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Tesla Facing Its Greatest Struggle Due To Slowing Economy

Tesla has repeatedly missed production targets for the Model 3, which was originally supposed to go on sale but is now expected to be produced in limited quantities at the end of this year and widely available in mid-2021. Last month, Musk said he expected total 2022 vehicle production to increase by about 50 per cent from last year’s forecast of about 100,000 vehicles. But he downplayed suggestions that Tesla would need to raise more capital to fund additional Model 3 production.

The Big Idea Of Musk 

  • The Model 3 is the linchpin of Musk’s strategy to turn Tesla into a profitable, mass-market manufacturer of electric cars. The more expensive Model S sedan and Model X SUV have helped the company grow faster than rivals such as General Motors Co. and Nissan Motor Co., but they still make up just a fraction of overall U.S. sales.
  • Chief Executive Officer Elon Musk was predicting a “big acceleration” in orders for its new Model 3 sedan, with wait times of four to five months.
  • He hasn’t mentioned wait times for the car since. Tesla has been devoting more and more of its website to showcasing its pricier models, including the Model X SUV and the Roadster sports car, which starts at $200,000. It hasn’t advertised the Model 3 on its homepage since May.
Tesla Elon musk

Could Sport Utility Vehicle Save Tesla?

Tesla is also spending heavily as it prepares to launch production of a new sport-utility vehicle in about two years and enters a critical period with Musk under pressure from investors to prove he can deliver consistent profits while expanding into electric trucks and buses. 

The company plans to spend between $2 billion and $2.5 billion in capital expenditures this year, according to analysts’ estimates compiled by Bloomberg. By comparison, Ford Motor Co., which sells six times as many vehicles has Tesla globally, is spending $4.5 billion this year on capital expenditures. We’re seeing signs of caution,” said Salim Morsy, an analyst at Bloomberg New Energy Finance who tracks electric-vehicle sales worldwide. “The number of people who have ordered a Model 3 but not taken delivery is about double what it was when the company started taking orders for it last year.”

Morsy’s data show that 20 percent of customers who ordered a Model S or X had not taken delivery by the end of June compared with 11 per cent at the end of 2020. Tesla declined to comment on its delivery rate, or the number of customers who have cancelled orders.

Prediction According To Marketers

  • Tesla has been burning through cash, and Moody’s Investors Service downgraded the company’s credit rating last week, saying it expects Tesla will need to raise more capital by the end of 2020. The company spent $1.4 billion in cash in the second quarter and said capital spending will increase 50 per cent this year.
  • Sam Abuelsamid, an analyst for Guidehouse Insights, claimed that Tesla needed to increase production at its more recent factories in Austin and Berlin. Earlier, Musk had compared the commencement of those plants’ production to “giant money furnaces.”
  • If those plants continue to be underutilised, Tesla “may wind up running into some financial issues in the third and fourth quarters (of 2023),” Abuelsamid warned.
  • The company Fitch Solutions, which conducts industry and nation risk assessment, predicted on Tuesday that global vehicle sales would decline by 5.4 percent in 2022 before only partially recovering in 2023.

Musk Take On The Issue

Musk said this week that he doesn’t think Tesla will need to raise more money this year, but that he “can’t be sure.” He also said he is considering options for a potential deal with SpaceX, his rocket company. Musk told analysts on a conference call after releasing second-quarter results that those talks are “more along the line of a transaction where we would buy something pretty significant from them and merge Tesla and SpaceX.

“If we work hard, I think we can do it with internal cash flow,” Musk said during an earnings call with analysts on Wednesday after the company reported earnings for its second quarter ended June 30th. “If we have a really great quarter” I’m confident that we can finance all cash needs for quite a long time.”

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