Clearly, the public feels that Tesla is a deeply successful company. For years now, this company’s share prices have consistently outpaced the market’s overall growth rate. However, Tesla has never been a very profitable company. For years, some people have argued that Tesla’s share price is quite inflated. A number of Wall Street commentators have argued that the success of Tesla shares have more to do with Elon Musk’s magnetism than any economic fundamentals. On October 3, Tesla revealed that it failed to meet its delivery goals for Tesla’s Model 3 vehicles. Although Tesla had planned to produce 1,500 vehicles in the third quarter of 2017, Tesla only delivered 220 cars. This significant shortfall has once again inspired financial commentators to question the fundamentals of Tesla’s business model.
This piece of news was just the latest development that has inspired consternation regarding Tesla’s finances. Recently, the Wall Street Journal revealed that Tesla is constructing large portions of the Model 3 by hand. According to the report, this construction work takes place far removed from Tesla’s factory production line. Although Tesla’s stock has varied over the years, the stock has generally trended upward for a long time. As Tesla’s controversies stack up, people are wondering if Wall Street’s love affair with Tesla will soon come to an end.
If Tesla’s share price declines significantly, this could have more far-reaching implications for the financial world. Arguably, a decline for Tesla could be a warning sign that the market is losing the optimism needed to sustain its upward climb. While financial analysts have wondered for over a year if the market is going to start declining, it is still worth paying attention to experts with concerns. According to analyst Toni Sacconaghi, Tesla will have spent an estimated $10.6 billion in cash by the end of 2017. Apparently, this is an unprecedented spending rate for a company like Tesla, which has relatively low revenues and a market cap of $60 billion. A lot of people are wondering if Tesla has what it takes to turn reduce its spending without further hurting its financial fundamentals.
Few serious people question that Tesla founder Elon Musk is a brilliant, visionary many. Even fewer deny that Tesla makes high quality vehicles. However, an increasing number of people are questioning Tesla’s corporate governance. This company will have to slow its cash spending rate or risk alienating even more financial analysts.