Elon Musk says he’s worried about keeping Tesla out of bankruptcy

Tesla faces billions of dollars in losses from its new plants, supply chain problems and COVID lockdowns — enough for CEO Elon Musk to mention the possibility of bankruptcy in a recent interview.

“The past two years have been an absolute nightmare of supply chain interruptions, one thing after another,” Musk said in an interview with a Tesla owners group.

“We’re not out of it yet. That’s overwhelmingly our concern is how do we keep the factories operating so we can pay people and not go bankrupt.”

GRUENHEIDE, GERMANY - MARCH 25: In this aerial view newly completed Tesla Model Y electric cars stand at the new Tesla Gigafactory electric car manufacturing plant on March 25, 2022 near Gruenheide, Germany.  The new plant, officially called the Gigafactory Berlin-Brandenburg, officially opened on March 22 with an event with German Chancellor Olaf Scholz and Tesla CEO Elon Musk.  The new plant is producing the Model Y as well as electric car batteries.  (Photo by Sean Gallup/Getty Images)
Elon Musk said supply chain issues are affecting Tesla factories in Germany and Texas. (Photo by Sean Gallup/Getty Images) (Getty)

Musk engaged in hyperbole elsewhere in the interview, and he may have been doing so when mentioning the risk of bankruptcy.

For example, he said that automakers in general “desperately want to go bankrupt,” which falls into the category of colorful language rather than strict financial analysis.

But the company is coming to the end of its most difficult quarter, financially speaking, in more than two years.

Tesla’s factory in Shanghai was shut for weeks due to COVID related lockdowns in the city. And Musk disclosed in the interview that the two factories opened in the quarter, Tesla and Texas, are costing the company billions of dollars in losses because supply chain issues have left them with “puny” output so far.

The colorful CEO mentioned the possibility of bankruptcy in a recent interview. (Drive)

“This is all going to get fixed real fast,” he said in comments recorded on May 31, but not released until late Wednesday.

“Both Berlin and Austin factories are gigantic money furnaces right now. There’s a giant roaring sound which is the sound of money on fire. Bigger than a dumpster [fire]. The dumpster is too small. Berlin and Austin are losing billions of dollars right now. There’s a ton of expense and hardly any output.”

One of Tesla’s harshest critics thinks that the company is facing greater financial problems than most analysts realise.

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

“Why? A lot of their cash is locked up in China. They weren’t profitable until they were in China; and, given China does not allow companies to repatriate dollars made there out of the country, and Tesla has a real problem. “

The Tesla Model S is plugged in at a vehicle Supercharging station
The Tesla Model S is plugged in at a vehicle Supercharging station (AP)

Johnson pointed to Tesla’s decision to cut about 10 percent of its salaried staff – even as it continues to hire hourly production workers – as another sign of trouble.

“Why do you think they are cutting people? That’s a key tell-tell signal,” he said.

But most companies that cut staff never come close to filing for bankruptcy. And virtually all other analysts forecast that Tesla will remain profitable, despite the supply chain issues dogging it and most other manufacturers around the globe.

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Tesla has been profitable since late 2018, after years of reporting almost nothing but losses. The company has been reporting increased quarterly profits compared to the previous period for the last two years.

That string of sequentially rising profits is apparently about to come to an end.

Analysts surveyed by Refinitiv forecast that adjusted earnings in the second quarter will fall to A$3.6 billion in the second quarter, down from the record $5.4 billion Tesla made in the first quarter. That would still be up from the adjusted income of $2.3 billion in the second quarter of 2021.

Tesla did have a 0.1 per cent dip in production of new vehicles in the first quarter compared to the fourth quarter.

But its year-over-year production was still up 69 percent, and most other automakers worldwide scaled back production in the quarter from year-ago levels due to supply chain issues.

Automakers, including Tesla, are due to report second quarter sales figure early next month.

Shares of Tesla, which are down nearly a third since the start of the year, were down roughly 2 percent in midday trading Thursday.

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