Tesla recently announced its 4th quarter, 2015 financial results. Revenue was $1.75 billion and its loss per share was $2.44; both falling short of analysts’ expectations. Concerning net profit, it reported a loss of $320 million, nearly triple the loss of a year ago. It was its 11th straight quarterly loss. As is usually the case with Tesla, it touted very aggressive sales forecasts for 2016 and 2017.
For Tesla, cash continues to be a very problematic issue. Concerning free cash flow, defined as operating cash less capital expenditures, Tesla registered a negative $441 million. Tesla has now gone through $2.9 billion of cash in the past six quarters, and has just $1.2 billion in cash and equivalents remaining. Meanwhile, it expects to have capital expenditures of $1.5 billion this year.
Stepping back, what surprises me the most about Tesla is the fact that its leadership seems to focus exclusively on excessive optimism and media hype; you hear nothing about the following two core issues that are major and growing problems:
- First, the state of New Jersey just announced that it is joining four other states in banning the sale of Tesla autos because it refused to have dealers; instead they only sell their cars direct to consumers. The rational for the Tesla ban in New Jersey, as well as in Colorado, Texas, Arizona and Virginia, is complex, involving each state’s auto dealer association, consumer protection groups concerned about the ability to get cars serviced, and a bunch of other factors, many of them political.
- Tesla’s second core risk, which the company also seems to be ignoring, is the fact that its range is dramatically cut when the weather is cold. Range is defined as the maximum number of miles you can drive after a full charge. In a recently published study, when temperatures ranged from 8 degrees F to 35 degrees, percentage of actual energy used versus rated was from 21-percent more used to 57 percent, with 40-percent being a rough average. Currently as I write this, I am in Indianapolis, and the temperatures here have been lows of about 4 degrees and highs of about 16 degrees for the past three days. If I owned a Tesla, my range would be cut from the rated 250 miles, down to about 150-160. Unfortunately for Tesla drivers, about half of the USA can experience such temperatures several times a year.
These two big issues facing Tesla remind us; there is no bigger responsibility for a leader than being on top of the core issues facing the organization, while at the same time continuing to innovate and operate well.