IN A NEW INTERVIEW that aired Sunday on HBO, controversial Tesla Inc (Nasdaq: TSLA) CEO Elon Musk says the company narrowly dodged a potentially fatal financial bullet earlier this year when ramping up its Model 3 production. Musk says Tesla was only weeks away from death at one point, and analysts say the company is still not out of the woods.
Tesla’s record losses and heavy debt load have been a concern for investors all year, but the stock is up more than 28 percent since mid-October after Tesla delivered on its promise to generate a profit in the third quarter. However, on Sunday night’s episode of “Axios on HBO,” Musk said Tesla was “within single-digit weeks” of financial failure at one point this year.
“Essentially, the company was bleeding money like crazy, and, if we didn’t solve these problems in a very short period of time, we would die,” Musk said.
Musk said he was working 22 hours per day, seven days a week during this stretch of Model 3 “production hell.” Musk said the period was extremely difficult on him both intellectually and emotionally.
“I just did it because if I didn’t do it … there was a good chance Tesla would die,” Musk said.
The third-quarter earnings report was vindication for many Tesla investors and Musk supporters, but Musk didn’t quite make it through the year unscathed. Musk’s controversial tweeting and bizarre behavior ultimately resulted in a fraud settlement with the U.S. Securities and Exchange Commission that included a $25 million fine for Musk and a requirement that he step down from his chairman position at Tesla for at least three years. Earlier this month, Tesla named longtime board member Robyn Denholm as Musk’s interim replacement.
Tesla may have finally made it through production hell, but Bank of America analyst John Murphy says things won’t be getting any easier for Tesla in the near future as it tries to maintain both its growth and margins.
“Ultimately, TSLA is caught between a rock and a hard place, in which further unit growth at higher (average selling price/margin) is likely limited, while expansion of volumes into lower-ASP/margin will likely be materially dilutive to margins,” Murphy says. “If TSLA is successful in pushing volume, it would likely evolve into none other than a lower-margin automaker.”
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