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Tesla is currently facing serious challenges with the Model 3. While other models are still on display, the production capacity issues of the Model 3 cannot be ignored. For Tesla, 2018 is shaping up to be a pivotal year.
The news surrounding Tesla never stops, and the industry's attention on both the company and its CEO, Elon Musk, remains intense. However, lately, everyone has been focusing on Tesla’s financial struggles. Bloomberg recently reported that Tesla is burning through cash at an alarming rate, and if this continues, it could run out of funds by August next year.
Tesla's spending is truly staggering. Data shows that the company spends nearly $1 billion each quarter just to sustain operations and boost Model 3 production. The production bottleneck for the Model 3 has been a long-standing issue, and for a company developing three different models, this situation is deeply concerning. Even General Motors, the largest automaker in the U.S., spends over $1 billion per quarter, despite producing more than a dozen models and selling nearly 10 million vehicles globally.
From a return-on-investment perspective, Tesla has been struggling, while General Motors has consistently been profitable. GM’s stock price has been on a steady rise since its IPO, whereas Tesla may face its worst quarter in its 14-year history.
Despite this, Tesla still maintains a market capitalization of around $50 billion—more than Ford and Fiat combined. Its ability to attract new investment remains strong. Analysts predict that by the end of the year, Tesla will have very little cash left. As a result, the industry expects Tesla to seek refinancing, possibly later this year or early next year. In any case, the company will need significant funding to survive the next 12 months.
**The most dazzling show in the automotive industry**
At the same time, Musk thrives in the spotlight. These recent product unveilings may be strategic moves to engage Tesla’s wealthy supporters and tech-savvy customers, seeking additional financial backing. Just two weeks ago in Los Angeles, Musk showcased Tesla’s semi-truck and began taking reservations for $5,000 each. He also unveiled the second-generation Roadster sports car, which is now accepting pre-orders. The first 1,000 Roadsters will cost $250,000, followed by $200,000 per unit. Only 1,000 of these cars will be produced.
If Musk can sell all 1,000 Roadsters before actual production begins, Tesla could raise $250 million—enough to ease some of its financial pressures. According to Katie Fehrenbacher of Greentech Media, this amount surpasses the total fundraising from Tesla’s 2010 IPO.
Musk is undoubtedly one of the best car salesmen of his generation, as demonstrated by his recent initiatives.
However, investors and the public should not be blinded by the hype. Over the next 12 months, Musk and Tesla will face numerous insurmountable challenges. Musk himself admitted that the Model 3 is stuck in “production hell,†but the situation might be even worse than he admits. He once predicted that Tesla would produce 20,000 Model 3s per month by December, but the company may barely manage 1,000. This bottleneck is largely due to the Nevada battery factory, which is supposed to be a strength for Tesla, not a weakness.
Meanwhile, General Motors is expected to sell 5,000 Chevrolet Bolt EVs by December. As these vehicles become more common on U.S. roads, and as consumers take advantage of federal tax credits (which the Republican-led Congress aims to eliminate), Tesla could see a decline in Model 3 sales. Additionally, more customers are demanding refunds for their $1,000 deposits.
**Tesla’s production capacity has always been problematic**
One of Tesla’s core businesses is selling high-end electric vehicles to customers who don’t rely on tax incentives. In 2017, Tesla planned to produce 100,000 Model S and Model X vehicles, setting a new record and solidifying its position in the luxury EV market.
However, production has always been a weak point for Tesla. Both the Model S and Model X have struggled to meet shipping expectations every year. Some believed this issue would be resolved in 2017, as the company made progress in production. If Tesla could maintain its annual target of 100,000 units, the problems would likely be solved.
But the Model 3 presents an entirely different challenge. From two perspectives, it’s an unprecedented crisis in the automotive industry. First, the number of Model 3 orders has reached 500,000—something no automaker has ever experienced. Second, even though other manufacturers have faced similar order volumes, they have managed to ship on schedule. Tesla, however, is facing massive production bottlenecks.
Investors may not be concerned about these issues, given the allure of Tesla’s story. But the reality is far more complex.
**Musk’s storytelling ability confuses public and investor confidence**
Musk’s storytelling skills are unmatched. His latest presentations, including the semi-truck and Roadster, have set a new standard for automotive marketing. Tesla’s events have been among the most exciting in the industry over the past decade.
Musk isn’t just showcasing; he’s redefining what a car launch should be. After a series of high-energy events, investor sentiment shifted, causing Tesla’s stock price to fluctuate. Many investors were drawn in by the excitement and poured money into Tesla shares.
However, this momentum won’t last forever. 2018 will be the real test. If Tesla succeeds, its stock could surge to $500 per share. If it fails, the stock could plummet rapidly. It’s too early to say for sure.
If Tesla fails the test, the risk of bankruptcy increases significantly. However, we shouldn’t jump to conclusions yet. While the Model 3’s production is in trouble, Tesla’s core business remains profitable, and the Model 3 is not yet capable of sinking the entire company.
Currently, investor confidence is shaken but not gone. Everyone is on edge, and the buzz around Tesla hasn’t faded. If people remain calm, the company might not be discussed so intensely.