The Tesla share price currently stands at $241 and is just off a near recent low. Contrast this to August last year when the shares were flying high and in excess of $380 with rumours of a bid by Elon Musk in the region of $420. Where did it all go wrong? Should a company such as Tesla go private and come back to the market further down the development stage?
Selling the story
Whether investors like you do not, Tesla has radicalised the electric car market and even if it turns out not to be the major winner it has changed the trend. This is a company which came from nothing, was discounted by the government and ridiculed by traditional car manufacturers. Fast forward, Tesla has disrupted the market to say the least and encouraged the switching of investment away from petrol/diesel vehicles towards more environmentally friendly cars.
We are now looking at a multi-billion dollar business with an entrepreneur at the helm who was been there, done it and owns all the T-shirts. However, just after the company has taken a more orthodox approach to its cost base. Reducing employment numbers and scaling back on factory investment as a means of streamlining the cost base going forward. How does the market react – by decimating the share price!
Should Tesla be private?
There is a growing suspicion, made public for the first time by Elon Musk, that Tesla should actually be private at this stage of its development. There is far too much focus on short-term share price movements and precious company time has been spent fighting fires when it should be spent developing technology. If there is one company which should be in private hands just now, and come back to the market further down the development stage, surely it must be Tesla?
Unfortunately, the cat is out of the bag and it is unlikely that Tesla will be taken private in the short to medium term. The stock market has become a useful means of raising additional finance and the company is desperate for finance just now. In many ways this has been behind the Tesla share price fall, investors know a fundraising is coming and are prepared to push the shares further and further down to get a better deal.
Can Tesla survive?
Yes, Tesla can survive although the next few months will be extremely important in the company’s long-term history. The next fundraising will probably be the last before the company is profitable on a regular basis but at what cost?
We’ve also heard over the last few days that live wire entrepreneur Elon Musk has been forced to run all of his company-related tweets through Tesla lawyers before publishing. It is unlikely that the entrepreneur will put up with these restrictions for much longer and without Elon Musk where does the company go?
A sad state of affairs
The current situation perfectly reflects one of the reasons why Tesla would have been better in private hands at this moment in time. The company is producing record numbers of cars, delivery numbers will recover in the short to medium term and the company has a prestigious image amongst consumers. Ironically, at the same time the share price is under severe pressure, the balance sheet is strained and yet again the company would appear to be on the verge of coming cap in hand to the market for new funds. Is this fair? No – but this is how ruthless the markets can be…even with the winners!