RISE OF THE E-MACHINES
No one saw Tesla coming. A Silicon Valley startup putting electric motors into a handful of Lotus sports cars was about as niche as automaking gets. Then Elon Musk took over. Scarily smart and with the chutzpah to simultaneously bet billions on two industries with staggeringly high costs of entry—space and autos—Musk saw an opportunity. In the same year his other company, SpaceX, launched its first rocket, Tesla launched the Model S, a car that changed the way the world thought about electric vehicles.
Six years on, Tesla is in trouble. The much-anticipated rollout of the smaller, supposedly more affordable Model 3 is a mess. Musk’s team can’t figure out how to build the Model 3 in the numbers required to generate badly needed revenue, and early-production cars coming off the line are riddled with quality defects requiring expensive rework. Elon’s “building cars is hard” epiphany is coming at a critical stage in the game.
Tesla is burning cash, and alarm bells are ringing on Wall Street. Analysts at Jefferies, an investment bank, have predicted Tesla will need an injection of up to $3 billion this year alone. In April Goldman Sachs cut its six-month share price target to $195, a 36 percent decline in Tesla’s valuation. S3 Partners, a financial analytics firm, reported the value of shorted Tesla stock jumped by 28 percent in March to $10.7 billion—a bet the share price will decline.
But the Model 3 fiasco is not why Tesla is in trouble. Production problems can be fixed. The
