How Can Tesla Prove to Investors that it’s Financially Reliable?
No matter how you put it, Tesla is not going through brilliant times at the moment. Even though they deliver an exceptional product and they managed to transform the electric car intro a reality that most of us are able to see on the streets, Elon Musk and its company are still struggling to find equilibrium.
The Tesla share took a serious beating after Elon Musk’s change of words with a British diver that helped rescue the Thai football them and their coach after being trapped in a cave. After Musk called the diver a ‘pedo’, an immediate effect on Tesla’s shares could be seen. Not long after that , the stock fell one again by more than 3% after the media discovered that Tesla asked suppliers to return some of its payments.
Tesla Says It Doesn’t Need the Cash
The action to ask suppliers for the money on payments made in 2016 for some projects that weren’t complete yet, is speaking for itself. However, both Elon Musk and Tesla declared that, even though this would definitely improve their cash flows, it wouldn’t impact the ability to turn profit in the third quarter.
Several analysts in the automotive industry think that even though they manage to become profitable by Q3, Tesla may face the risk of being viewed as a profit that is not sustainable. A mere windfall, to use the words of Jamie Albertine. So, what can Tesla do to follow their plans and prove Wall Street that they can be profitable on the long run and a profitable company?
It is believed that the first thing the company should do in the process of proving to everyone they can provide stability is increasing its gross margin. They can use the Model 3 to increase the gross margin towards their target levels, as Colin Rusch suggested.
They have produced more tan 28,000 Tesla Model 3 sedans, 3 times more than the previous quarter, however, many of the investors are still wondering if this wasn’t just a one-time thing. Considering that ever since Tesla was launched, eight years ago, they only had two profitable quarters, they are right to think so.
Another move that could prove to investors that Tesla is going to be successful and a good investment is to illustrate its worth. This can be achieved by being transparent with what they are doing with the working capital. The company did enjoy positive working capital and as they continue the process, the need to show that it can stay the same. This should increase investors’ trust and solve a few of the problems for Elon Musk.
Short-Term Cash Reserves
Another step that can be made to prove Wall Street, the investors and the entire world that Tesla is not just a dream maintained through losing money, is proving anyone that they got enough short-term cash to meet their needs over the next year. After announced action of asking for some of the payments back, Tesla doesn’t look so good on short-term cash reserves. And another thing that can contribute to worsening the problem is the SolarCity bonds that will be due in November. Even there, there’s a 10% deficit and it can be a huge source of concern about the liquidity of Tesla.
It sure looks like somebody from Tesla should start playing some Where's the Gold pokies and hit the jackpot in order to magically solve Tesla’s liquidity problem. Oh, that’s right, according to their statements there’s no problem to be solved and everything will be great. Will Elon Musk manage to pull another ace out of his sleeve and prove everyone wrong?