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article imageInvestors betting against Tesla — Citing financial issues

By Karen Graham     Mar 30, 2018 in Business
Continued delays in Tesla's Model 3 production, a recall of 123,000 Model S's over rusty bolts and a downgrade of the company's credit rating have made for a rough week for Elon Musk's electric car company, creating financial issues that could escalate.
Tesla Inc. shares dropped for a second day as questions about a fatal Model X crash in California last week intensified the pressure on Elon Musk’s electric-car maker. Tesla's shares dropped 22 percent in March, and Wall Street experts are saying this will have negative implications for its ability to raise critically-needed funds, reports CNBC News.
The National Transportation Safety Board (NTSB) is investigating the Model X crash that occurred on the morning of March 23 in Mountain View, California, killing the driver. The NTSB is focusing on whether the Tesla's semi-autonomous auto-pilot had anything to do with the crash.
The Tesla Model X  displayed at a showroom in Corte Madera  California
The Tesla Model X displayed at a showroom in Corte Madera, California
Justin Sullivan, Getty Images/AFP/File
The federal agency is also investigating a fire that resulted from the car’s battery system. In a Tesla Blog written Tuesday, the company stated: “We have never seen this level of damage to a Model X in any other crash." Tesla is working to retrieve the vehicle's data logs.
Model S recall over rusty bolts
Tesla announced on Tuesday this week it was recalling 123,000 Tesla Model S sedans worldwide over a power steering issue. The recall only affects Model S sedans built before April 2016, particularly those in colder climates where road salt can corrode power steering bolts.
In an email to customers, Tesla said no accidents or injuries have been associated with the problem. In a worst-case scenario, Tesla says the car loses power steering, meaning drivers need to use a little more force. Still, it amounts to the automaker's biggest-ever recall, surpassing one of 90,000 vehicles in 2015 over a faulty seatbelt, reports the Verge.
A Tesla Model S P85d on display at the 2015  Shanghai auto show. Electric vehicle sales have been go...
A Tesla Model S P85d on display at the 2015 Shanghai auto show. Electric vehicle sales have been government-subsidised partly to help reduce China's notorious air pollution, and the Chinese market is now the world's biggest and growing quickly
JOHANNES EISELE, AFP/File
Model 3 production shortfalls cause a drop in credit rating
Tesla has been dealing with a production problem with its Model 3 since it was rolled out last year. Earlier this month, Digital Journal, in an Op-Ed noted that Tesla had said production of the Model 3 would reach 2,500 cars a week by the end of the First Quarter this year.
But figures for March show that the number is less than 1,000. And while the Tesla brand has a strong following - the bottom line is this - The company bit off way more than it could chew with the Model 3. End of story? Maybe not.
On Tuesday, Moody's investors downgraded Tesla’s corporate family rating to B3, six levels into junk, and said its outlook on the company is negative, according to Bloomberg News, citing “the significant shortfall in the production rate of Tesla’s Model 3” and liquidity pressures as two chief concerns.
Tesla Model 3 achieves 345 km of range per charge while starting at only 35 000 USD before incentive...
Tesla Model 3 achieves 345 km of range per charge while starting at only 35,000 USD before incentives.
© Tesla Motors
“This is the most negative sentiment I’ve seen in a while,” Ben Kallo, an analyst at Baird, said Tuesday. “It’s really about the Model 3 production and ramp up, and the shorts are piling in.”
On Wednesday, Morgan Stanley warned Tesla shareholders the stock's fall could be a "self-fulfilling" prophecy for further declines. Tesla's 5.3 percent bond, issued last August and maturing in 2025, also fell 4 percent to 87.25 cents on Wednesday, ending with a yield of 7.6 percent, according to FactSet.
"A lower share price begets a lower share price … For a company widely expected to continue to fund its strategy through external capital raises, a fall in the share price can take on a self-fulfilling nature that further exacerbates the volatility of the share price," analyst Adam Jonas wrote.
Both Moody's and Morgan Stanley are saying Tesla's financial outlook hinges on its Model 3 production fiasco being corrected. Tesla had $3.4 billion in cash or cash equivalents at the end of 2017. The company lost $2.0 billion last year and went through about $3.4 billion in cash after capital investments.
With the amount of cash the company is burning, Tesla still has $230 million of debt due in Nov. 2018 and another $920 million in due in March 2019.
Tesla "faces liquidity pressures due to its large negative free cash flow and the pending maturities of convertible bonds," the Moody's release said Tuesday. "The negative outlook reflects the likelihood that Tesla will have to undertake a large, near-term capital raise in order to refund maturing obligations and avoid a liquidity shortfall."
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