It’s been a tough couple of months for Tesla and the innovative automaker’s share and bond prices are starting to show the strain. Tesla shares have slumped nearly 40% since the beginning of the year as the company has struggled to ramp up production and sales of its mass-market Model 3. Pro-Tesla investors are a very vocal crew and they remain firm believers in the company’s long-term vision. But others – especially the big institutions that buy Tesla’s bonds – are starting to cast a suspicious eye over the company’s financials and to squint nervously at the future. In the end, Tesla remains a gamble. If the company succeeds in becoming the world’s premier electric car manufacturer and if the electric car market maintains its rapid pace of growth, shareholders will be smiling. If, on the other hand, Tesla loses out to the other automakers who are moving into the e-vehicle space or electric cars don’t grow as anticipated, things look decidedly bleak. – Felicity Duncan

Tesla stock hits lowest level since 2016 as car maker’s outlook debated

By Patrick Thomas, Sam Goldfarb and Tim Higgins

(The Wall Street Journal) Tesla Inc. shares touched their lowest level in more than two years as prices on its bonds also slumped, a sign of investors’ growing doubts about the car maker’s outlook.
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The Palo Alto, Calif., company’s stock fell about 2.7% Monday to $205.36, the lowest close since December 2016, after Wedbush Securities analysts slashed their price target on Tesla shares to $230 from $275.

The latest moves show how Tesla’s outsize ambitions have been obscured by near-term financial challenges. The company’s unsecured bonds due in 2025 fell as low as 82.25 cents on the dollar Monday, according to MarketAxess, around their lowest level since being issued in August 2017.

Wedbush analysts cited concerns around Tesla’s growth prospects and underlying demand for its Model 3 sedans in the US over the coming quarters. That is a key test for the company, which is trying to become the first mass producer of electric cars even as more established auto companies increase their presence in that market.

Tesla’s shares have fallen about 38% this year. T. Rowe Price Associates Inc. – for years one of Tesla’s biggest investors – sold roughly 81% of its holdings over the first three months of 2019, leaving the firm owning the smallest amount of Tesla stock since 2013.

In April, Tesla reported one of the worst quarterly losses in its history as revenue declined 37% from the prior quarter to $4.54bn. Vehicle deliveries in the period fell 31% from the fourth quarter.

Earlier this month, Tesla completed a stock and bond sale that raised around $2.4bn after hedging costs, to give it a much-needed boost of liquidity. The capital raise came as the firm has worked to scale production of the mass-market Model 3 sedan and deliver cars to customers in Europe and China.

“We have continued concerns around Tesla’s ability to balance this ‘perfect storm’ of softer demand and profitability concerns which will weigh on shares,” the Wedbush analysts said in a research note.

A Tesla representative couldn’t be reached for comment. Chief Executive Elon Musk has tried to reassure investors about Tesla’s prospects, saying at an April presentation that he would be able to deliver an on-demand robot taxi fleet by 2020.

But Mr. Musk seemed to spook investors last week after electric-car website Electrek reported on a memo he wrote calling on employees to reduce spending as the company tries to preserve cash.

Tesla’s 5.3% bonds due in 2025 have been trading between around 85 cents to 90 cents for the past year, so some analysts said their recent decline showed a new level of worry about the company’s financial situation.

Despite Tesla’s recent stock and bond sale, some observers think the company might need to raise more cash before long if it can’t significantly improve on its first-quarter results.

Though Tesla generated positive free cash flow in the second half of last year, it burned through nearly $1bn in the first three months of this year, and its cash on hand fell more than 40% from the end of last year to $2.2bn on March 31.

Tesla has said that its capital expenditures will total $2bn to $2.5bn this year. It is currently due to pay $165 million on a loan in June and roughly $566m in convertible bonds that mature in November.

Read also: Musk’s big dreams are hurting Tesla – The Wall Street Journal

While the company has said it would return to profitability later this year, analysts say that largely depends on how many Model 3 sedans it can sell after satisfying years of pent-up demand for the cars in 2018.

“Clearly they need capital and the bond market is not sure how they’re going to get it given that the bonds are in the low 80s,” said Dave Battilega, a fixed-income portfolio manager at Three Peaks Capital Management, which doesn’t hold Tesla bonds.

Barring a major shift in its fortunes, Tesla should still be able to issue more shares or convertible bonds if it needs to, some analysts say. Doing so would come at a cost, however, since issuing shares would dilute existing shareholders and selling convertible bonds would increase the company’s debt load. Moreover, the more the company’s stock falls, the more shares it would need to sell to raise any specific amount of money.

Recent attention to Tesla’s cash position underscores the increasingly hard-edged view that investors now hold toward the company after years in which many bought into Mr. Musk’s vision of Tesla as a disruptive force that could pioneer a future of driverless electric vehicles.

Even as Mr. Musk touted innovations he was bringing to the assembly floor, Tesla has struggled for almost two years to ramp up production of the Model 3 and deliver to customers around the world.

His latest claims about being able to deploy a fully driverless robot fleet next year also strike many as unrealistic, especially given the large sums that other companies are investing to build up their own self-driving units.

Meanwhile, the company’s problems come against the backdrop of an increasingly uncertain economic climate. Tesla’s bet on China in particular faces questions in the light of the recent escalation of U.S.-China trade tensions, which many analysts believe is slowing the Chinese economy.

Write to Patrick Thomas at [email protected], Sam Goldfarb at [email protected] and Tim Higgins at [email protected]