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There are more and more voices calling for removal of Elon Musk from Tesla. An article by TheStreet.com even states that Mr. Musk must be removed as the CEO to save the company. This comes after the financial community was outraged during Tesla’s recent earnings conference call.
“The call was going somewhat normally until an analyst question about capital requirements was dismissed as a boring bonehead question,” stated Joseph Spak of RBC Capital Markets.
What is fueling demands for Tesla’s CEO ousting are losses the company is incurring. In the first quarter 2018, Tesla lost $4.19 a share. This is despite revenue growth of 26 percent in comparison to a year ago. At this rate, it’s a matter of several quarter before Tesla runs of out cash and be forced to finance its losses.
Tesla’s electric car sales grew 20 percent but gross profit margins have declined. The recent gross margin has fallen to 19.7 percent from over 27 percent a year before. This is a substantial drop. A major reason for it is that Model 3 margin stayed negative due to underutilization of manufacturing capacity, which Tesla claims is temporary.
In recent trading, the stock of a company has fallen by over 8 percent to $278 a share. It’s substantially lower than its 52-week high of $389. The market cap of this money-losing enterprise stands at nearly $50 billion. All because of hopes for future profits. However, so far, investors have only seen earnings losses, although some astute traders have been mading money on short-term bets.
Elon Musk owns 33.63 million shares of Tesla. This makes it a total of $9.35 billion. If the stock price goes down, so does Mr. Musk’s wealth. Recent losses plus faux pas during the earnings conference have cost him over $700 million on 8 percent drop in stock’s value.
Tesla offers huge potential with its innovative technologies. But, at its current valuation and mounting losses, its stock is becoming quite risky. The company eventually needs to start making net profits, whether Elon Musk stays or goes.