Musk's Joke Falls Flat Amid Tesla Model 3 Output Risk, Cash Burn

(Bloomberg) -- Tesla Inc. investors aren't laughing after Elon Musk's April Fools' Day joke about bankruptcy, with the automaker's cash reserves at risk amid the months-long struggle to build the critical Model 3 sedan.

After the steepest monthly drop in more than seven years, Tesla shares fell as much as 8.1 percent on Monday, while unsecured bonds the company issued in August traded near record intraday lows. Analysts widely expect the company to soon report that Model 3 production trailed its projection of 2,500 units during the last week of March.

The Model 3 woes are a greater risk to Tesla than the fatal crash involving a Model X driver using Autopilot, a related U.S. regulator's investigation and a separate Model S recall, all of which have weighed on investor sentiment since last week. Analysts at Jefferies Group LLC and Moody's Investors Service estimate that Tesla may need to raise $2 billion to $3 billion in capital. That's in large part because the slow build of Model 3 has limited returns on investments the company made to build its first mass-market car.

“What seemed to be a short-term issue has now been going on for more than three quarters,” Philippe Houchois, an analyst at Jefferies, said Monday on Bloomberg Television. “Management will need to address a proper funding plan” and “reassure investors that they've got the funds to even potentially announce some further delay in the ability to ramp the production.”

Musk told employees in an email early Monday morning that the electric-car maker may exceed a weekly production rate of 2,000 Model 3 sedans, according to the blog Jalopnik.

“If things go as planned today, we will comfortably exceed that number over a seven day period!” Musk wrote in the email sent at 3:01 a.m. Monday California time, Jalopnik said. A Tesla spokesman didn't immediately respond to requests for comment on the report.

Read more: Bloomberg's Model 3 Tracker Shows Why Tesla Will Just Miss Goal

Some analysts were speculating Tesla's stock may rally if production exceeds Wall Street's lowered expectations. The shares pared declines after the Jalopnik report and traded down 5.2 percent to $252.40 as of 3:53 p.m. in New York, amid a broad equity market selloff.

Tesla's 5.3 percent bonds due 2025 were trading at 86.9 cents on the dollar at 2:38 p.m. in New York on Monday, Trace bond price data show.

Well-Paid Jokester

Shareholders voted in favor of a pay package valued at $2.6 billion for Musk last month. The 46-year-old billionaire has seen his fortune tumble since then, with Tesla shares plunging 22 percent in March, their worst month since December 2010.

That didn't stop Musk from posting some playful April Fools' Day tweets.

“Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt,” the chief executive officer wrote Sunday. Another post included a photo of Musk and a message that he “was found passed out against a Tesla Model 3, surrounded by ‘Teslaquilla' bottles, the tracks of dried tears still visible on his cheeks.”

On Monday, Musk tweeted that he wouldn't have joked about Tesla going bankrupt if he thought there was any chance it would happen.

Unhappy Agency

He also responded to a National Transportation Safety Board spokesman who commented over the weekend that the agency was unhappy that Tesla shared information about the death of a Model X driver. The agency is looking into all aspects of the March 23 crash, including reports that the driver had previously raised concerns about Tesla's driver-assistance system Autopilot. The NTSB requires companies that are parties to its investigations to limit information released during its probes.

“Lot of respect for NTSB, but NHTSA regulates cars, not NTSB, which is an advisory body,” Musk tweeted, referring to the National Highway Traffic Safety Administration. “Tesla releases critical crash data affecting public safety immediately & always will. To do otherwise would be unsafe.”

The tongue-in-cheek bankruptcy posts by Musk were likely frustrating to Tesla's investor relations team, James Albertine, an analyst at Consumer Edge Research who recommends buying the shares, wrote in a report Monday.

He called them “poorly timed,” though he added that “there is likely nothing to see here.”

--With assistance from Anne Riley Moffat Molly Smith Alan Levin and Anders Melin

To contact the reporter on this story: Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat

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