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Tesla lost ~$2B last year, owes ~$10B in debt, and owes >$400M in interest payments per year alone.

Moody’s downgraded Tesla’s bond rating because Tesla will need to raise more money this year, at least $2B (which is an extremely conservative figure), to avoid Chapter 11 bankruptcy.

Elon Musk also owes >$600M in personal debt that he financed using Tesla stock as collateral. This means that if Tesla stock dips below around $233/share, Musk would face a margin call (sell Tesla stock, driving stock prices lower), or put down more Tesla stock as collateral to fund his debt.

By the way, 90% of the Boring company’s funds come from Elon Musk himself, possibly funded by this personal debt.

Other red flags are that shareholders sued Tesla board members for breaching their fiduciary duties by allowing Tesla to acquire Solar City, assuming an extra ~$3B in debt; and Tesla’s CFO Jason Wheeler left Tesla in 2017 with over half of his stock left to vest.

The reason people are shorting Tesla is that beyond Elon Musk’s cult of personality, the numbers don’t add up. Tesla will need to raise more money this year to survive.

Feel free to fact check all of this.

OK, all of this is true, and concerning to me, despite that I would never buy a Tesla (when there are perfectly good used Nissan Leafs out there!). This is part of the reason I never invest in individual stocks: I have no tolerance for the risk, and no confidence that I can interpret all these facts to come up with a coherent estimate of whether the price will go up or down.

I guess my question right now is: if the situation is so dire, and the facts are all out there, why is TSLA not priced lower? Is it that there's enough dumb money holding/buying it propping up the price? Or are investors confident in Musk's ability to raise money and eventually turn the corner? Or something else entirely?

It takes a while for the public to react, just like it took a while for Enron and Theranos to be exposed. The market is irrational and the cult of Elon is strong - there’s too much hype, and it clouds people’s judgement.

Also fewer people know these facts than you might expect. I dug through Tesla’s SEC filings to find out, which are hundreds of pages of documents. It took me at least 10 hours of reading. Doing the due dilligence is time-consuming, and it’s really easy to just roll with a speculative opinion, as you’ve seen from many comments in this thread.

Based on my recent experiences seeing friends fundraise in YC, there is a lot of easy money going around, possibly because the low interest rate has pushed investors to look for more profitable investments through Silicon Valley, and money from Asia is pouring in.

Corporate debts is also at an all-time high - there is $6.3T in corporate debt and a cash-to-debt ratio of 12%, a record low. This means that companies are taking an unprecedented amount of risk, so maybe Tesla numbers are relatively less shocking in comparison, but I'm not optimistic it will end well. See junk bond defaults from the 80s.

By the way, Tesla bonds are considered junk bonds. They're officially labeled as B3, or "Highly speculative", and only one rating above "Substantial risks".

> why is TSLA not priced lower?

I am not a fan, but there's no denying that Musk is a marketing genius. What percentage of people can even name the CEO of another car company? Plus he's not just selling a car; he's selling the future. As we see with Theranos, people really love the tech-as-future-magic story.

So much of the "dumb money/smart money" distinction is decided after the fact. If he pulls it off, the people who stuck it out will think themselves geniuses. But a ratings agency downgrade is a pretty good sign as to what professional investors make of it.

If perfectly good means ugly :). Not that non EVs are much better though.

Model 3 is honestly the best looking car I have ever seen.

Remember that car attractiveness is an opinion. Plenty of people (including me) feel the exact opposite, ie that the Model 3 is really derpy and dumb looking

All the major players operate under a debt and profit cycle. It's just that nobody else is also building a new car company and one that is a paradigm shift.

https://simplywall.st/stocks/us/automobiles/nyse-gm/general-...

On top of the fact they were bailed out.

Calling Tesla a paradigm shift is laughable. It's an electric car company and they put a fancy touch screen HUD in the dashboard. Revolutionary!

You underplaying the importance of Tesla is laughable. 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's, now you go to auto shows and every manufacturers is featuring an upcoming electric vehicle. It absolutely changed the industry.

> 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's

Five years ago was 2013. The Nissan Leaf and Chevy Volt were first released in 2010. Tesla Autopilot was announced in 2014 (four years ago!), which used technology by MobilEye, which was already supplying BMW, GM and Volvo with the same technology.

I don't know where this revisionist history comes from. Large automotive manufacturers did say that it would take time for the technology to mature, and it took roughly as long as what they said it would, around the same time Tesla launched theirs as well. If that's not a roadmap, I don't know what is.

Nissan, BMW and GM would like to have a word.

You need to look at how their battery packs work. An EV battery pack is not just a big battery, its a massive system all of its own, with monitoring, cooling, etc. Tesla's battery packs are way ahead of anyone else's, and also produced at a lower price per kwh.

> shareholders sued Tesla board members for breaching their fiduciary duties

Starting a lawsuit is easy. What’s under-reported is how many of such lawsuits are won.

And that is the reason why Elon reduced the speed for aggressive growth for the next few months and is pushing for actual profits in Q3 and Q4. With 5000 Model 3/Week (and 2+k S/S), Tesla has plenty of cash flow, they just need to stop spending money on future projects faster than they earn it.

So, that's about 1 year of revenue at 5K cars per week or roughly equivalent to their revenue last year. Or half of that if they manage to double that to 10K per week, as they seem to have promised. That doesn't sound like an impossible situation to me. Unless I'm missing something, a default on these debts is unlikely and given the numbers, access to more capital should be feasible. I agree that these are high risk investments though. High risk and high reward go hand in hand of course.

Elon Musk may owe a little money indeed but he's also a shareholder in SpaceX. I'm not up to speed on how much he owns of that exactly but I believe it is a fairly large chunk of that company. And given the amount of rockets going up lately, his shares are probably worth quite a bit at this point. Magnitudes more than the 600M you mention, I imagine. So, I don't think a personal bankruptcy is that likely for him any time soon.

Tesla 'lost' money investing in production capacity, R&D, opening up a huge battery production facility, etc. That's not wasted money unless demand for utilizing these to full capacity disappears. As it is, the opposite seems to be the case. Tesla is talking about opening additional Giga factories even. That will cost more money of course but I think they can make a case for that being a good investment given demand in their products.

That's perhaps why it's stock valuation is so high: shareholders are expecting these investments to translate into revenue and growth. People that shorted Tesla seem to be getting a bit nervous about maybe ending up on the wrong end of that bet, which could end up being an expensive mistake for some.

Boring and Solar City are interesting wild cards. I think owning Solar City is not necessarily a bad thing for Tesla. Solar panels are in demand and Tesla seems to consider charging infrastructure as part of their strategy. Also up-selling batteries that they produce to people that install solar panels seems like a smart move. Unless there's something wrong with their product, I see no reason for that to fail. They do seem to have acquired a bit of a cost overhead problem, which they have been fixing through layoffs. But other than that, this could very well turn out to be a pretty good bargain.

Boring seems like a weird project at first glance. But it wouldn't be the first side project that Elon Musk is involved in that turned into a real business.

> they are pretty much close to the promised rate of 5K cars/week

They might hit that goal, but I'm very concerned about how they're getting there.

Toyota was the company that really figured out how to make good cars economically. They came out of Japan's post-war economic devastation to kick the asses of US carmakers. Their thinking was so alien to traditional approaches that Detroit spent decades trying to catch on and catch up. That depite Toyota doing their best to help their competitors get it. [1]

A pillar of Toyota's approach is patient, gradual, relentless improvement. There are a lot of signs that Tesla has never really warmed to that. Musk likes drama, action. But he's been overpromising and underdelivering for a while now. That he's sleeping at the factory might sound impressive, but to me it's a sign that he hasn't built an organization that can handle this.

Even if they hit the arbitrary 5K goal, I'm concerned they'll will reach it not by building a great, reliable process, but through the sort of rushing and corner-cutting that leaves them in bad shape for the future. That's very common in the tech world, and we pay for it with high tech debt and low long-term productivity. Perhaps he's doing the same thing here.

[1] e.g., https://en.wikipedia.org/wiki/NUMMI

Toyota embraced Deming/Kaizen, it wasn't their idea. Beyond that Tesla is a more extreme version of those ideas. Toyota doesn't need to, but it's likely they also wouldn't, build an entirely new line to meet a goal. That would be out of the focal range of their 'softer' implementation of continual improvements. Musk on the other hand is not averse to continual improvements that are on the extreme end of the spectrum. This is very evident in how they've built the car. For example when Consumer Reports identified a braking issue with the Model 3 Tesla had an OTA software fix in days. What other manufacture would do that, let alone could?

> For example when Consumer Reports identified a braking issue with the Model 3 Tesla had an OTA software fix in days. What other manufacture would do that, let alone could?

Why should that be a good thing? Consider what this means:

* Safety-critical systems are not air-gapped. (Granted, Tesla is far from the only offender here).

* The fact that the fix was turned around in such a short time would seem to suggest that it was relatively quick to diagnose and debug. Why wasn't it caught before release?

* On another note, it also calls into question how rigorous their update fix testing is. I've seen plenty of "this must go out fixes" that broke a lot of stuff by collateral when people felt it was too important to get out quickly to do the full testing.

- As you said, not the only offender here, I would even say air gapped would be the exception - This is wrong, the fact that is was quick to fix does not mean it was easy to find, or even easy to fix. Many softwares have suffered critical problems for ages without being detected, and yet when they are detected they are fixed in a day? - Sure, you can wonder, but this is purely speculative as we have no evidence of any problem of the sort here.

> the fact that is was quick to fix does not mean it was easy to find

The issue was easy to find. The root cause may not have been. Vehicle stopping distance is a standard metric. Simple black box system level testing at Tesla should have caught this. Why was nothing done then or why was it a test escape?

Toyota did embrace Deming, but there's a reason we call it the Toyota Production System. I think you understate their willingness to approach radical changes through continuous improvement; note that they were pioneers in hybrid vehicles, starting on the Prius at time when Musk wasn't even out of college.

I also think you miss the real value of patient continuous improvement in production lines. Extreme changes work against the drive to reduce variance and waste. The OTA software fix is indeed impressive, and last I heard Toyota software process lagged well behind their manufacturing process. But from Tesla's continuous failure to meet goals, it looks like the opposite is true. And Tesla's at a point where software, no matter how good, won't save them.

They call it that because: marketing. In fact I don't understate it at all. It's impressive Toyota considered and accepted it comparative to their NAM counterparts who laughed it off and ended up eating QA because of it.

Musk being out of college at release if the Prius is irrelevant. The battery technology in early Prius was very bad. The delivery of the product was good, but if your inplication that the Prius fueled full EV you're off base by a significant margin. Also look at the growth of Prius from day 1. It wasn't an overnight success and many naysayers existed then about the viability, efficacy, reliability, etc. They were all proven wrong and the minimal gamble of Prius compared to a full EV including the Supercharger network pales in comparison with regard to market resistance (both consumer and competitor).

I don't think you understand continuous improvement if you equate it to being "slow". Speed has no bearing, the meat is in the process itself.

Continuous failure? Please elaborate. Failure in the product? No different than existing manufacturera and impressive track record given their time in the market. Failure to meet shareholder expectations? Sure. That's every company, and it's too bad Musk had to go public when he did. But if Tesla is a failure I'd like to see your success. Your argument devolved into pure subjective opinion rather quick.

I believe you are incorrect. It's hardly just Toyota's marketing department that credits Toyota with significant intellectual work. See, e.g., professors Liker and Rother at the University of Michigan.

My point about Toyota working on the Prius well in advance of others, Musk included, is to demonstrate that their continuous improvement approach doesn't prevent them from making big changes.

I don't know where you get me equating continuous improvement to slowness. Despite your quote marks, I did not use that word.

As to Musk's failure to meet goals, you need look no further than the article up top, which says, "The company has failed to meet any of its production and delivery targets for the Model 3 since its splashy event in July 2017". That isn't a matter of opinion. Musk's ongoing failure to hit his own self-declared goals is a sign of a severe process problem.

Because you set a goal and did not meet it with 100% completion does not define failure. If that's the case your argument holds true to, likely, every auto manufacturer quarter over quarter. That's a very diluted perspective across the board.

You keep responding to things I didn't say, while ignoring the inconvenient things I did say. So I think we're done here. But just to be clear, I'm saying his repeated failure to hit goals is the not the definition of failure, but rather the sign of a severe process problem.

> A pillar of Toyota's approach is patient, gradual, relentless improvement. There are a lot of signs that Tesla has never really warmed to that.

I guess it depends how you interpret the news and what Musk has said in shareholder meetings. At the last one he explicitly said that they continuously improve the process at Tesla.

I'm sure he said that. But the US car industry has a long history of boldly declared but ultimately failed attempts to adopt Toyota's process in a way sufficiently deep to get Toyota's results. Rother's book "Toyota Kata" is a good dive into why: they adopted some of the rituals, but never made the deeper cultural and philosophical changes needed to get most of the value.

>The argument seems to be that it is simply impossible to produce the vehicles for Tesla.

This is a complete straw man. The argument is that its impossible for TSLA to produce cars in the volume necessary, at the margins necessary, in the time frame necessary to both pay down their massive amounts of debt and justify their enormous valuation. And, looking at the numbers, that seems like a pretty solid argument.

If you believe that there is not much of competition for Tesla right now, you should read this: https://www.theverge.com/2018/3/10/17096608/tesla-jaguar-por...

Not right now:

"One car alone doesn’t crowd the field. But Geneva was a showcase for a rush of coming EVs and hybrids."

The i-Pace is almost out. The others... aren't. I'm particularly skeptical of Audi's gigantic marketing machine.

The Geneva expo was on March 1st, by now the i-Pace has arrived in the showrooms. The E-Tron Quattro is said to go in production in the upcoming months and to be deliverable by the end of the year.

The i-Pace is great and the first real competitor to Tesla, but they are making about 20k/year, so it is a welcome addition to the electric car offerings, but won't cut into Tesla sales. Actually the electric car market is going to grow in the next years faster than the worldwide production capacity for electric cars, so there won't be huge problems selling all the made cars.

I think the question is whether or not this expands the market more than it takes away share from Tesla. I think it's a bit of both, but hoping that it leans more towards expansion than cannibalization.

Its pretty clear Chevy, Niassan, Hyundai/Kia, and Toyota are already competitive in many regards.

Jaguar, Audi, and BMW arent three years behind.

Right now its about perceived luxary and marketing, and a bit of a software / business model lead.

I dont think any of those companies would be three years behind if they actually tried to deliver a market leading luxury car, although some might need to acquihire some better software divisions.

They are all behind Tesla in cost per kwh for batteries.