Bankruptcy is one of Elon Musk’s favorite words. He likes to point out that the only American automakers that haven’t gone bankrupt are
He used his favorite word several times in a recent interview with the
Owners of the Silicon Valley Club. This word could alarm investors. The Tesla bears (ticker: TSLA) will cry foul saying that this kind of talk should generate a press release. Really, it’s not that bad.
A video of the hour-plus interview surfaced on Wednesday. Lots of quotes were something. At the start of the chat, Musk said, “The hardest part for an automaker is figuring out how to get revenue above cost so it doesn’t go bankrupt.” Then came: “An automaker is desperately trying to go bankrupt at any moment. »
The main question was actually about carpooling. Musk went off on a tangent to explain that Tesla’s focus right now isn’t carpooling — it’s increasing factory utilization. Tesla has just opened new factories in Texas and Germany. And in recent weeks, Tesla’s largest factory in Shanghai has been plagued by production delays due to Covid-19 lockdowns.
These comments led to a discussion on supply chains. “The past two years have been an absolute nightmare of supply chain disruptions,” the Tesla CEO said. “Overwhelmingly, our concern is how do we keep the factories running so we can pay people and not go bankrupt.”
There is still this word. Then came comments about the new plant in Texas. “He’s losing an insane amount of money now,” Musk said. “The factories in Berlin and Austin are currently giant furnaces…Berlin and Austin are losing billions of dollars right now.”
It’s a lot to digest. This happened in the first minutes of the conversation. (Musk also added “this will all be resolved very quickly.”)
Barrons will come out on a branch and say that Tesla is not on the verge of bankruptcy. Wall Street forecasts $11 billion in free cash flow in 2022 and $40 billion in free cash flow, cumulatively, in 2022, 2023 and 2024.
Musk’s comments speak to current industry challenges. China’s Covid-19 lockdowns and lack of semiconductors disrupted production across the automotive sector for months. It doesn’t just affect Tesla.
(TM), for example, has cut its 2022 production plans several times in recent months.
Tesla also has its unique challenges. He must ramp up two new factories. Right now, Tesla has all the costs of a new factory — employees, utilities, parts supply — without too many cars coming off the factory floor to generate sales. This dynamic is clearly weighing on Musk’s mind.
Investors may want to consider the impact of this dynamic on profit margin estimates. Operating margins were 19.2% in the first quarter. That was a huge jump from the 14.7% seen in the fourth quarter of 2021. Wall Street is forecasting second-quarter margins of 14.6%, so analysts appear to be poised for some downside.
Later in the in-depth discussion, Musk also mentioned birth rates, fully autonomous driving, and advertising. Tesla thinks about advertising to get more positive media coverage. Musk believes advertising influences editorial decision-making.
Perhaps this will be seen as positive coverage of the interview. This could irritate the bears. But bears and bulls alike have plenty to worry about about Tesla and the auto industry without spending too much time on the interview. There’s valuation, inflation, rising interest rates, competition, battery materials, and Musk’s bid for
The conversation doesn’t seem to hit the stock. Tesla shares rose 2% in premarket trading on Thursday.
Dow Jones Industrial Average
futures gained 0.5% and 0.3% respectively.
Write to Al Root at email@example.com