Did Tesla Mislead Investors on Loan Repayment?

Cars and Drivers

Published: May 23, 2013 6:26 am

Tesla Motors Inc. (NASDAQ: TSLA) may have mislead the press and investors about repaying government loans when it claimed that:

[I]t has paid off the entire loan awarded to the company by the Department of Energy in 2010. In addition to payments made in 2012 and Q1 2013, today’s wire of almost half a billion dollars ($451.8M) repays the full loan facility with interest. Following this payment, Tesla will be the only American car company to have fully repaid the government.

Chrysler says that Tesla’s claim is absolutely untrue:

Tesla, a California-based EV manufacturer, said it has repaid a DoE loan adding: “Tesla will be the only American car company to have fully repaid the government.”

The information is unmistakably incorrect. It’s pretty well-known that almost exactly two years ago — May 24, 2011 — Chrysler Group LLC repaid (in full and with interest) U.S. and Canadian government loans more than six years ahead of schedule.

The boast by the white-hot car company appears to be an attempt to take advantage of what it says is particularly exciting news. If so, the mistaken comment has done Tesla’s investors a disservice. Wall Street already has questioned how much further Tesla can push some of the comments about its improving financials and strong sales. PR errors, or announcements that may intend to deceive, are not something Tesla can afford if it wants the public to believe other claims it has made. These include its forecasts of future profitability and the comments about the distances its cars can go without a charge. (The New York Times has disputed that claim.)

Tesla’s stock has run up from a 52-week low of $25.50 to $87.24. The share price could be on its way down soon, and the case against a bright future for the company has started to build.

Seeking Alpha recently commented on whether Tesla’s glory days are behind it:

[I]nvestors in Tesla should be extremely cautious. Although the company is way ahead of its competitors in the electric car market, this may prove to be an advantage with an extremely tight expiring date.

Tesla’s own existence and success is enough proof that this is a market with no barriers of entry. Furthermore, Tesla’s competitors are bigger, better funded and two of them (Daimler and Toyota) have even enlisted Tesla through equity stakes to help them catch up! Now that Tesla demonstrated through its Model S sales that electric cars are a promising business, competition is bound to intensify at all price levels.

Tesla needs to keep its eye on the prize. That is progress in its core business, and not announcements that undermine its credibility.

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