​Timing for Tesla’s China Announcement Seems Suspect

Michael Markowski  |

Image via Nvidia Corp/Flickr CC

Tesla’s  (TSLA) share price increased by $4.00 and by approximately 1% on Tuesday, July 10, 2018, after the company announced that it had entered into a memo of understanding with the Shanghai government to build a factory to produce 500,000 autos per year in China by the 2022 or 2023. The timing of the announcement was suspect for three reasons:

What is very disconcerting is that Tesla’s founder and CEO Elon Musk has been increasingly fanatical about Tesla’s share price throughout June and July of 2018. From my 40 plus years of experience a CEO’s becoming obsessed with a company’s share price is a bad omen. It generally means that the CEO is not paying attention to the business and that the shares are headed to a 52-week low instead of a high. Below are the recent two instances of Mr. Musk’s fanaticism:

The reason why Mr. Musk is sensitive about the share price is because Tesla has generated negative operating and free cash flow for it last four consecutive fiscal years. It has also generated negative free cash flow for its last four consecutive quarters. The probability is high that the company will soon have to sell shares to raise capital. Mr. Musk needs Tesla’s share price to be as high as possible to minimize dilution. It’s because part of his compensation is based on share price performance. The simple conclusion is that Tesla’s China announcement and its timing was to prop up Tesla’s shares.

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