Did Tesla Nearly Go Bankrupt Without Investors Knowing?

In early 2013, electric automaker Tesla Motors came so close to running out of cash that its brash leader, Elon Musk, approached Google about buying the company, according to a new Musk biography. A surge in sales of the company’s pricey Model S sedan staved off disaster. Not investors, who sent Tesla’s share price soaring right after the company’s alleged brush with death. Not Wall Street analysts, who regularly scour Tesla’s quarterly earnings reports for any hint of trouble. When Tesla finally released its profit report for the first three months of 2013, it reported its first quarterly profit ever — with no signs the company had been fighting for its very survival. The biography’s author, a veteran tech journalist who has covered Tesla for years, stands by his story. Is it possible for even the most diligent investors, who keep a close eye on profit reports from the companies they own, to miss something as big as an impending bankruptcy? “It probably happens more often than we think,” said Charles Lee, a Stanford University accounting professor who teaches a class in reading financial statements. By 2013, the company was publicly traded, obliged by law to give its investors quarterly updates on its fiscal health. The quarter, at that point, was already half over, and Musk told Wall Street analysts that only a “giant earthquake” striking Tesla’s Fremont auto factory could prevent the company from ending the quarter in the black. While thousands of potential customers had placed online reservations for Tesla’s Model S sedan, which began production in 2012, the company was having a hard time sealing the deal, according to Elon Musk: Musk even temporarily closed the Fremont factory (unnoticed by the public and undisclosed to investors) rather than let unsold cars pile up. Once he learned of the problem, Vance writes, Musk gathered top people from various Tesla departments and told them to start calling reservation holders, urging them to follow through and buy the car. The story of this particular Tesla near-death experience remained untold until Vance’s book hit the shelves last month, and Bloomberg — Vance’s employer — published an excerpt focusing on the Google talks. Tesla had indeed burned through large quantities of cash during 2012, as it retrofitted an old factory to produce the Model S.