Mister Dave· Registered
Discussion Starter · #1 ·
Tesla's Most Aggressively Marketed Option Is Gross Inefficiency
Given its enormous cash-flow deficits, ludicrous market capitalization, multiple instances of production hell and immense debt burden, I think Tesla is a bug in search of a windshield. While the descent into the valley of death would have been painful if Tesla had funded its growth with equity, it will almost certainly be fatal since Tesla funded the bulk of its growth with debt.
As a working lawyer, I’ve frequently watched in horror as development stage companies ignored sage advice and used debt financing for business expansion when they had no ability to repay the debt. Without exception, the debt financed activities took longer, cost more and yielded lower returns than management expected. In every case, the creditors eventually pushed management up against the wall while threatening body cavity searches. One lucky management team was able to arrange a buy-out for about 10% of their peak market capitalization, but the rest ended up in bankruptcy court and their stockholders lost everything.
I’ve witnessed the interplay of debt and the hype cycle often enough to adopt an ironclad rule for my own portfolio. Development stage companies that are big enough to borrow money they can't repay are too big to have me as a stockholder.