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Thu May 23, 2019, 07:13 AM May 2019

Howes: Tesla growth story giving way to tale of distress, restructuring

Tesla Inc.’s credibility is crumbling on Wall Street.

Shares in the Silicon Valley electric-car maker are down more than 42% so far this year. It’s cutting prices on its high-end Model S and Model X, suggesting the first quarter's sales slump of nearly one-third is no fluke. Consumer Reports says the automatic lane-change feature on its misnamed "Autopilot" driving system lags "far behind a human driver's skill set" and "could create potential safety risks for drivers."

One prominent analyst, Morgan Stanley’s Adam Jonas, this week said the shares could plunge to $10 from Wednesday’s close of roughly $192 under his so-called “bear” scenario. Insiders are selling their shares at the fastest rate since 2013, Bloomberg reports. And Chairman Elon Musk is warning employees that its losses so far this year are not sustainable.

"That is a lot of money, but actually only gives us approximately ten months at the first-quarter burn rate to achieve break-even,” he continued, urging employees to tightly control spending. "This is hardcore, but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable."

The continuing sell-off is no coincidence. It represents realistic investors replacing hope with experience and a dollop of instinct: quasi-frantic warnings about slowing the cash burn and squeezing expenses, coupled with softening demand, are the definition of a downward spiral.

In a follow-on conference call Wednesday to explain his $10-a-share scenario, a recording of which was obtained by Bloomberg, Morgan Stanley's Jonas said: "Tesla was seen as a growth story. Today, supply exceeds demand, they are burning cash, nobody cares about the Model Y, they raise capital and there’s no strategic buy-in.

"Today, Tesla is not really seen as a growth story. It’s seen more as a distressed credit and restructuring story. At the heart of this is demand. What is changed is demand. That is the first domino.”

Few places know that sickening feeling better than Detroit, whose market share plummeted as Japanese, German and later South Korean rivals ultimately claimed a majority of the rich U.S. market. A growth story-turned-massively distressed restructuring, the Motor City was an eyewitness to the unwinding of the American auto industry, its employment base and the wealth generation that helped build the modern middle class as we know it.


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