“The report of Tesla’s death was an exaggeration” Mark Twain would say. But maybe an era has really come to an end. The electric car game is still all to play. And Elon Musk could come out defeated.

Between Tesla, that someone sees close to failure, Facebook being in the eye of the storm for the Cambridge Analytica scandal, and Amazon apparently turned to be Donald Trump’s favorite target, we could say that’s there’s quite some confusion around Silicon Valley. As if Jeff Bezos turned even eviler than Kim Jong-un.

We suspect this confusion is deliberate. The usual media fuss, in short. Facts with different causes and part of different contexts have been oversimplified, and all tar with the same brush, like they were all sides of the same phenomenon. Fact is, nobody has fallen so far, not even Tesla.

That the Nasdaq stocks of some hi-tech companies recorded falls and rebounds in the last week of March is completely physiological. Someone has earned us a lot, as usual. It will be a question of how the market will behave in the medium term, rather than focusing on its instantaneous reactions to this or that news.

The ups and downs of some company at Nasdaq in the last week of March are quite physiological. And as usual, someone will have been making big money out of it. We will have to see how the market will behave in the medium term, instead of focusing on the live reactions to some news.

Tesla’s problems are not the same problems of Facebook and Amazon

Since Facebook, Amazon, and Tesla are different cases, let’s focus only on the latter. Since September 2017 (up to March 29), Tesla’s stock lost almost a third of its value, going from a record high of $385 to $266. The times when Tesla was the car manufacturer with the highest market capitalization are long past. Apparently, the market believes that society has more than one problem, and these problems are likely to be connected to each other.

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Tesla’s Nasdaq share price performance, March 2017 – March 2018

The fatal accident happened last March 23rd, involving a Model X might be an alarm bell. It is still unclear if the SUV was running with the autopilot activated. This circumstance will eventually be verified by the NTSB‘s Investigation. [Updated April 2nd, 2018: Tesla confirmed that the car did have the autopilot activated, and the adaptive safety distance control system was set to the minimum. The driver had apparently received several warnings, starting six seconds before the impact, but he ignored them keeping his hands away from the wheel.]

Moreover, last June, NHTSA had assigned the Model X, the maximum safety rating (first SUV to obtain it). Point is, this last accident may be read as proof that the road leading to fully autonomous cars is still long. And autonomous cars are integral part of Tesla’s promises.

 

A company that burns cash

Then there is a second, more serious problem. The financial situation of Elon Musk’s company seems to be very bad. In the last quarter of 2017, Tesla lost 619 million dollars, compared with sales of 2.98 billion dollars. The company burns cash, in short. This depends on the combination of two factors: on the one hand, the delay in the Model 3’s production, with a consequent negative effect on cash flows; on the other hand, the debt generated by the subsidiary SolarCity.

Model 3 is being produced at a rate of 2,500 units per week, half of the 5,000 target set by the business plan. New investments are needed to speed up. But in order to attract investments there need to profit: just what Tesla is missing right now, since in its whole history it managed to close only two quarters with a positive balance, in 2013 and 2016.

Tesla’s third problem is the other manufacturers sharing the world car market. A market where dimensions are crucial. A fact that is well known by Fiat Chrysler, that, sooner or later, it will have to seek for a new strategic alliance (assuming it is not already doing so, perhaps with a Chinese partner). It is well known by Renault and Nissan, which are closer and closer to a merger. And finally, it is well known to Volkswagen, who is engaged in a titanic effort on the investments side.

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The growth of the electric car market in the coming years (source: Bloomberg)

China is involved

In November 2017, Volkswagen signed a 10 billion euro venture with the Chinese group Anhui Jianghuai Automobile, for the development of a new array of electric cars. In China, Ford and General Motors are also investing heavily in the electric. Global automotive industry’s efforts in China are tied to the government’s tighter and tighter laws on polluting emissions.

In the next three years, Volkswagen should invest a total of 34 billion euros in research and development. 20 billion dollars will be spent to ensure the availability of batteries for all of the electric vehicles produced in the future by the German group (note that the lithium battery market is literally bursting). By the end of 2022, Volkswagen will produce its battery-powered electric vehicles in 16 plants worldwide.

In short, against this sort of giants, Tesla is likely to have blunt weapons, because stock market capitalization is not sufficient to fund a company that remains too small for the automotive market.

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