Tesla is facing billions of dollars in losses from its new factories, supply chain issues and Covid lockdowns – enough for CEO Elon Musk to mention the possibility of bankruptcy in a recent interview.
“The past two years have been an absolute nightmare of supply chain disruptions, one thing after another,” Musk said in an interview with a group of Tesla owners. “We are not out of it yet. Our main concern is how to keep the factories running so we can pay people and not go bankrupt. »
Musk engaged in hyperbole elsewhere in the interview, and he may have done so by mentioning the risk of bankruptcy. For example, he said automakers in general “are desperate for bankruptcy,” which falls into the category of colorful language rather than strict financial analysis.
But the company is coming to the end of its most difficult quarter, financially speaking, for more than two years.
Tesla’s factory in Shanghai has been closed for weeks due to Covid-related lockdowns in the city. And Musk revealed in the interview that the two factories Tesla opened in the quarter, in Germany and Texas, are costing the company billions of dollars in losses because supply chain issues have left them so far a “miserable” production.
“This is all going to be sorted out very quickly,” he said in comments recorded May 31 but not released until late Wednesday. “The factories in Berlin and Austin are currently gigantic money ovens. There is a giant roar which is the sound of burning money. Bigger than a dumpster [fire]. A dumpster is too small. Berlin and Austin are losing billions of dollars right now. There’s a ton of expense and virtually no return.
One of Tesla’s harshest critics believes the company faces bigger financial problems than most analysts realize.
“Bankruptcy is a real risk for these guys,” Gordon Johnson of GLJ Research told CNN Business on Thursday. “Why? A lot of their money is stuck in China. They weren’t profitable until they were in China; and, since China doesn’t allow companies to repatriate dollars there are made out of the country, and Tesla has a real problem.
Johnson pointed to Tesla’s decision to cut about 10% of its salaried staff — even as it continues to hire production workers by the hour — as another sign of trouble.
“Why do you think they cut people? This is a key telltale signal,” he said.
But most companies that downsize are never close to filing for bankruptcy. And virtually every other analyst predicts Tesla will remain profitable, despite the supply chain issues that haunt it and most other manufacturers around the world.
Tesla has been profitable since late 2018, after years of reporting only losses. The company has posted quarterly profits up from the prior period for the past two years.
This streak of sequentially increasing profits is apparently about to end.
Analysts polled by Refinitiv expect second-quarter adjusted profit to fall to $2.5 billion in the second quarter, down from Tesla’s record $3.7 billion in the first quarter. That would still be up from adjusted revenue of $1.6 billion in the second quarter of 2021.
Tesla reported a 0.1% decline in new vehicle production in the first quarter compared to the fourth quarter. But its year-over-year output was still up 69%, and most other automakers around the world cut output in the quarter from year-ago levels due to issues. of supply chain.
Automakers, including Tesla, are expected to release second-quarter sales figures early next month.
Shares of Tesla (TSLA), which are down nearly a third year-to-date, were down about 2% in midday trading Thursday.