- REUTERS/Mark Blinch
- The former General Motors executive Bob Lutz has for years been skeptical about Tesla’s future.
- He had a front-row seat for GM’s 2009 bankruptcy.
- Tesla’s cash position means it could struggle to stay afloat amid a US sales downturn.
The former General Motors executive Bob Lutz returned to Tesla-skeptic mode last week and said the company was doomed.
This isn’t the first time Lutz – who retired from General Motors in 2010 after also working for Ford, Chrysler, and BMW – has foretold Tesla’s demise.
For the record (and I’ve asked him about this), he doesn’t think Tesla CEO Elon Musk is a poor leader – quite the contrary, he admires what Musk and Tesla have done. It’s just that he doesn’t think Tesla has any meaningful technological advantages over the rest of the auto industry.
And he’s right: GM brought to market a long-range, affordable electric vehicle, the Chevy Bolt, a year before Tesla did with its Model 3. Tesla has thus far struggled to deliver its cars, while GM could finish the year selling 5,000 Bolts a month.
Tesla’s brand is formidable, but relative to the major companies in the traditional auto industry, Tesla is cash-compromised. GM and Ford, for example, are sitting on strong balance sheets. Tesla, meanwhile, has enough cash on hand to operate for about a year.
Tesla is also spending about $1 billion a quarter, in line with what GM spends – but GM is selling dozens of vehicles and raking in profits, while Tesla is selling, effectively, two cars and hemorrhaging funds.
Prepare for the sales downturn
Tesla is also subject to the same market dynamics as everybody else.
At the moment, the US market is riding an extended sales boom. By the time the numbers are added up, 2017 should see about 17 million new-vehicle sales. Tesla’s little slice of that translates into a near-monopoly on luxury electric cars.
It’s not outlandish to predict that Tesla’s sales will fall alongside the rest of the industry’s when the downturn in sales comes. A revenue drop-off wouldn’t be arriving at a good time, as the company has to:
- Build the Model 3 in mass quantities.
- Develop its Semi and new Roadster, unveiled last week.
- Expand its manufacturing footprint beyond a single factory.
That’s all going to cost billions – and lacking profits, Tesla can ill-afford to backpedal on revenue, which has been climbing year over year.
The problem with car companies that don’t make money is that the lack of profits always catches up with them.
GM hadn’t made money for a few years before its 2009 bankruptcy. The financial crisis pushed the company over the edge, but even a prolonged downturn in sales would have punished the carmaker’s overleveraged balance sheet. Lutz had a front-row seat for this, by the way.
That doesn’t mean Tesla will go bankrupt. But the risk that it will is significant, and its financial condition points in that direction, so investors must take that into account.