There were some discussions in The Short Term Tesla Price Movements with traders who are posing very different points of view on Tesla business. Such discussions on that forum and on other forums tend to deteriorate to the point that all value is lost.
SteveG3 proposed that it might be a good idea to start a thread where we can discuss business risks:
SteveG3:"I think collectively we're so concerned to be objective about Tesla and to not discount negative information, that we go overboard a bit to tolerate the disingenuous behavior Curt is talking about. Earlier today I was thinking I wish we had a rational, respectful TSLA skeptic here if only to prove the point that it is not a contrary point of view we take exception to, but simply the sudden flood of FUD delivered with arrogance and contempt by an individual or two. I was even thinking perhaps we should have a thread where we take turns playing devils advocate to compensate for our lack of skeptics challenging us on the real issues at hand rather than gibberish FUD meant to distract from core issues."
It is a great idea to have a rational discussion on business risks.
Below are the risks as they are listed in Tesla Annual Report. I have copied them all below, for a start. The list is quite comprehensive but please add to it if anything is missed.
All listed risks are not equal threat to Tesla business and it might be an idea to clean up the list progressively, and focus on say top 5 or 10. It might be a very good idea not to discuss no.39 as I can not see any value in having a discussion on that risk.
Standard risk rating methodology involves evaluating probability of event happening and the potential consequences.
My pick for top 10 is, in the order of severity: 6, 2, 1, 13, 19, 11, 22, 44, 53, 38.
At this stage I am not sure of the best way to keep score of the top ten as I do not know what the response will be, if any. Perhaps we could weigh the scores, from 10 to 1 for the highest risk to the lowest on the individual's list of top 10, and come up with the aggregate scores. Any ideas are welcome.
1. We may be unable to sustain our current level of production and deliveries of Model S or increase production and deliveries in line with our plans, both of which could harm our business and prospects.
2. We are dependent on our suppliers, the vast majority of which are single source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on our financial condition and operating results.
3. If we are unable to adequately reduce the manufacturing costs of Model S or otherwise control the costs associated with operating our business, our financial condition and operating results will suffer.
4. Our long-term success will be dependent upon our ability to design, build and achieve market acceptance of new vehicle models, specifically Model S and new vehicle models such as Model X and Gen III, in the U.S. and abroad.
5. Our future growth is dependent upon consumers’ willingness to adopt electric vehicles.
6. If we fail to manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, sell and service our vehicles successfully.
7. Our limited experience with our product offerings makes evaluating our business and future prospects difficult.
8. We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.
9. Our vehicles make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame, and such events have raised concerns, and future events may lead to additional concerns, about the batteries used in automotive applications.
10. If our vehicles or vehicles that contain our powertrains fail to perform as expected, or if we suffer product recalls for Model S, our ability to develop, market and sell our electric vehicles could be harmed.
11. We have a history of losses and have to deliver significant cost reductions to achieve sustained, long-term profitability and long-term commercial success.
12. The introduction of our resale value guarantee may result in lower revenues and profits and exposes us to resale risk to the extent many customers elect to return their vehicles to us and the residual values of these cars are below the guaranteed value.
13. Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.
14. Our success could be harmed by negative publicity regarding our company or our products, particularly Model S.
15. Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult.
16. We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
17. We are currently expanding and improving our information technology systems. If these implementations are not successful, our business and operations could be disrupted and our operating results could be harmed.
18. We may not realize the benefits of our Supercharger network, which could harm our business, brand and operating results.
19. If we are unable to design, develop, market and sell new electric vehicles that address additional market opportunities, our business, prospects and operating results will suffer.
20. We may experience significant delays in the design, manufacture and launch of Model X which could harm our business and prospects.
21. The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and established competitors and expect to face competition from others in the future.
22. Demand in the automobile industry is highly volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.
23. Our financial results may vary significantly from period-to-period due to the seasonality of our business, fluctuations in our operating costs and other factors.
24. If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then our financial condition, operating results, business prospects and stock price may suffer materially.
25. We may need or want to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected.
26. We have limited experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our existing and future customers, our business will be materially and adversely affected.
27. We may not succeed in maintaining and strengthening the Tesla brand, which would materially and adversely affect customer acceptance of our vehicles and components and our business, revenues and prospects.
28. If our vehicle owners customize our vehicles or change the charging infrastructure with aftermarket products, the vehicle may not operate properly, which could harm our business.
29. Our deposits for Model S and reservations for Model X may be refundable to customers, and significant cancellations could harm our financial condition and business prospects.
30. Our plan to expand our network of Tesla stores, service centers and Superchargers will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our electric vehicles. In addition, we may not be able to open stores or service centers in certain states or Superchargers in desired locations.
31. We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions and establishing ourselves in new markets, all of which could harm our business.
32. Foreign currency movements relative to the U.S. dollar could harm our financial results.
33. Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.
34. The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.
35. Our relationship with Daimler is subject to various risks which could adversely affect our business and future prospects.
36. The operation of our vehicles is different from internal combustion engine vehicles and our customers may experience difficulty operating them properly, including difficulty transitioning between different methods of braking.
37. If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.
38. If we are unable to attract and/or retain key employees and hire qualified management, technical, vehicle engineering and manufacturing personnel, our ability to compete could be harmed and our stock price may decline.
39. We are highly dependent on the services of Elon Musk, our Chief Executive Officer.
40. We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities.
41. Our business may be adversely affected by union activities.
42. We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.
43. We retain certain personal information about our customers and may be subject to various privacy and consumer protection laws.
44. We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.
45. Our current and future warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.
46. Unauthorized control or manipulation of our vehicles’ systems may cause them to operate improperly or not at all, or compromise their safety and data security, which could result in loss of confidence in us and our vehicles and harm our business.
47. The range and power of our electric vehicles on a single charge declines over time, and this may negatively influence potential customers’ decisions whether to purchase our vehicles.
48. We may face regulatory limitations on our ability to sell vehicles directly or over the internet which could materially and adversely affect our ability to sell our electric vehicles.
49. We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
50. Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.
51. Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
52. Our trademark applications in certain countries remain subject to outstanding opposition proceedings.
53. Our facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.
54. If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.
55. We are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
56. Servicing our convertible senior notes requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
57. We may still incur substantially more debt or take other actions, which would intensify the risks discussed above.
58. The classification of our Notes may have a material effect on our reported financial results.
Risks Related to the Ownership of our Common Stock
1. Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions
2. The trading price of our common stock is likely to continue to be volatile.
3. A substantial portion of our total outstanding shares are held by a small number of insiders and investors and may be sold in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.
4. Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the price of our common stock.
5. The convertible note hedge and warrant transactions we entered into in connection with the issuance of Notes may affect the value of the Notes and our common stock.
6. Mr. Musk borrowed funds from affiliates of certain underwriters in our public offerings and/or private placements in 2011 and 2013 and has pledged shares of our common stock to secure these borrowings. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business.
7. Anti-takeover provisions contained in our certificate of incorporation and bylaws, the provisions of Delaware law, and the terms of our convertible notes could impair a takeover attempt
8. The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take over our company.
9. If securities or industry analysts publishing research or reports about us, our business or our market change their recommendations regarding our stock adversely or cease to publish research or reports about us, our stock price and trading volume could decline.
10. We do not expect to declare any dividends in the foreseeable future.
SteveG3 proposed that it might be a good idea to start a thread where we can discuss business risks:
SteveG3:"I think collectively we're so concerned to be objective about Tesla and to not discount negative information, that we go overboard a bit to tolerate the disingenuous behavior Curt is talking about. Earlier today I was thinking I wish we had a rational, respectful TSLA skeptic here if only to prove the point that it is not a contrary point of view we take exception to, but simply the sudden flood of FUD delivered with arrogance and contempt by an individual or two. I was even thinking perhaps we should have a thread where we take turns playing devils advocate to compensate for our lack of skeptics challenging us on the real issues at hand rather than gibberish FUD meant to distract from core issues."
It is a great idea to have a rational discussion on business risks.
Below are the risks as they are listed in Tesla Annual Report. I have copied them all below, for a start. The list is quite comprehensive but please add to it if anything is missed.
All listed risks are not equal threat to Tesla business and it might be an idea to clean up the list progressively, and focus on say top 5 or 10. It might be a very good idea not to discuss no.39 as I can not see any value in having a discussion on that risk.
Standard risk rating methodology involves evaluating probability of event happening and the potential consequences.
My pick for top 10 is, in the order of severity: 6, 2, 1, 13, 19, 11, 22, 44, 53, 38.
At this stage I am not sure of the best way to keep score of the top ten as I do not know what the response will be, if any. Perhaps we could weigh the scores, from 10 to 1 for the highest risk to the lowest on the individual's list of top 10, and come up with the aggregate scores. Any ideas are welcome.
1. We may be unable to sustain our current level of production and deliveries of Model S or increase production and deliveries in line with our plans, both of which could harm our business and prospects.
2. We are dependent on our suppliers, the vast majority of which are single source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on our financial condition and operating results.
3. If we are unable to adequately reduce the manufacturing costs of Model S or otherwise control the costs associated with operating our business, our financial condition and operating results will suffer.
4. Our long-term success will be dependent upon our ability to design, build and achieve market acceptance of new vehicle models, specifically Model S and new vehicle models such as Model X and Gen III, in the U.S. and abroad.
5. Our future growth is dependent upon consumers’ willingness to adopt electric vehicles.
6. If we fail to manage future growth effectively as we rapidly grow our company, especially internationally, we may not be able to produce, market, sell and service our vehicles successfully.
7. Our limited experience with our product offerings makes evaluating our business and future prospects difficult.
8. We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.
9. Our vehicles make use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame, and such events have raised concerns, and future events may lead to additional concerns, about the batteries used in automotive applications.
10. If our vehicles or vehicles that contain our powertrains fail to perform as expected, or if we suffer product recalls for Model S, our ability to develop, market and sell our electric vehicles could be harmed.
11. We have a history of losses and have to deliver significant cost reductions to achieve sustained, long-term profitability and long-term commercial success.
12. The introduction of our resale value guarantee may result in lower revenues and profits and exposes us to resale risk to the extent many customers elect to return their vehicles to us and the residual values of these cars are below the guaranteed value.
13. Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.
14. Our success could be harmed by negative publicity regarding our company or our products, particularly Model S.
15. Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult.
16. We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
17. We are currently expanding and improving our information technology systems. If these implementations are not successful, our business and operations could be disrupted and our operating results could be harmed.
18. We may not realize the benefits of our Supercharger network, which could harm our business, brand and operating results.
19. If we are unable to design, develop, market and sell new electric vehicles that address additional market opportunities, our business, prospects and operating results will suffer.
20. We may experience significant delays in the design, manufacture and launch of Model X which could harm our business and prospects.
21. The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and established competitors and expect to face competition from others in the future.
22. Demand in the automobile industry is highly volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.
23. Our financial results may vary significantly from period-to-period due to the seasonality of our business, fluctuations in our operating costs and other factors.
24. If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then our financial condition, operating results, business prospects and stock price may suffer materially.
25. We may need or want to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected.
26. We have limited experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our existing and future customers, our business will be materially and adversely affected.
27. We may not succeed in maintaining and strengthening the Tesla brand, which would materially and adversely affect customer acceptance of our vehicles and components and our business, revenues and prospects.
28. If our vehicle owners customize our vehicles or change the charging infrastructure with aftermarket products, the vehicle may not operate properly, which could harm our business.
29. Our deposits for Model S and reservations for Model X may be refundable to customers, and significant cancellations could harm our financial condition and business prospects.
30. Our plan to expand our network of Tesla stores, service centers and Superchargers will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our electric vehicles. In addition, we may not be able to open stores or service centers in certain states or Superchargers in desired locations.
31. We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions and establishing ourselves in new markets, all of which could harm our business.
32. Foreign currency movements relative to the U.S. dollar could harm our financial results.
33. Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.
34. The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.
35. Our relationship with Daimler is subject to various risks which could adversely affect our business and future prospects.
36. The operation of our vehicles is different from internal combustion engine vehicles and our customers may experience difficulty operating them properly, including difficulty transitioning between different methods of braking.
37. If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.
38. If we are unable to attract and/or retain key employees and hire qualified management, technical, vehicle engineering and manufacturing personnel, our ability to compete could be harmed and our stock price may decline.
39. We are highly dependent on the services of Elon Musk, our Chief Executive Officer.
40. We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities.
41. Our business may be adversely affected by union activities.
42. We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.
43. We retain certain personal information about our customers and may be subject to various privacy and consumer protection laws.
44. We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.
45. Our current and future warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.
46. Unauthorized control or manipulation of our vehicles’ systems may cause them to operate improperly or not at all, or compromise their safety and data security, which could result in loss of confidence in us and our vehicles and harm our business.
47. The range and power of our electric vehicles on a single charge declines over time, and this may negatively influence potential customers’ decisions whether to purchase our vehicles.
48. We may face regulatory limitations on our ability to sell vehicles directly or over the internet which could materially and adversely affect our ability to sell our electric vehicles.
49. We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
50. Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.
51. Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
52. Our trademark applications in certain countries remain subject to outstanding opposition proceedings.
53. Our facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.
54. If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.
55. We are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
56. Servicing our convertible senior notes requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
57. We may still incur substantially more debt or take other actions, which would intensify the risks discussed above.
58. The classification of our Notes may have a material effect on our reported financial results.
Risks Related to the Ownership of our Common Stock
1. Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions
2. The trading price of our common stock is likely to continue to be volatile.
3. A substantial portion of our total outstanding shares are held by a small number of insiders and investors and may be sold in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.
4. Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the price of our common stock.
5. The convertible note hedge and warrant transactions we entered into in connection with the issuance of Notes may affect the value of the Notes and our common stock.
6. Mr. Musk borrowed funds from affiliates of certain underwriters in our public offerings and/or private placements in 2011 and 2013 and has pledged shares of our common stock to secure these borrowings. The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business.
7. Anti-takeover provisions contained in our certificate of incorporation and bylaws, the provisions of Delaware law, and the terms of our convertible notes could impair a takeover attempt
8. The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take over our company.
9. If securities or industry analysts publishing research or reports about us, our business or our market change their recommendations regarding our stock adversely or cease to publish research or reports about us, our stock price and trading volume could decline.
10. We do not expect to declare any dividends in the foreseeable future.
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