- Tesla made a mistake putting gull-wing doors on its Model X SUV.
- The original doors did not work, delaying Tesla's launch until this year.
- Skepticism about Tesla's promises is growing as a result, hurting the stock.
Tesla (NASDAQ:TSLA) shares did not just fall this year because of the market’s lack of risk appetite. It also fell because of a key mistake Tesla made on the Model X, its sports utility vehicle. Tesla CEO Elon Musk let his ego get in the way of his common sense and ordered “Falcon” or “gull-wing” doors for the vehicle.
They are very cool. Such doors were seen in the “Back to the Future” movies, which featured a DMC-12 car from DeLorean Motors. Founder John DeLorean, had a story similar to Musk’s own. He wanted to beat Detroit, he saw an opportunity in high-end performance cars, and that’s what the DMC-12 was. The doors were what director Robert Zemeckis wanted because they were cool and futuristic.
As with the DeLorean, Tesla's Model X doors looked cool when Musk unveiled them. But within months, Tesla was being sued on grounds that the doors did not work properly. The car has suffered two years of delay, and Musk has “fired” the German supplier, but investors also have a right to ask, “all this for a minivan?”
The performance may save the car, especially Tesla's “ludicrous mode” that can send it a quarter-mile in 12 seconds.
All this took its toll on Tesla's fourth quarter results. Tesla lost $320 million, $2.44 per share, on sales of $1.21 billion during the quarter, bringing full-year losses to $889 million on revenue of $4.04 billion.
Of course, you don’t buy Tesla stock for its current earnings. You buy it for growth. But even here, fourth quarter numbers were disappointing. Year over year sales were up only 25%, from $890 million in the December quarter a year ago. This was entirely due to the success of Tesla's earlier Model S. All shareholders were told about the Model X was that Tesla had kicked off a test drive tour for those who had reserved the car a week earlier.
Is any of this fatal? Not necessarily, but the bears are having a field day, and the Tesla stock has lost almost 30% of its value just since the start of the year. Tesla's long-term debt jumped nearly 30% during the quarter, to $2.6 billion, from $2 billion at the end of September.
Hopes for the company are hinged on the Model 3, now due in 2018. That car will be unveiled next month and is expected to be Tesla’s first mass-market vehicle, with a price of $35,000 prior to tax incentives. Reservations will be taken upon the unveiling and the car is said to be on schedule.
But given the mistakes on the Model X, investors are growing skeptical and impatient. It may prove difficult for Tesla to bridge the gap between 2016 and 2018 with sneak peaks, and if it can’t quickly deliver the Model 3 in volume, the name Musk may yet go down in history alongside that of DeLorean, and not in a good way.