Did Elon Musk Mislead Fox About Problems At Tesla?

A couple of weeks ago, Fox Business anchor Liz Claman made her annual visit to Silicon Valley to interview local CEOs. One of the exclusives she scored was an interview with Tesla co-founder Elon Musk.

In listening to that interview, it would be easy to conclude that everything at Tesla was hunky dory. In fact, better than that. Musk said they were doubling production from 40 to 80 cars per week. That they were hiring like crazy. And he even discussed the growing short position on Tesla and its stock, insisting:

“It’s doing pretty well actually given that we’re such a huge short position. In fact I think the short position may be as high as one can actually go. They literally hit the ceiling on the short position. The shorts are in it to the hills. I think it is very unwise to be shorting Tesla, it’s very unwise. There is a tsunami of hurt coming for the short.”

Tough talk. But it’s also an outlook that seems hard to square with revelations this week that Tesla has hit some serious bumps in the road. According to this story about a startling securities filing from Tesla, Dana Hull reports:

“Tesla Motors (TSLA) on Tuesday quietly cut its revenue forecast for 2012 and admitted that production of its all-electric Model S sedan is ‘slower than we had earlier anticipated.’ “

Of course, that news sent Tesla’s stock spiraling down this week, from $30.66 to $27.54 on Wednesday. (Though it’s recovered a bit Thursday). Still, it seems the shorts were right, and Musk was wrong.

But how could he be wrong? Did Musk not know, just two weeks ago that things at Tesla were getting seriously off track? Or did the problems not become clear until just this week, forcing the company to make the disclosure?

“Tesla had previously vowed to make 5,000 cars by the end of this year. But in its latest filing with the Securities and Exchange Commission, it revealed it is “four to five weeks behind our previously announced Model S delivery goals” due to delays by suppliers and the need to continue to train employees. The company now says it expects to deliver 200 to 225 Model S vehicles to customers in the third quarter and 2,500 to 3,000 Model S vehicles in the fourth quarter.”

Musk didn’t address the 5,000 car goal in the interview, and Claman didn’t ask about it specifically. But the 80 cars per week that Musk referenced means that the company would be on track to build 960 cars in the last 12 weeks of the year. To hit the 2,500 mark, the company would have to more than double that rate to at least 200 cars per week.

Is that realistic? Actually, it’s even tougher than that. Because Tesla can’t get to 200 right away, it will have to produce many, many more more by the end of the quarter to hit that mark. Hull writes:

“It said it produced 77 cars in the week ending Sept. 23 but needs to ramp up to 400 cars per week before the end of 2012.”

To deal with the issue, the company said it is working with suppliers to get more timely deliveries of parts. It’s hiring like crazy, but of course, training takes time. And the company now says it will need to issue more stock to increase its cash cushion.

But perhaps the part that makes me the most nervous is that the company is having to renegotiate its payment schedule with the U.S. Department of Energy on its loan.

So, did Musk mislead Claman in that interview? His rosy view certainly seems at odds with what we now know. Perhaps, one could argue, she just didn’t ask the right, specific questions. Perhaps, he masterfully spun what was a deteriorating picture.

At the same time, the company made a big announcement this week about the Supercharger stations it was rolling out. And then very quietly the next day filed that document revealing its challenges with the U.S. Securities and Exchange Commission.

Whatever the case, I’m willing to bet there are a lot of shareholder lawyers out there sharpening their pens, and parsing his words very, very closely.

I’d like to know where he’s getting the free solar hardware from.

He has connections......

"..Musk, best known as co-founder of the company that became PayPal, is Chairman of SolarCity and CEO of Tesla. According to the Center for Responsive Politics, SolarCity spent $535,000 in 2009 and 2010 to lobby Congress and the Department of Energy on climate legislation, the Recovery Act, “green workforce training and development,” and provisions in various legislation “relevant to solar development.” SolarCity has sought to extend a program, due to expire at the end of 2012, that delivers to manufacturers an upfront cash grant in lieu of a 30 percent Investment Tax Credit (called the Section 1603 grant program). So far, according to DOE reports, SolarCity has received more than $66 million from that program.

The company also won a partial guarantee from DOE of a $344 million loan that will place up to 160,000 rooftop solar installations on military housing across the country..........." Source

SolarCity going for an IPO ".... Elon Musk, the CEO and Chairman of electric car pioneer Tesla Motors, is the Chairman of SolarCity.

Musk's first cousins, brothers Lyndon and Peter Rive, are CEO and COO of SolarCity...."

“.........This is Tesla’s second follow-on stock offering since going public in June 2010, a mere 27 months ago.

As for that $465 million loan, Tesla said it is asking the government to amend its terms. Again. See: Tesla in talks to amend U.S. government loan.

.......Tesla is a start-up enterprise developing new technologies. Lots of investors see it as an opportunity to play venture capitalist on a modest scale. It’s also got heavy government backing, which conveniently transfers some of the investment risk to taxpayers. And Goldman Sachs (US:GS) is underwriting the offering.

With Goldman and Uncle Sam both backing it, it can’t fail, right?

Of course that’s a cynical view, and a lot of the private capital backing Tesla is anything but cynical. It’s hopeful. People love this stock. They are fascinated by the company, from its pioneering effort to make high-quality, high-performance and oh-so-sexy electric cars to the futuristic, eco-friendly vision of its billionaire founder Elon Musk.

All that adds up to a lot of goodwill – from the government, Wall Street and individuals who, though perhaps unable to afford a Tesla, can still afford to own a few shares.

And so far those shares have been a pretty good investment.

Tesla debuted at $17 a share. It’s now trading near $30, a 75% gain in just over two years, making it one of Silicon Valley’s most successful IPOs in a while and an object of pure envy for Facebook Inc. (US:FB) shareholders.

But Tesla backers might want to wait for a few more S’s to roll off the line before luxuriating in smugness.

While the company publicly continues to get the benefit of the doubt, it still hasn’t turned a profit. And despite investor hope and devotion, it’s not universal. As of last week, fully 28% of Tesla’s outstanding stock was shorted, an all-time high. That’s a lot. So clearly not everyone is betting it’s a runaway success.”

http://articles.marketwatch.com/2012-09-28/commentary/34142107_1_elon-musk-tesla-motors-latest-stock

29 Sep 2012 - Deeper Look: Tesla’s Big Loan Fumble

Tesla and Fisker each faced a cash crunch with huge ramifications. Can electric automobile start-ups actually make it?

It’s hard enough to be a start-up these days, let alone an alternative-car company. Just ask electric vehicle producer Tesla Motors, which until now has basked in the glow cast by its founder, technology Midas Elon Musk [SpaceX, Solar City, Tesla].

But Tesla, a public company based in Palo Alto, was the latest alternative energy company to stumble, when it announced in a September 25 Securities and Exchange Commission filing that it had significant cash-flow issues that jeopardize conditions of an important federal loan. In a separate filing on Sept. 28, Tesla said it would issue an additional seven million shares to make up for the shortfall.

Tesla shares were $ 29.39 in late afternoon trading on September 28, down from the stock’s 52-week high of $ 39.95.

The situation is reminiscent of what happened to Fisker Automotive, an electric-vehicle company based in Anaheim, California, which earned scathing comparisons to the now-defunct solar panel company Solyndra from the Romney camp this summer during one of its campaign stops. Solyndra went bankrupt in 2011 owing more than $ 500 million to taxpayers from another Department of Energy loan program.

Like Tesla, Fisker had violated covenants of its Advanced Technology Vehicles Manufacturing Loan program financing by missing production deadlines. The company consequently became a Republican boogeyman of government waste and cronyism this summer.

Under the program, Tesla was eligible for $ 465 million in 2010. Fisker was approved for a $ 529 million loan in 2009. Tesla drew down its entire loan, while Fisker drew down about $ 200 million.

Tesla negotiated sweeter terms for its loan covenants, though. Whereas the DOE froze Fisker’s loan indefinitely in 2011 until it could work out a new production schedule, Tesla negotiated a temporary suspension of its current financial ratio requirements in September for the third quarter and postponed half of a prepaid financing payment until February 2013, among other things, in return for an accelerated repayment plan.

“It is pretty common with new technology and the new entrants to the business, such as Tesla and Fisker, that they are often overly optimistic–and they overestimate how difficult the auto industry is,” says Mike Omotoso, an industry analyst with LMC Automotive in Troy, Michigan.

Certainly it costs a lot of money to launch a new car business. In fact, it costs hundreds of millions of dollars.

New companies need that money for research and development, for production, to be properly licensed, to pursue distribution and marketing, as well as to tackle regulations and consumer safety, says Tim Lipman, co-director of the Transportation Sustainability Research Center, at the University of California, Berkeley.

And the cash crunch for Fisker and Tesla has made it difficult for them to make headway in the complex auto market. Both companies currently manufacture cars with price tags of $ 100,000, which put them out of reach for most consumers. (Both companies are also developing less expensive vehicles that could ultimately tap into a broader base of consumers.)

To do so, Fisker has sold off large parts of the company to raise $ 1 billion of equity investment, since it only drew down a portion of the loan. In contrast, Tesla used up its entire loan and now has to tap public markets to raise more cash.

By all accounts Fisker is feverishly trying to raise more money from private investors while it attempts to unfreeze its DOE financing to build out a manufacturing plant in Delaware and continue work on its less expensive Atlantic sedan. Similarly, Tesla needs cash to continue research and development and to complete its more affordable S and X lines of cars. The S is behind schedule and the X has yet to materialize, but both cars have $ 133 million worth of preorders, according to Tesla.

“These companies are trying not to be dependent on federal money; they want to be privately capitalized,” says Lipman.

Still, their financial struggles are compounded by a tepid market for alternative-fuel vehicles, as well as by increased competition from more established automotive players.

“Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products,” Tesla said in its 8-K, an SEC form used to inform investors of material events.

Since 2008, Tesla has sold about 1500 Roadsters, and Fisker has sold fewer than 300 of its Karmas, according to LMV Automotive. Similarly, Mitsubishi’s iMiEV has sold fewer than 400 units of its all-electric vehicle, and Ford has only sold about 200 of its electric Focus cars in 2012.

Even more mainstream electric and hybrid vehicles have not sold particularly well recently. The Nissan Leaf, which is electric, and the Chevy Volt, which is hybrid, both retail for around $ 30,000. In 2011, both companies sold fewer than 10,000 units of these cars, below company forecasts. By comparison, the Chevy Malibu, a standard gas-powered car, sold more than 200,000 units in 2011.

“That’s not a good sign in an [automobile] market that grew by 10%” over the same period, Omotoso says. [end]

http://www.besociallysavvy.com/2012/09/29/deeper-look-teslas-big-loan-fumble/

“Tesla claims that they will cost almost nothing to operate, since the power will come from solar panels.”

Thanks, I caught that in something that I read earlier.

Those charging stations are kind of spooky. I wonder just how safe they’ll be. So you’re a rich guy and sitting in your car for 30 minutes with a 2” firehose tightly secured to it...and only rich guys will be at these charging stations. You’re the only one there, maybe for the day.

Maybe he’ll have an infrastructure or something, like a gas station, but it seems overkill considering the number of potential customers in one day (maybe 3, on a good day). Or maybe he’ll integrate it into one of those “dirty” gas stations - which would be cute, as the rich guy sits there and stews for 30 minutes, while us lower-crust people, pull-in, fill up for 5 minutes, and are on our way.

The math on the solar panels is interesting too. He better not have too many customers, or he’ll need a farm, rather than a handful of them. He basically needs the amount of panel area to make a house energy-neutral, for each customer per day, by my calculations (with customer being defined as someone charging for 30 minutes). In other words, if he served just one customer in a day, he would need one house worth’s of panels...two customers, then 2 houses. If really intends to have 2 to 6 customers there at any one time, during the day, then you’re talking about some very, very, large areas - and don’t even get me started on the batteries. My advice: look around when you pass by one of these charging stations and see if there aren’t some big power lines (not huge, but big) that just happen to be in the neighborhood.

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