Tesla: Learning From Experience

Photo Credit: Open Grid Scheduler

Prelude

There are two sides to the Tesla (TSLA) story. The first is the stock price, and the second is the underlying business. They seldom seem to reconcile. For a while, it seemed like Tesla’s stock price was in a bubble. To my best knowledge, both the fundamentals and realistic future expectations did not warrant the market value at the peak, near 1,000 USD. The stock price, at that point, was detached from the underlying business. And that opens the door to all types of distractions.

On the other hand, in terms of operating activities, the company is now generating plenty of cash, and the flash capital raise guaranteed fast cash with little dilution. Even during optimism peaks, I’ve always looked at the current ratio has a rough measure of the company ability to keep going for the next twelve months. Even when the company’s operations were glowing, I was always skeptical about its liquidity.

The carmaker

That said, the company has come a long way to become a serious car manufacturer. Yes, it might be disputable, but there is some supporting evidence. For starters, many argued that Tesla could never replicate the efficiency, and scale, of the likes of Ford (F), General Motors (GM), and Fiat Chrysler (FCAU). Nonetheless, Tesla has just matched the all-time maximum production volume of the old NUMMI factory (now Tesla’s Fremont production facility).

Additionally, the old behemoths are showing weaknesses in areas where they used to be strong. As an example, the launch execution of the new Explorer has been Ford’s nightmare.

A while ago, I wrote a piece toying with the idea that Tesla’s struggle to ramping-up production could make it stronger. That’s what happens when you have top-notch engineers facing adversities and focusing on overcoming them. They learn from their mistakes and develop long-lasting solutions. My feeling is that the Model Y ramp-up won’t be nearly as bad as the Model X was.

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Disclosure: I am long Tesla.

Disclaimer:  This text expresses the views of the author as of the date indicated and such views are subject to change without notice. The author has no duty ...

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Kurt Benson 4 weeks ago Member's comment

Excellent article.