- Wall Street is now once again focused on the electric-car maker's balance sheet and its struggle to reach profitability.
Tesla declined for a fourth straight trading day on Wednesday, falling as much as 2%, to $297.80 a share, as Wall Street's focus returns to the company’s balance sheet following CEO Elon Musk’s 16-day go-private saga that left the electric-car maker facing numerous lawsuits and a US Securities and Exchange investigation.
Musk has repeatedly said Tesla will be profitable this year and thus won’t need to tap debt or equity markets for new financing. But Wall Street analysts aren’t quite convinced.
"Tesla will need to secure profitability by the end of the year to maintain solvency,” Jed Dorsheimer, an analyst at Canaccord Genuity, told clients this week. And with $230 million of convertible debt coming due in November, and another $920 million five months behind it, the company could risk another downgrade like that by Moody's in March.
"Tesla's leverage will likely exceed S&P's adjusted target of below 6x for its B- credit rating, potentially moving the company's bonds fully into the CCC tier," Bloomberg credit analyst Joel Levington said this week.
"Our view is that Tesla will likely end 2018 with adjusted leverage near 8x, with several financial risk flags elevated. Recent lawsuits could add new credit threats."
The company has missed analyst's EBITDA targets for six of its past eight quarters, Levington adds.
What's more, the brief go-private push could have hurt Tesla's ability to raise new capital, Oppenheimer told clients this week
"We believe this removes a large distraction that had significant chance of failure and the potential to severely limit TSLA’s access to capital while attempting to execute on its ambitious product strategy," analyst Colin Rusch said of Musk scrapping his plans to take the electric-car maker private.
Tesla maintains that scaling production of the Model 3 — hawked as its first mass-market, consumer car — is its gateway to profitability. But that ramp doesn't appear to be coming along so smoothly. Documents seen by Business Insider show that in the last week of June, when Tesla finally hit its goal of making 5,000 Model 3's per week, 4,300 of those vehicles required reworking to fix issues from the assembly line. Only 14% of the cars didn't need rework.
The documents corroborate what UBS' teardown engineers in the investment bank's "evidence lab" found when completely disassembling a Model 3 in order to compare it to electric competitors from Chevrolet and BMW. They found missing bolts, loose tolerances, and even and misaligned spot welds.
"Our customer satisfaction scores for Model 3 quality have averaged about 90% since January, with steady improvement through the year, even as the number of cars delivered has rapidly multiplied," a Tesla spokesperson told Business Insider at the time.
"Tesla customers never have to worry because if they are unhappy with their car when they receive it, they can either give it back for a full refund, allow us to address any issues, or ask for an entirely new Tesla."
After reaching near record highs of $389 following Musk's tweet about going private at $420 per share, the stock has since fallen and is now down about 6% this year.
Wall Street analysts see Tesla shares hitting $328 in the next year, according to a Bloomberg poll.
- The $2 trillion volatility market is throwing traders for a loop as just about everyone loses money
- There's a new area of the stock market that's quietly crushing it — here are some simple trades that can get you in on the action