A decrease in investment helps produce positive cash flow in the short-term, but further decreases the chances of the company justifying its valuation over the long-term.
Musk’s unrealistic timeframes appear to be contributing to some turmoil in the company’s self-driving unit. Musk is “upset that some team members have told him they can’t meet the timelines he has set for developing the technology,” according to
Overall, more than 30 high-level employees have left the company since the start of 2018. Most recently, on the company’s Q2 earnings call, JB Straubel, the co-founder and CTO who reportedly , announced that he would be stepping down from his position. In order to justify its current valuation of $225/share, TSLA must achieve 4% NOPAT margins – similar to GM or Ford – and grow revenue by 30% compounded annually for seven years. In the above scenario, TSLA would earn $133 billion in revenue in year 7. For comparison, Ford earned $160 billion in revenue last year, and GM earned $147 billion. TSLA’s valuation still implies it will achieve the scale and profitability of a major, mass-market automaker.
Investors already recognize the serious problems with Tesla, as evidenced by the 27% decline in the stock YTD. I expect the stock to continue to fall over the rest of the year and into 2020, as Tesla continues to miss its targets as a result of underinvestment, constant turnover in the executive ranks, and unrealistic promises.
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