Tesla Could Be Doomed - Here's Why

Image: iStock

Former GM executive Bob Lutz returned to Tesla-sceptic mode last week and said that the company is doomed. This isn’t the first time Lutz — who retired from General Motors after also working for Ford, Chrysler, and BMW — has foretold Tesla’s demise. Unfortunately for Musk, he presents some compelling points

For the record (and I’ve asked him about this), he doesn’t think Tesla CEO Elon Musk is a poor leader; quite the contrary, he admires what Musk and Tesla have done. It’s just that he doesn’t think Tesla has any meaningful technological advantages over the rest of the auto industry.

And he’s right: GM brought a long-range, affordable EV, the Chevy Bolt, to market a year ahead of the Tesla’s own Model 3. Tesla had thus far struggled to deliver it’s cars, while GM could finish the year selling 5,000 Bolts a month.

Tesla brand is formidable, but relative to the major companies in the traditional auto industry, Tesla is cash-compromised. GM and Ford, for example, are sitting on strong balance sheets. Tesla, meanwhile, has enough cash on had to operate for about a year.

Tesla is also spending about $US1 billion per quarter, in-line with what GM spends — but GM is selling dozens of vehicles and raking in profits. Tesla is selling, effectively, two cars and haemorrhaging funds.

Prepare for the sales downturn

Plus, Tesla is subject to the same market dynamics as everybody else. At the moment, the US market is riding an extended sales boom. By the time the numbers are added up, 2017 should see around 17 million in new-vehicle sales. Tesla’s little slice of that translates into a near-monopoly on luxury electric cars.

When the downturn in sales arrives, it’s not outlandish to predict that Tesla’s sales will fall alongside the rest of the industry’s. The revenue drop-off wouldn’t be arriving at a good time, as the company has to:

  1. build the Model 3 in mass quantities
  2. develop its just unveiled Semi Truck and new Roadster
  3. expand it manufacturing footprint beyond a single factory

That’s all going to cost billions, and lacking profits, Tesla can ill-afford to backpedal on revenue, which has been climbing year-over-year.

The problem with companies that don’t make money in the car business is that eventually the lack of profits always catches up with them. GM hadn’t made money for a few years prior to its 2009 bankruptcy. The financial crisis pushed the company over the edge, but even a prolonged downturn in sales would have punished the carmaker’s overleveraged balance sheet.

Lutz had a front-row seat for this, by the way. That doesn’t mean Tesla will go bankrupt. But the risk that it might is significant and its financial condition points in that direction, so investors have to take it into account.

WATCH MORE: Tech News

Comments

    If cash becomes an issue, can't Musk just go cap-in-hand to the government like so many other car companies?

      He's been doing that this ENTIRE time - in fact, that's his business model: Generate hype, attract investors to increase stock price, use that stock price to justify government grants, rinse and repeat.

      He's basically delivering the bare minimum, in exchange for the maximum amount of hype, because he's realised it's not selling cars that makes money, it's selling promises that you don't have to keep.

      Me and others who haven't drank the Musk kool-aid have been saying this for years now.

        I don't suppose you have some kind of evidence to back that claim up? Particularly when all the other car manufacturers have lost their subsidies, packed up their bags and gone home. Deriding him as some kind of charlatan is a bit preemptive given his successes with his Teslas Batteries and SpaceX. I'm not prone to being a fanboy for anyone or anything but Musk has done some pretty impressive shit in recent years.

          Biggest whinges I see about Musk is that he's a businessman doing all this for profit. Every time I see that, I think, "so what?". He delivers enough on his promises to change society, create new industry, and effect how we think on a daily basis.

          And trying to make a buck out of it along the way. Which is more important? Him driving change, or him making a profit out of it? Seems making a dollar out of change is The Big Evil that some just cant get past.

          With this story, if sales drop off, that might even be a good thing as it'll open up competition a little in the future. He might not have the near monopoly he does now, and encourage Ford, GM, etc to bring their own competing models out to take market share.

          Which I don't think he'd mind.

          Everything he does seems to be progressive, not regressive, and for that alone he gets a big thumbs up from me.

      All of the car companies in this country that were getting subsidies, no longer get them, which is why they left the country.

    Keep in mind this exceptional auto executive is usually right. ie denies climate change and keeps a place in the Keys.

    These arguments dont seem to take into account the fact that Tesla isnt just a car company. Look at the investment they are doing in other energy related areas, like the powerwall, solar roof, supercharger infrastructure. etcetera.

    lol just look at all the rationalisations you guys are making. Unbelievable. You are so enamoured with Musk that you will perform all sorts of mental gymnastics - so long as it incorporates the word 'innovation', 'drives change' and 'visionary', any doubts are automatically quelled without the slightest hint of skepticism. Elon can do no wrong.

    Just remember in a few years when all this catches up with Elon to bite him in the ass, that you refused to believe it. Hopefully you'll be a little less credulous the next time a tech messiah claims to solve all the world's problems with a magic bullet.

    Last edited 24/11/17 12:26 pm

      I don't suppose you have some kind of evidence to back that claim up?So that's a no then.

    ...as @drunkenman said, e-cars are small potatoes compared to what T's solar roof/panels, powerwall, powergrid have the potential to do. Don't really care about mud a former(?) competitor is slinging...

    Autopilot 2.5 is not mentioned in this article. Without Tesla the world would not be turning EVs. GM made the bolt because it had too.

    But if Tesla shares went low enough wouldn't the company just be bought by the Chinese before it went bankrupt? Then I would still get my model 3 but it would have been made in China rather than USA? As I have no connection to either of those countries it would make no difference to me right?

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