Tesla Motors (TSLA) CEO Elon Musk has a production issue.
The superstar executive says his electric car company may not make its targets for vehicle output this year. Tesla is downgrading the 2015 deliveries to 50-55,000 cars from a target of 55,000 before. Musk points to problems with the company’s new Model X SUV, which is set to launch next month. He calls the Model X-- which is being put together on the same platform as Tesla’s only other product, the Model S-- “maybe the hardest car to build in the world.”
Yahoo Finance Senior Columnist Michael Santoli calls this a pretty big bump in the road for the high-flying company.
“The issue is they’re supposed to be getting to half a million cars in 2020,” he explains. “And every time they miss one of these it extends that timeline.”
Santoli notes that the tables have turned on Musk and Tesla a bit, since previous production issues were seen as a good thing.
“This has happened several times,” he points out. “They’ve said in the past they couldn’t make cars fast enough to meet demand, and this is supposed to be a positive story because you had this backlog of people waiting for them. Now it becomes a question of can they actually manufacture in an efficient way, especially with bringing this new model on line.”
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Along with the production hang up, Tesla may have some money issues. Despite a big increase in revenue, the company’s second quarter loss was almost three times more than a year ago. And Santoli believes for Tesla, that really stands out.
“The level of cash burn that this company is showing right now, the potential need to go out and raise more capital, they’re drawing down their revolving credit line-- it’s not a dire situation but the fact that they’re going to need to go back to the well for more cash, they’re not going to be cash flow positive as soon as expected, these are regular fast-growth company issues,” he says, “But Tesla has reached such a huge market cap for an early-stage company that it becomes a little bit more of a dramatic story.”
And that drama prompted a selloff of the stock following the production announcement. So is it possible that Musk’s image is becoming a bit tarnished for investors? Santoli feels perhaps in some ways, yes.
“I don’t think they’re losing faith in Musk as an innovator, as somebody who has a very clear and impressive vision as to where things should go,” he argues. “But as a manufacturer, as an operations guy, I think The Street is questioning whether Tesla can make good on its promises of an extremely steep and ambitious ramp in production.”