Every public company must disclose risk factors in registration statements under the Securities Act and in a statement and reports under the Exchange Act. For investors, the “meat and potatoes” of any earnings report is going to be things like EPS, revenue, margins, customer growth and forward guidance.
But for Tesla Motors Inc TSLA, a company that has generated a massive $28.7 billion market cap by selling roughly 50,000 automobiles in 2015, the company’s future is the only real reason to buy the stock. Many Tesla investors are convinced the company will change the world and will eventually generate the type of profits that warrant its lofty share price, while others argue that there are a number of real risks to the Tesla story.
Tesla and CEO Elon Musk have very high expectations for the company in coming years, including the idea that Tesla will increase its production tenfold by 2018 to 500,000 automobiles per year. But in contrast to those high hopes, here are 10 of the most dangerous long-term business risks that Tesla itself reported in its Q1 earnings report.
1. Delays
“We have experienced in the past, and may experience in the future, significant delays or other complications in the design, manufacture, launch and production ramp of new vehicles and other products such as our Tesla Energy products, which could harm our brand, business, financial condition and operating results.”
2. Unauthorized Control
“Any unauthorized control or manipulation of our vehicles’ systems could result in loss of confidence in us and our vehicles and harm our business.”
3. Additional Funding
“We may need or want to raise additional funds and these funds may not be available to us when we need them.”
4. Government/Economic Incentives
“The unavailability, reduction or elimination of government and economic incentives in the U.S. and abroad supporting the development and adoption of electric vehicles could have some impact on demand for our vehicles.”
High Volumes
“We have no experience to date in manufacturing vehicles at the high volumes that we anticipate for Model 3, and to be successful, we will need to develop efficient, automated, low-cost manufacturing capabilities, processes and supply chains necessary to support such volumes.”
6. Product Recalls
“We may be compelled to undertake product recalls or take other actions, which could adversely affect our brand image and financial performance.”
7. Continued Success
“There is no guarantee that Model S, Model X or our future vehicles such as Model 3 will continue to be successfully accepted by the general public, especially in the long-term."
8. Competition
“Although we believe that each of our vehicles and their variants meet a distinct segment of the automotive market, if our vehicles in fact compete with one another in the market, then our ability to sell each vehicle model at planned quantities or prices may be impacted.”
9. Gigafactory
“Problems or delays in bringing the Gigafactory online and operating it in line with our expectations could negatively affect the production and profitability of our products, such as Model 3 or Tesla Energy products.”
10. Suppliers
“We are dependent on our suppliers, the majority of which are single source suppliers, and the inability of these suppliers 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.”
Disclosure: The author holds no position in the stocks mentioned.
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