As Tesla, Inc. (TSLA) shares enter stall mode in Thursday's trading, one truth is evident about Elon Musk's company: Tesla can only get by with a little help from its friends.
Tesla was in the news this morning -- from an article in the always excellent Nikkei Asian Review -- stating that Panasonic Corp. (PCRFY) had scaled back plans to invest further in Tesla's Gigafactory 1 in Nevada, and would not act as a source for lithium-ion batteries for Tesla's under-construction plant near Shanghai in Lingang.
Listening to some financial pundits and the so-called experts on Tesla, it is just one long chorus of "Musk! Musk! Musk! Musk!" but Tesla would not exist in its current form without the support it has received from Panasonic.
A quick check of Tesla's gargantuan, 418-page 10-K for the year 2018 shows "Panasonic" is mentioned 33 times. The contractual obligations section is most enlightening when it comes to the importance of Panasonic to Tesla. Note 1 of that section contains this passage: "These amounts represent...purchase orders of $15.69 billion in other estimable purchase obligations pursuant to such agreements, primarily relating to the purchase of lithium-ion cells produced by Panasonic at Gigafactory 1, including any additional amounts we may have to pay vendors if we do not meet certain minimum purchase obligations"
So, Tesla's obligation to Panasonic amounts to about one-third of its equity value, and there is one major problem with that commitment: Those lithium-ion cells need to go somewhere.
Wall Street auto analysts -- and I was one for 11 years, so I know how they think -- are slowly getting the message that demand for Tesla cars had fallen off a cliff in the U.S. The early adopters for the Model 3 are already driving them, and that model's closeness in both appearance and performance has shredded demand for its more profitable sister model, the groundbreaking Model S.
So, Panasonic is under pressure from a financial standpoint, and that is certainly represented in its stock price chart (6752.T on the TSE), which resembles a ski slope. Panasonic shares have fallen nearly 40% in the past year, and it is clear the market has soured on the Japanese giant's symbiotic relationship with Tesla.
So, as the Nikkei's report indicated, that relationship may be fraying. And Tesla shareholders should indeed worry.
Panasonic had $7.7 billion in cash on its balance sheet as of Dec. 31, more than double Tesla's cash pile, and slightly more than the company's long-term debt. Panasonic's healthy balance sheet is in stark contrast to Tesla's, which is riddled with long-term debt and contingent liabilities, especially relating to the Tesla and Panasonic's disastrous Gigafactory 2.
I have often referred to Giga 2 as Tesla's "Buffalo Blunder," and the fact that Giga 2 was not mentioned in the Nikkei report makes it seem as if Panasonic would wish for it to just go away. It will not, and Tesla's contractual obligation with the State of New York to spend $500 million per year on that facility for the next nine years is money the company simply does not have.
Tesla shares have performed miserably over the past year, especially when compared to the rampaging Nasdaq. Musk's "funding secured" tweet of last August seems like a distant memory now.
Without strong demand for its cars, though, Tesla's real source of funding is not from kaffiyeh-clad Saudi sheikhs, but money fronted to it by the governments of the world and by Panasonic.
That spigot will eventually run dry, and thus I continue to believe that Tesla shares have much more downside from today's price of $268.