Devonshire Research is out with a new short on Tesla Motors. (TSLA) – this is the group’s second report on Tesla – Tesla did not immediately respond to a request for comment

As of the publication date of this report, the Devonshire Research Group LLC has a net short position in the stock, put options, bonds, and credit swaps of Tesla Motors, Inc. (“TSLA” or “Tesla”) and stands to realize gains in the event that the price of TSLA’s securities declines over the long run, or if investment sentiment improves the appeal of an expected decline in any of its securities.

TSLA – Executive Summary

How closely does TSLA’s financing model mirror the features of common Ponzi, Pyramid, and Matrix schemes?

  • Numerous cautionary examples share features with TSLA, including hype driven by “visionary leaders.” TSLA has accepted capital from unsophisticated investors with bold claims on return and/or product value
  • If TSLA fails to deliver on these claims it has the potential to enter a death spiral
  • Most common death spirals do not require malicious intent, but rather excessive (even delusional) ambition.

The profitability of the Model 3 depends on TSLA’s ability to squeeze its supply chain; this is a tall order. Sophisticated suppliers (most notably Panasonic) will fight for their share of the profit. Panasonic’s rechargeable battery division is constrained in terms of investment capacity and profit demands

  • Current suppliers of numerous strategic, high-technology components have little IP and export to the US
  • Many Chinese suppliers are vulnerable to patent infringement accusations and could face ITC injunctions. TSLA’s use of tax credits disproportionately benefits the wealthy at the expense of the average taxpayer
  • This inequality is a feature of the luxury-first market penetration strategy
  • The election year introduces significant risk for TSLA’s continued reliance on taxpayer subsidies

Tesla has engaged in aggressive accounting that calls to mind the experiences of Enron and WorldCom; its future is highly uncertain.

Tesla TSLA Tesla TSLA 2

Takeaway:

Tesla is fragile as a publicly traded company expected to deliver a GAAP cash profit. Tesla is operating many financing business models that other entrepreneurs would be prohibited from operating, as they might be labeled Ponzi, Pyramid, or Matrix schemes.

Tesla is attempting to operate many complex, interwoven, novel financing schemes under one roof, and either will be a successful version of Enron, or will fall victim to similar accounting challenges as it attempts to reconcile its operational complexity to its cash position.

If Tesla is indeed operating a FEPF, it is highly fragmented and overly diversified in its tactics, it should dedicate more of its time to securing loss-tolerant investors.

If Tesla does not successfully secure a larger loss-tolerant investor, the US government should seize the company and convert it into a regulated social good and public service.

Tesla should not be managed, valued, or reported by its ability to generate profit, and consequently it should attempt to seek tax shelter as a non-profit or religious organization as quickly as possible.

If Tesla is indeed operating for profit, it should announce a strategic roadmap to “investors” for earning a profit in the coming decade.

Full report below in PDF

Devonshire Research Group – TSLA – Public Release – Part II

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