The halo over Elon Musk is slowly vanishing. The past few months have been tough for electric carmaker Tesla (TSLA - Get Report) and the media has been on every story. But is the media trial of Tesla and its CEO Musk is justified?
A streaming outflow of high profile senior executives, the controversial SolarCity (SCTY) merger, autopilot backlash, production misses...the list of Tesla's woes seems endless.
In about three months, Tesla shares have dropped by 16%. Short seller Jim Chanos says Tesla reminds him of drug maker Valeant Pharmaceuticals (VRX) , whose steroid pumped acquisition strategy and mountain of debt exploded. That stock is down 77% in just six months.
Will Tesla follow suit? Not likely, but there are problems galore that continue to plague Tesla. And there are better places for your money.
Tesla is a victim of a media trial -- there's no doubting that, but the trial is not an unjust one. Most of the problems and bad-press the company is facing today has a lot to do with how Tesla conducted itself.
Senior execs leaving at regular intervals in a short period of time are not a good sign. Musk may be a great business mind, but perhaps it's time to accept that he is not a great leader. Steve Jobs of Apple was known to be a maverick business leader but he was also loved by his employees, with his rock-god like image.
Musk makes outlandish claims in terms of production ramp-ups and then blames the extreme nature of such a roadmap. Its natural that investors and media will be disgusted every time Musk goes back on his own words. For instance, Tesla delivered 14,370 vehicles in the second quarter, missing its forecast of 17,000 units. What was the reason?
It blamed the miss on the "extreme" production roadmap and the high-mix of custom ordered vehicles not delivered.
For anyone wanting to judge Tesla, the absence of profitability will always be a problem. Global sales figures are the only credible metric you can use to understand the pace of growth.
But while most automakers like General Motors and Ford Motor announce results monthly, Tesla unveils figures only quarterly and, when it's a miss, it's understandable why investors become angry.
Deutsche Bank says this is not the first time Tesla has missed an aggressive target. Tesla has acknowledged to over-reaching on the complex design of Model X, and it is paying the price, DB noted.
So, concerns are not misplaced about Tesla's ability to launch the Model 3 well and reach its pulled-forward goal of 500,000 deliveries in 2018.
The accidents linked to Tesla's autopilot system are a shocker. Even if auto driving is the next wave, the rising number of Tesla car owners reporting accidents throws a wrench in the gears.
There seems to be a failure in the system to recognize its surroundings. A driver in Ohio died when the Autopilot failed to differentiate a white truck from the bright sky.
Bear in mind, it's not that automobile sector is a place for the sacred. In a shocking breach of trust, PSA Group admitted to lying about fuel economy ratings on Peugeot and Citroen model ads. GM's costly ignition switch recall and Volkswagen's emissions cheating saga shows automobile firms will often lie. But Tesla was supposed to be different. The autopilot accidents are costing Tesla its most prized asset: reputation.
Perhaps, the biggest mistake Tesla made was announcing a seemingly unrelated acquisition of SolarCity. Tesla is a carmaker and investors did not like Tesla's plan to emerge as an energy company. Some have even called the nearly $3-billion deal between the electric automaker and SolarCity a shameful example of corporate mis-governance.
This new strategic direction increases the time for Tesla achieving GAAP operating profit, SolarCity does not help Tesla make better cars and in fact adds a new level of meaningful risk to owning Tesla.
Clearly these are dark times for Elon Musk. Avoid Tesla for now.
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