Tesla shares have fallen from well over $400 to below $300 over the last few months. It is fair to say that this has been an extremely rocky ride for the electric car manufacturer. The founder Elon Musk has been relegated to behind-the-scenes (although he is often wheeled out to announce bad news) after his controversial social media communications. However, Tesla has significantly reduced costs going forward, which is exactly what the market wanted, but the shares are being hammered.
Short-term pain, long-term gain
In the back of the minds of many investors is the concern that Tesla will need to tap the market for additional funding in the short to medium term. Despite the company suggesting just a few weeks ago that it had turned the corner and would be profitable on a quarter by quarter basis going forward, this comment has been diluted a little. The company has reduced the workforce, announced plans to close many showrooms and will be reducing the price of the Model 3 to $35,000. So, why are investors still concerned about the company’s future?
What more can the company do?
There may well be a short-term financial hit with redundancy payments and company reorganisation costs but going forward the operating cost of the company will be significantly reduced. On the surface, a reduction in the future price of the Model 3 looks beneficial but this has upset many customers who have already taken delivery of their Model 3 at the full cost. Historically, the Tesla customer base has been extremely loyal and to a certain extent ignored market concerns. However, by announcing the reduced price of the Model 3 going forward this has slashed the value of vehicles already on the road.
Focusing on cars
To those who follow the stock market it is fairly obvious that the company’s strategy has changed somewhat in recent months. Gone are the regular announcements of groundbreaking ventures into electric buses and electric trucks, replaced by a greater focus on the company’s core markets. Just this week a number of Tesla vehicles exported to China were stopped by customs amid an apparent mixup with “customs documentation”. Such is the sensitivity amongst Tesla investors at the moment that the share price dipped on this news even though the cars have now been cleared and the situation apparently rectified.
Fighting the establishment
In reality, Tesla has always been fighting the establishment from the moment it broke into the electric car market. The company has led where many have followed and while there will be increased competition in the hybrid and electric car market, Tesla will still play a major role going forward. The previous PR gaffes of the multitalented billionaire Elon Musk appear to be a thing of the past even though the current board of directors are still happy to use his name to open doors and attract publicity.
The next few months will be challenging for Tesla, the shares are under pressure and the company is going through a major reorganisation. However, if you take a step back and look at the situation from a distance, the company has been through far tougher challenges than those it is experiencing today. Those who look to write off Tesla may need to think again because it is unlikely that Elon Musk will ever give up on his dream.