Tesla Cannot Fix Its Cash Burn By Selling More Cars (TSLA)

The electric car company could possibly go bankrupt unless investors keep pouring in dollars.

Tesla TSLA Sock

Former General Motors (NYSE:GM) Vice Chairman Bob Lutz had some things to say towards Tesla during his interview with CNBC on Wednesday. It was quite obvious that Lutz doesn’t think highly of Tesla Motors (NASDAQ:TSLA) and its CEO Elon Musk. He went as far as even calling the electric car maker’s  supporters “members of a religious cult.”

Lutz has spent 50 years working with popular car manufacturers like Ford, BMW, and Chrysler. So, it is safe to say, he does know a thing or two when it comes to the car business.

His commentary didn’t stop there; he also compared Tesla’s Musk to Apple’s Steve Jobs but not without making negative remarks. He said that Musk is in the same category as how Jobs was worshipped, both men seen as “a new visionary god who promises this phantasmagorical future, a utopia of profitability and volume.”

But Lutz said that although there is some similarity, there is a big difference. He said that Jobs managed to deliver but Musk has not yet done the same thing. He continued to criticize the company’s negative cash flow and lack of profits.

With regards to Tesla’s plan to merge with renewable energy company SolarCity (NASDAQ:SCTY), Lutz said that it’s like “tying two sinking ships together for synergy.”

On their second-quarter report, Tesla announced a bigger than expected loss which is undoubtedly disappointing to all their investors.

“I just don’t see anything about Tesla that gives me any confidence that that business can survive,” Lutz said.

He predicted that the Palo Alto, California-based company could possibly go bankrupt unless investors keep pouring in cash. According to Lutz, they simply cannot fix this problem by selling more vehicles.

“If you’re not recovering labor and materials in your sell price, then doing twice as many or three times as many or four times as many doesn’t help. The losses just get bigger and bigger,” Lutz added.

Tesla on Wednesday delivered its third-quarter report and although the company was projected to print $0.02 loss per share on revenue of around $1.98 billion, it seems like the company’s profitability, at least in Q3, wasn’t as bad as previously thought. In fact, Tesla reported its first ever profit on a GAAP basis. In its quarterly report, the electric car maker said it earned $0.71 per share, well above the $0.02 per share analysts were expecting. Revenue jumped 145.3% from Q315 to $2.30 billion, above views for $1.9 billion.

More importantly, Tesla is gaining more profit from each car they produce as they level up their operations. Additionally, it looks like the auto maker is selling more cars than it did before. Tesla announced that they managed to sell 24,821 vehicles in the third quarter. Deliveries increased 114% on a year-over-year basis, and included 16,047 Model S and 8,774 Model X vehicles. Tesla also reiterated its second-half estimate of 50,000 deliveries. This is an impressive feat given the company has always struggled with production targets.

Stock Action

Tesla stock was a big mover in early trade Thursday with its shares spiking nearly 5% to $211 and change. The name printed a higher than average trading volume with nearly 5 million shares just 90 minutes into the session, compared to an average daily volume of 3.40 million.

Tesla shares are up 54 cents, or 0.26%, at $204.55 in pre-market trading Friday. The issue has declined 1.73% in the last 4 weeks and 12.30% in the past three months. Over the past 5 trading sessions the stock has lost 0.65%.

The $31.6 billion market cap company has a median Street price target of $223.00 with a high target of $500.00. Tesla Motors Inc. is down 3.86% year-over-year, compared with a 3.5% gain in the S&P 500.

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2 Comments on Tesla Cannot Fix Its Cash Burn By Selling More Cars (TSLA)

  1. Lutz said Hybrids would never work in cars but would be a success in trucks….

    Lutz once was asked what GM had to compete with the then new Hyundai’s cheap cars, he said “a used Buick”.

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