesla was on the verge of insolvency. To rescue the company, Elon Musk negotiated a deal with Google to sell the company. If you were a Tesla shareholder in this deal, you would have been in a bad situation. A distressed sale like this would have meant that Google would have made away with Tesla’s very expensive intellectual (and manufacturing) property, while you were left with a pittance. Fortunately for Tesla shareholders, Tesla made it out without having to sell. However, with a cash burn of around $1 billion per quarter, the company is never far from being in this situation again.
Until now, most of the faith in Tesla from the public markets has stemmed from Tesla’s success in creating new, innovative products like luxury, all-electric vehicles and large-capacity, rechargeable lithium-ion batteries capable of powering an entire home for days. Tesla designs and manufactures great products, but a few Tesla Powerwalls aren’t enough to keep the lights on at Tesla.
As a consumer, I love the idea of Tesla and its potential to help shape the future of global energy. As an investor, however, I remain wary of Tesla. As it stands, Elon Musk and Tesla’s push for innovation at any cost jeopardizes the company’s viability and its shareholders’ investments. For Tesla to survive in the long-term, it needs to re-orient itself and make better, more targeted R&D decisions. Unfortunately, that is not “The Elon Musk Way.” Tesla needs to bring in new leadership that can work with Elon Musk to balance Tesla’s tradition of advancing society through engineering marvels with the practical concerns of running a profitable business.
If you are invested in Tesla for the long haul, I applaud you for your contribution to society; however, unless Tesla shifts its focus to profitability, I will wait for the distressed sale.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.