Tesla is not a sustainable business, this portfolio manager says

Investors appear to be losing faith in Elon Musk’s ability to create a profitable car company, with the share price for Tesla (Tesla’s Stock Quote, Chart, News: NASDAQ:TSLA) taking a beating of late.

No wonder, says Christine Poole of GlobeInvest Capital Management, since the company keeps on missing its production targets.

Tesla shares fell another two per cent in premarket trading on Tuesday, in response to news from the automaker of a temporary halt in production of its Model 3 sedan, the second such pause since February.

The temporary halt is reportedly related to the company’s efforts to ramp up production, with CEO Musk alluding to problems in robotic assembly of the Model 3, Tesla’s most affordable vehicle. “Excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated,” said Musk on Twitter.

All eyes are on production numbers, with the company failing to meet its 2,500 per week target during the first quarter and now stoking fears that the much larger goal of 5,000 per week by the end of Q2 could be out of reach.

Those concerns are justified, says Poole, CEO and managing director at GlobeInvest Capital, who gives a list of reasons why Tesla is just not looking like a solid business.

“The company continues to miss production targets, they’re burning through their cash, it makes no money and there’s a date now by which they’re going to have to issue more equity or debt to fund their development and production costs,” says Poole in conversation with BNN. “[Elon Musk] has indicated in the last conference call that he doesn’t think so, but he has said that in the past and then goes out and issues more equity.”

“The company is fairly leveraged, so that’s not good. It recently got downgraded to junk level, and that means higher financing costs as these maturities roll over,” she says. “The company has to prove that it can actually produce cars on a sustainable basis.”

After almost hitting US$400 per share last September, Tesla’s stock has lost one-quarter of its value, now trading in the US$290 – $300 range.

“I look at the financial statements and I can’t see value there,” says Poole. “You have to remember that Tesla is not the only company making electric vehicles. They have large competitors around the world who are focusing on the same market and who are coming up with product.”

“Obviously, when you’re making these small production batches, you’re not making money on them, but the larger automobile companies, they’ve got all these other vehicles on which they are making money, so they can much more easily subsidize early stage electric vehicles until they get into more mass production,” she said.