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Last October, I explained how Tesla CEO (TSLA), Elon Musk, had finally realized that the service of the company was a big problem for consumers. Between lack of service centers and lack of parts, repairs are an area in which Tesla is not very impressive. At that time, the CEO had promised great improvements in the coming months (see below), but his schedule is over and little progress has been made. Perhaps the moment has come to proceed with a capital increase so that the company can have an adequate infrastructure to meet all the needs of its customers.
(Source: Elon Musk Twitter page)
During the week that the tweets were sent, I took a look at the Tesla US Service Centers page. The company has listed 75 service centers in 25 states, half the number of US states. Tuesday marks six months from the day of the original tweet and the company now lists 82 service centers on the US page. However, no other state has, which means that half of the country still does not have a service center in that state. Does the following card convince you that Tesla has adequate coverage in all parts of North America?
(Card provided courtesy of Sporcle, I have informed states with Tesla service centers)
This service center problem is a problem that goes back several years. As I explained in the original article of October 2018, Tesla has not managed to reach the growth targets of service centers for some time, nor of the superchargers if you wish consider other areas of customer support. In 2016, the company has repeatedly reduced its growth forecast for sales and service centers, even after the deposit of hundreds of thousands of Model 3 filings. of all the expected demand, Tesla would be in a hurry to develop its infrastructure. However, the company has reduced its capex forecasts many times, so the problem has snowballed a bit during the year.
This is partly due to the appalling financial problems that have affected the company since its inception. The company raised billions of dollars through stocks and borrowings that led to many dilutions and a huge working capital deficit on the balance sheet. There are so many questions about the financial situation of the company that the management had to indicate in the last production and delivery report that it had sufficient liquidity. This, for a company recently valued at more than $ 50 billion, is not a good sign. Like many others, I wondered why the company had not yet proceeded with a capital increase. A few billion dollars in cash could help the company solve a number of problems.
The problem is that it is not an isolated problem. As I detailed in this long list, Tesla and Elon Musk continue to make many promises that are never kept, or issue financial guidelines that turn out to be completely false. The images below show perhaps the best example of this: the Tesla gigafactory, in Nevada, is supposed to have this huge solar panel at the top, but yet, a few years later, almost nothing is done . It was last week that TechCrunch used the top image in its article, despite the fact that the building looks nothing like this futuristic display of the actual image at the bottom. The top image is used quite often in web articles, but it is obvious that it is not accurate to do so.
(Source: Twitter user, seen here)
The short-term question is whether things are better for consumers. As I pointed out last week, second quarter shipments seem to have started very slowly, after an already dreadful first quarter. If Tesla's financial situation is as bad as some people think, the company will probably not rush to create more service centers than those that may already be built or planned. It seems that the current need is to build production facilities as well as distribution infrastructure, especially as a number of stores are being closed and Tesla is moving to a predominantly online sales model. The Tesla plant in China is under construction, with hopes of producing a decent amount of vehicles later this year.
I have raised the issue of service centers today not only to highlight a failure of Tesla, but also for the problem of trust. If the company can not serve its clients very well, how much confidence should investors have in the management? Currently, investors are waiting for next week's earnings report to find out how the company will reach its annual delivery target after a weak quarter in sales in the first quarter. There have always been people skeptical about this management team, so adding new failures to the list does not help.
In the end, six months have passed since Elon Musk promised to significantly increase the coverage of Tesla's service centers. Unfortunately for consumers, the number of these sites has barely increased, leaving half of the US states without one. This promise had been made while Tesla had just announced the mid-range model 3. It was therefore probably an effort to boost sales. Unfortunately for investors, there are still a number of sales issues. Another unsuccessful promise to satisfy customers will probably not help change the situation. Perhaps a capital increase could allow Tesla to put in place the infrastructure it really needs to serve its customers, even if it results in a little more debt or some dilution.
Disclosure: I / we have / we have no position in the actions mentioned, and do not plan to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
Additional disclosure: Investors are always reminded that before investing, you must do your own due diligence for any name directly or indirectly mentioned in this article. Investors should also consider seeking the advice of a broker or financial advisor before making any investment decisions. Any element of this article should be considered as general information and not as a formal investment recommendation.
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