Elon Musk worried about Tesla going bankrupt

New York (CNN Business) – Tesla is facing billions of dollars in losses from its new plants, supply chain problems and shutdowns due to Covid, enough for its CEO, Elon Musk, to mention the possibility of bankruptcy in a recent interview.

“The past two years have been an absolute nightmare for supply chain disruptions, one thing after another,” Musk said in an interview with a group of Tesla owners. “We’re not out of it yet. Our biggest concern is how to keep the factories running so we can pay people and not go bankrupt.”

Musk engaged in exaggerations elsewhere in the interview, which may have been the case when he mentioned the threat of bankruptcy. For example, he said that automakers in general “badly want to be out of work,” which falls into the category of colorful language rather than strict financial analysis.

But the company is nearing the end of its toughest financial quarter in more than two years.

A Tesla factory in Shanghai has been closed for weeks due to virus-related shutdowns in the city. Musk revealed in the interview that the two Tesla plants that opened in the quarter, in Germany and Texas, are costing the company billions of dollars in losses because supply chain problems have left them with “scarce” production so far.

“All of this will be fixed very quickly,” he said in comments recorded on May 31 but not published until late Wednesday. “Both the Berlin and Austin factories are giant furnaces of money right now. A huge roar is the sound of burning money. Bigger than a shipping container [de basura]. Garbage is very small. Berlin and Austin are losing billions of dollars right now. There are a lot of expenses and hardly any results.”

One of Tesla’s harshest critics believes the company is facing greater financial problems than most analysts realize.

“Bankruptcy is a real risk for these people,” Gordon Johnson of GLJ Research told CNN Business on Thursday.

“Why? A lot of their money is being held in China. It wasn’t profitable until they were in China, and since China doesn’t allow companies to bring home dollars made there, Tesla has a real problem.”

Johnson cited Tesla’s decision to cut about 10% of its salaried employees, even as it continues to hire hourly production workers, as another sign of trouble.

“Why do you think they’re slimming down? That’s a major signal,” he said.

But most companies that downsize never go bankrupt. And nearly every other analyst expects Tesla to remain profitable, despite the supply chain problems it has and most other manufacturers around the world.

Tesla has been profitable since the end of 2018, after years of reporting almost nothing but losses. The company recorded an increase in quarterly profits compared to the previous period during the past two years.

It looks like that streak of rising profits is about to end.

Analysts polled by Refinitiv expected adjusted second-quarter profit to fall to $2.5 billion in the second quarter, down from the $3.7 billion that Tesla earned in the first quarter. This would still be higher than the adjusted revenue of $1.6 billion in the second quarter of 2021.

Tesla saw a 0.1% drop in new car production in the first quarter compared to the fourth. But its year-over-year production reported a 69% increase, with most other automakers around the world cutting production in the quarter from a year earlier due to supply chain problems.

Automakers, including Tesla, are due to release second-quarter sales figures early next month.

Shares of Tesla, which have fallen by about a third since the start of the year, were down about 2% at midday Thursday.

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