• October 7, 2022

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Tesl
TSLA
a is at the center of another controversy. Its newest factories are burning through mountains of cash. Investors are worried about bankruptcy.

Bloomberg reported on Thursday that Elon Musk said the Berlin and Austin factories are money furnaces. The headline amped up fear, uncertainty and doubt about the automaker. Shares slipped.

Shareholders should beware. FUD works.

In fairness, Musk was simply being honest. New factories blaze through capital as they scale up production. Equipment costs can be monumental, especially during an innovation cycle. New employee training, stockpiling components from suppliers, and ongoing construction costs add up too. These cash outlays are stacked up against limited production runs to work out the bugs.

The factories in Berlin, Germany and Austin, Texas represent the evolution of the wildly successful “Giga” Shanghai facility, opened in 2019. That Chinese plant was developed to scale up production of the Tesla Model 3, a mass market $45,000 sedan. It had a state-of-the-art robotics system, a massive footprint, and 210 acres for future development.

Giga Shanghai started production at only 1,000 units per week. Sources in China reported last week that insured Tesla units made in China between June 13 through June 19 were 17,949. That is 2,564 vehicles per day. And Tesla is growing the facility, ultimately targeting 100,000 units per month.

Berlin and especially Austin, are bigger, more technologically advanced giga factories.

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Unfortunately, Musk has made a recent habit of giving his critics ammunition. The money furnace comment reported at Bloomberg reminds investors of a 2018 report “Tesla Doesn’t Burn Fuel, It Burns Cash”. At the time, scaling up production of Model 3 was a particularly dark time for shareholders. Supply chain bottlenecks plus manufacturing naivete led to production delays. Musk later admitted that manufacturing hell pushed the company to the brink of bankruptcy.

Tesla is now nowhere near insolvency. The Austin, Tex.-based company in 2021 generated $11.5 billion in cash from operations, up 94% from 2020. Its backlog of new orders is the best in the industry, and made-to-order business model means that every new Tesla has a waiting buyer. That’s a luxury in a sector still plagued by semiconductor shortages and rising raw materials costs.

FUD – ie fear, uncertainty and doubt — is another matter, though.

Negative Tesla stories in the press drive clicks, likes and shares, the currency of the advertising-centric media ecosystem. These negative stories, meaningful or not, impact investor sentiment and ultimately drive Tesla shares lower.

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