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Market Insights

Tesla "losing billions of dollars"

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Musk’s comments raise eyebrows

You just can’t keep him out of the headlines. Elon Musk recently appeared on a podcast interview with Tesla Owners of Silicon Valley, (the last part of which was published on Wednesday). Musk’s comments reveal the challenges Tesla currently faces as the company tries to expand production…

This comment leads the headlines

"Both Berlin and Austin factories are gigantic money furnaces right now. Okay? It's really like a giant roaring sound, which is the sound of money on fire,"


Not so different from Tesla's share price, which has also been a gigantic money furnace for shareholders lately…

Tesla

The stock is really struggling around the 20 day moving average and that $700 zone. In the absence of positive drivers, the technical trend is still down.

So what could turn the trend around?

Based on Musk’s comments, the overwhelming issue facing the business (along with many others) is supply chains.

"The past two years have been an absolute nightmare of supply chain interruptions, one thing after another, and we're not out of it yet"


The new Texas gigafactory is struggling to increase output largely because batteries and battery tools are “stuck in port in China” which is why they’re "losing billions of dollars right now. There's a ton of expense and hardly any output,"

China’s continual, sporadic lockdowns won’t help, although Tesla is pushing ahead with production increases in China regardless. Output at the Shanghai factory is expected to fall by a third in this quarter vs Q1 and Tesla will close the factory for upgrades at the start of July.

After the two week shutdown, Tesla aims to produce 22,000 cars per week at the plant, compared to recent levels of around 17,000 per week.

As for the supply chain issues, Musk told the interviewers that

"this is all going to get fixed real fast, but it requires a lot of attention,"


It’s worth noting that the interview was given on the 31st of May and drip-released in 3 parts, so some of Musk’s comments could be outdated by now.

However, his appearance at the Qatar Economic Forum was more recent, and it didn’t seem like the issues had been resolved yet…

"Our constraints are much more in raw materials and being able to scale up production,"
"We are increasing production capacity as fast as humanly possible,"


So, supply chain issues and Chinese lockdowns easing would definitely be helpful. One other factor that could give Tesla a lift is their work with the Biden administration on renewable fuel standards (RFS) amid a planned change to the policy and subsidy credits.

According to Reuters, early signs are that the administration is leaning toward a rule that benefits carmakers like Tesla, giving them the greatest access to so-called e-RINS, or electric RINs.

The rule changes could be a boost down the line, but short-term challenges are the main concern. In Musk’s own words…

"How do we keep the factories operating so we can pay people and not go bankrupt?"

Not investment advice. Past performance does not guarantee or predict future performance.

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