The Story Of A Doomed Business Model That Currently Is In The Money
by Umar Farooq
On Monday last week, the darling of Silicon Valley became the most valuable American car company, surpassing General Motors, the Detroit granddaddy with $10 billion in sales on nearly 10 million vehicles. Shares of Tesla, run by high profile chief executive Elon Musk, put the company’s value at $51.5 billion, above GM’s $50.2 billion. Tesla blew by Ford ($44.6 billion) last week. Musk’s company produced just 84,000 cars last year, with starting prices of $68,000.
GM’s former Vice Chairman Bob Lutz dropped a whole lot of reality on some unsuspecting Tesla cheerleaders on CNBC this morning. Lutz shared his views that Tesla’s constant cash burn combined with a barrage of competitive models that are about to hit the market likely indicate that the company is “doomed.” As for Tesla’s gravity-defying stock price, Lutz attributed the company’s soaring market cap solely to Musk being the “greatest salesman in the world” along with his being “aided and abetted by some analysts.”
Tesla’s lack of pricing power is going to lead to its demise, Bob Lutz, former vice chairman of General Motors, told CNBC, two days after the electric automaker briefly topped GM’s market capitalization as the nation’s most valuable vehicle manufacturer.
“Tesla’s reputation as beyond-acar company — it recently absorbed Musk’s Solar City company for $5 billion — has captured the imagination of California’s technology pack and, apparently, investors. The company has been developing batteries that could store power from rooftop solar panels, expanding its mission into a renewable-energy enterprise. Tesla also is exploring technology for self-driving cars. Musk’s outreach to Trump and the new administration’s emphasis on U.S. manufacturing is working to Tesla’s advantage, helping propel the stock even more since the November election and by more than 40 percent since January.” pressreader
“Somehow it’s levitating. Elon Musk is the greatest salesman in the world. He paints this vision of an unlimited future, aided and abetted by some analysts,” Lutz said. “It’s like Elon Musk has been beamed down from another planet to show us mortals how to run a company.” But Lutz said real numbers don’t lie. “It’s a constant cash drag. They’re highly dependent on federal government and state incentives for money.” He added, “They have capital raises all the time.”
Despite’s GM’s dominance in car sales (its U.S. market share is 17.3 percent compared with 0.2 percent for Tesla), analysts admire what Musk has built. “Making cars is a hard business,” Ivan Feinseth, chief investment officer at Tigress Financial Partners said, “and putting together in such a short time a state-of-the-art manufacturing facility along with a dealer and showrooms and a support network of service centers and charging facilities, that is very hard.” Despite this engaging story, the Tesla ending is still up for grabs.