The plummeting value of Tesla’s stock has raised red flags among investors and analysts. Its shares lost nearly half of the value towards the end of 2018, but the recent $200 plunge has raised red flags among many investors. Most Wall Street experts cite that the company may need to declare bankruptcy in the face of the falling demand for electric vehicles. They believe that Tesla is doomed if it does not restructure its operations. Here are some reasons.
Tesla’s first quarter has been wrought with numerous price changes of its vehicle lineup caused by the fading demand for electric vehicles. Consequently, the company had to reduce the prices for Model X and Model S. In April, the company reported it had sold 63,000 cars during the first quarter of 2019, which was a fall from over 90,000 during the previous quarter. What’s more, the company had delivered 12,100 vehicles of its profitable Model X and Model S, which was also a significant drop from the last year. The dwindling sales led to a loss of $4.10 per share in Q1 of 2019. The company also had to use some of its cash reserves to finance its £920 million debt and negative cash flow.
Mismatch of Deliveries
The wrong timing of deliveries aggravated the rapid cash burn during the first quarter of the year. Towards the end of the quarter, close to 10,600 vehicles had been ordered, thus delivered in Q2. Proceeds from these sales will only be accounted for in the second quarter despite exhausting cash reserves to manufacture and distribute them during the first quarter.
View this post on Instagram
✌️🚀1K followers today, THANK YOU🎉🚗!!! More cars and builds to come! @teslamotors #tesla #model3 #stance #toyotires #charlieutomotive #libertywalk #rauhweltbegriff #cars #hellaflush #stancenation #fastandfurious #ferrari #bmw #audi #mclaren #porsche #honda #carlifestyle #sanfrancisco #pandem
Tesla’s supply chain depends on single source vendors and does not maintain long-term suppliers. This lack of supply chain volatility causes the company to deliver vehicles riddled with defects. It became evident in Q3 of 2017 when Tesla failed to meet its production goals and had to redesign a critical component of Model 3. The company had planned to produce 5,000 Model 3 vehicles by the end of the second of 2018 but failed. Most of its production problems are attributed to inadequate funds and the small size of the company compared to big brands like General Motors. Additionally, Tesla manufactures its batteries, which weighs heavily on its resources.
Lack of Funding
Unfortunately, Tesla relies on one supplier for its parts due to funding problems. Investors cite this as the main reason for not investing in the company and often find that Tesla is overrated. For example, in 2017, Tesla had to hold off paying for parts of its Model 3 vehicle and wait until it had sold the cars to pay the suppliers. It means the company has to produce and sell as many cars to pay suppliers.
View this post on Instagram
. 📸: @rebecones . 🧨🧨🧨 . . 🙌🏽Follow @TeslaModel_3 for more daily content‼️ . ____________________________________________________ . 📸 𝐖𝐚𝐧𝐭 𝐭𝐨 𝐛𝐞 𝐟𝐞𝐚𝐭𝐮𝐫𝐞𝐝? Take a picture with your Model 3. Tag @teslamodel_3 or DM . 🎟We’ve received more pictures than anticipated . . 📈Sponsorship Details: (Model 3 products and services only) DM for details . . ____________________________________________________ ____________________________________________________ . #teslamodel3 #model3 #m3 #modelX #modelY #tesla #teslas #teslaowner #teslacar #teslaclub #teslamodels #teslalife #teslamotors #teslamotorsclub #elonmusk #teslamodelx #electriccar #teslacars #teslaroadster #electricvehicle #gigafactory #teslagram #zeroemissions #ev #carsofinstagram #newcar #cars #sanfran #Saturday #weekend . . @teslamotors
How Tesla Changed the Auto Industry
Despite the financial problems facing Tesla, it has made significant milestones that revolutionalised the automotive industry. Here are four flagship ideas accredited to the company:
Tesla didn’t discover the electric car per se, but it was responsible for promoting and advertising since it was founded in 2003. At the time, none of the automotive companies was making the vehicle until Tesla announced its first electric vehicle in 2008. Since then, big brands started developing and churning out their electric vehicles as consumers began looking for eco-friendly transit alternatives. However, it was Tesla that sold the most electric cars, having made 73,227 sales between January and September 2017. Mitsubishi Motors took on the trend releasing its first electric vehicle in 2010. Analysts cite that 54% of all cars sold will be electric by the year 2040. Governments have also started banning the use of fuel-burning cars with France and the UK taking the lead. Volvo also announced it would stop selling gas-powered vehicles by the end of 2019.
The Autopilot Feature
Tesla announced this technology in 2015, making it the first auto company to use semi-autonomous technology on commercial vehicles. This advanced driver-assistance system introduced features like self-parking, lane centering, adaptive cruise control and ability to change lanes. Tesla’s models S and X were the first vehicles to use this feature. Some motorists misused this feature by treating the vehicles as fully autonomous, yielding scary results. Musk emphasised that the autopilot feature was introduced to keep cars on their current lane when driving and manage distance and speed from the vehicles ahead. As a result, Tesla churned out another software version (7.1) to discourage motorists from engaging in risky behaviour. In 2016, Elon Musk announced an advanced Autopilot feature (version 8.0) designed to process radar signals to help drivers navigate roads with low visibility. Since the discovery of this idea, other automakers have followed suit, announcing their plans to roll-out semi-autonomous systems. The Mercedes-Benz S-Class included a Drive Pilot feature; Audi launched the A8 with a Level 3 autopilot while Nissan vehicle included a ProPilot feature. Tesla intends to design hands-free cars in the future.
The company’s ability to update software over-the-air made Tesla vehicles stand out from the rest of the industry. The Model S was the first vehicle to have the OTA software, which transmits bug fixes and other sophisticated features. Famous automakers like Toyota, GM, Ford, among others have caught on the trend with GM planning to launch its first fully adaptable vehicle in 2019. Ford is set to include OTA updates on its new electric SUV in 2020 while Harman International is working with up to 10 automakers to develop a wireless update technology.
Will Tesla Survive?
With the demand for Tesla’s three flagship vehicles dwindling, the company can only rely on two future developments- the launch of Model Y and the opening of Tesla’s new factory in China. Tesla’s Model Y vehicle is expected to be more popular than the Model 3 as demand will change from cars to crossovers. Producing cars in China is cheap and will save the company large tariff bills, which will translate to low prices that increase sales. Tesla intends to open a factory in China in late 2019 while the production of Model Y vehicles starts in late 2020.