For those that have been following our coverage of Tesla over the past two weeks, you likely already know that Elon Musk has essentially "sold a naked put option" on the coronavirus - in other words, by publicly stating that the panic over the virus was "dumb" and then doubling down on that statement, Musk made a very public bet that the the pandemic will just blow over and life will go back to normal.
And while Elon has an unprecedented track record of facing zero consequences as a result of ignoring reality, replete with humiliating both the SEC and the NHTSA, bailing out an insolvent Solar City and defaming British cave diver Vern Unsworth, he may have just run smack dab into a problem that he can't charm his way out of.
The coronavirus is arguably the biggest piece of news to hit the globe in decades. It's going to cause an unprecedented economic crisis and could change life as many people on Earth know it permanently. It's on the front page of every newspaper and is the lede on every TV program. For the larger than life Musk, it's finally one problem that is larger than him.
Musk was served his first dose of this harsh reality yesterday, when after choosing to keep his factory open during a county-wide coronavirus lockdown, the Alameda County Sheriff's department reminded Tesla publicly, on Twitter, who the boss of the county is when it comes down to brass tacks. "Tesla is not an essential business," the county sheriff Tweeted, all but stating publicly that Tesla must close down its Fremont factory but for minimum business operations, which include things like security and payroll.
The humiliation for Musk of such a direct rebuke, not only of his stance on the global news story, but on his insistence to keep his facility open, was palpable. As short seller Nathan Anderson of Hindenburg Research Tweeted early on Tuesday morning:
If history is any guide this is the part where @elonmusk makes light fluffy jokes on twitter to make it seem like he isn’t imploding on the inside over the $TSLA shutdown and the dangerous state of his collective balance sheets— Nate Anderson (@ClarityToast) March 18, 2020
The shut down has real consequences. Despite the fact that Tesla's financials have been a wreck for years, it's been the image of consistent production and deliveries that have put a bid under the stock, with investors seemingly assuming that it would all work its way to the bottom line eventually, Amazon-style.
The company's delivery numbers are now at risk - which is why Musk may have adopted his flippant tone regarding the virus to begin with. So in addition to Tesla investors facing a potential loss of confidence, the world may also be forced to reevaluate how it looks at Musk, who appears to be making production a clear priority over the health and safety of his workers.
As testing expands, it appears to only be a matter of time before Tesla posts its first confirmed case. General Motors, for example, already reported one case of coronavirus at its Cole Engineering Center as of yesterday. But, again, given the horror stories that have already emerged out of Tesla regarding the Fremont factory's worker safety record, we can't say we're surprised.
And the backstop that other companies could be getting during the shutdown likely won't apply to Tesla.
While some industries will be getting handouts from the government, it seems unlikely that Tesla will be entitled to such a bailout. The company has already taken billions from the American taxpayer, including a $959 million boondoggle with their New York solar factory, while doing nothing but consistently burning hundreds of millions, if not billions, in cash per year.
On the other hand, the airlines and oil companies that the government will assist have not been surviving off government subsidies and can generate consistent free cash on their own - despite their insistence on spending it buying back their own overvalued stock.
Meanwhile, Musk is looking more and more like a fool for not selling a large chunk of equity just weeks ago, when a then-oblivious market had bid his company's valuation up to nearly $150 billion and nearly $1,000 per share. As many commented at the time, Musk's cash incinerator of a business had many options: he could have sold tens of billions in equity, paid down Tesla's debt or even acquired any number of cash-generating businesses with Tesla stock. Musk did none of these things, choosing only to raise a couple billion dollars in equity.
Now, all of those options are off the table. Musk had his window to reach his "escape velocity" and he missed.
Now, like the rest of the world, he has to deal with some uncomfortable financial realities. For instance, New Street Research estimates that Tesla could burn through as much as $1.2 billion in cash over six months while it is shut down. They also suggested that deliveries could be as much as 40% below estimates for two quarters.
As Musk realizes this, at the same time production stops and the world slowly realizes that the "genius" they have followed blindly wrote-off the pandemic that will ravage our country, infect and kill hundreds of thousands, if not millions, it's starting to feel more and more like the love affair the world once had with Elon Musk could be coming to an end.