For a moment, it seemed almost Tesla (NASDAQ: TSLA) might have learned his lesson. Its blue-branded meetings with the SEC along with a history of volatility for both its CEO Elon Musk as well as the company itself resulted in a prolonged period last year where the company actually got its head and did what it should do, namely removing production bottlenecks, building cars and selling them. This resulted in Tesla confounding many financial industry naysayers and card sellers with Citron's famous throws in the towel (which we covered here), suggesting that the company itself could be admitted to the S & P 500 already in April 201
Fast forward 6 months, and this is a very different situation. After strong denials, a cash increase would be needed, and Tesla experienced a fantastic quarterly turnaround from Q4 to Q1 and dropped to a staggering loss with a cash burn of over $ 700 million in the quarter. Guess what? We had a cash increase where the market reacted strongly and demanded a lot, and Tesla raised another 2.7 billion. Dollars for his war chest with a mixed shelf offer of bonds and convertible notes. Further tweets by Elon have resulted in additional SEC action, and Musk now agrees to have all tweets related to Tesla considered by a lawyer before going out to try to ensure that the market is not caught inconsistently by production numbers or sales expectations .
Unfortunately, hits just keep coming and the latest news this week came to follow the cash increase and several months of confused car price policy changes.
Institutions Dump Tesla Stock
Until now, Tesla has had the advantage of having great institutional support in its stock. Similarly, T Rowe Price (NASDAQ: TROW) and Fidelity have historically held on to the company, holding stocks and contributing to cash increases, but are likely to change. T Rowe dumped over 80% of its shareholding in Tesla in Q1 this year. Recent filings with the SEC revealed the number of shares cut from almost 9 million. To 1.7 million, which means it is over 2 billion. Dollars in Tesla, which acted as a stabilizing influence, have now mostly disappeared, even though it continues to invest in the autonomous driving scene that adds more money to GM's (NYSE: GM) Cruise Unit.
This is hot on Fidelity's heels, which were previously Tesla's largest institutional investor continues to settle its position over much of 2018 and into 2019. Put it all together, and it is clear that the investment industry has had enough, and Tesla & # 39; s reputation as an investment grade company is in line.
While many people may ask myself why I do a great deal of this, it is important to note that having faith in significant holders of your stock is an important factor for any business. It is not necessarily the end of the world if the proprietors decide their interests or beliefs in the future for the company no longer in accordance with the management team, there is always change, but in these situations you will draw in more institutional investors who believe in your company and its future .
Institutional investors act as a stabilizing influence on stock prices and tend to reduce the level of volatility where retail investors will buy or dump stocks on the latest news, institutions tend to invest for long-term prospects. Positions of this size can not only enter into or end on a whim and take weeks, months, or longer to build or settle so that the market is not spooked in one way or another to the detriment of the investor. As such, these attitudes take considerable research and justification to engage in and generally mean that unless there is a significant change in the thought process, the position will be largely maintained.
What this means is that the part of the free flow that these investors maintain results in a lack of price movement as a major proprietor will not Buy large quantities more or dump it all in a short time.
However, retail investors with tens or even hundreds of thousands of securities are another issue. Responding to all news as a traditional, long-standing stockpile is a quick way to lose large amounts of cash, but the average retail investor will surely take a less-considered approach to their investment over an institution, and those attitudes tend to to churn more and result in more price movement. As such, institutional investors are highly sought after by listed companies.
Hardcore Cost Controls in Effect
On the other hand, it seems that Elon Musk has finally realized that the ongoing cash burn rate is unsustainable over a long period. An internal email this week from Elon indicating that each line item exiting the company's bank account must be audited by the company's finances for approval, and that at the current burning rate, the company will be bust within 10 months, showing the scale of The problem is facing Tesla.
Cost control is an important factor for any business, but it is also important to note that this kind of extreme wetting can also lead to a product search, as everyone is focused on justifying their expenses rather than doing their at this stage, I do not see that the company has any choice. Elon is right, costs must be managed. However, it is unfortunate that it has taken so long and comes across as a knee-jerk reaction rather than a considered approach to getting over. Tesla has changed its car pricing structure much in recent months, as it seems to meet both of its objectives of delivering mass market products at an attractive price, earning some margin on the cars it sells, and reducing dependence on traditional showrooms and dealers with all the costs they incur.
It was obvious that the previous efforts were not enough, and despite disruptive owners who had paid large amounts more for their cars prior to various price cuts and shook with remnants, cars would still not be considered as valuing assets at despite Musk's pivot for "robo-taxis" as the company's future.
Put it all together and we are back with a company that seems to struggle to put together any kind of strategic plan or vision for the future that it can accomplish with any realistic opportunity. Tesla is a big company now, and it is not unthinkable that if it fails, it would be bailed out in some form, but the path that things are now determined on a negative. With Tesla shares, which are now trading at levels, as last seen over 2 years ago in January 2017, S & P 500 has returned over 25% in that time. Fingers crossed the company can grasp and find the right path, but in the absence of it, the path ahead seems to be difficult to navigate. This, coupled with the possibility that we are now delayed in the economic cycle where economic progress is approaching, could spell further bad news for Tesla in the future.