Stanphyl Capital’s Mark Spiegel presentation on  Tesla Motors Inc (NASDAQ:TSLA) excerpted from the hedge fund’s January 2017 letter:

Mark Spiegel’s Stanphyl Capital  had a killer year up close to 31% NET YTD – see below for an excerpt on Tesla Motors Inc (NASDAQ:TSLA) from their November shareholder letter.  But first… although he is known as Elon Musk’s number one enemy, Mr. Spiegel makes most of his money from killer small cap picks. His under the radar small caps which could pop just based on this piece (if we discussed it publicly) were profiled in ValueWalk’s 2nd edition of our quarterly premium newsletter. See some details followed by the Stanphyl section on Tesla Motors.

We remain short shares of Tesla Motors (TSLA), which entered 2017 as the market’s biggest single-company stock bubble and in January levitated to become an even bigger bubble despite the month being fundamentally awful for it…

Tesla
Blomst / Pixabay

First in January, Tesla revealed a big miss in Q4 and full-year deliveries vs. already reduced guidance, including significantly lower sales both year-over-year and sequentially for its flagship Model S despite massive discounts on brand-new inventory cars.

Next, Tesla held a Gigafactory tour completely lacking in specific information about how its battery production costs will be significantly less than those of other battery factories. Battery production is a mostly automated, modular process with few economies of scale beyond a size much smaller than “Giga”, and in January Seeking Alpha published a terrific article about this specific to Tesla and soon Chinese producers will match or beat any price coming from the Gigafactory. Battery cells are indeed a commodity.

Next in January the CES show was a cacophony of deep-pocketed competition for Tesla in autonomous driving. Delphi and Mobileye demonstrated an autonomous system available “off the shelf” within three years to any car maker, thereby further turning this capability into a commodity and rendering meaningless (except for potential liability lawsuits) whatever “head start” Tesla’s latest reckless (because it has no LiDAR) system might provide. Then both Audi and Mercedes announced sophisticated autonomous driving partnerships with NVIDIA, as did BMW with Intel and Mobileye. Meanwhile, the head of Tesla’s program quit to start his own company (and was sued by Tesla for doing so) and was replaced by a smart ex-Apple guy whose previous job was programming iPhones, and who has already distanced himself from Musk’s claims about full (Level 5) autonomy occurring any time soon. So does anyone with a brain in his head seriously think Tesla is ahead of the rest of the industry in safe autonomy? And as everyone will have Level 4 autonomy within 3-4 years, what exactly would, say, a one-year lead on a commodity be worth anyway, especially when its possessor is unable to profitably monetize it?

Next in January we had some news about “Tesla Energy.” Remember that division’s (according to Musk in 2015) “crazy off the hook demand”? Well almost two years later it doesn’t even merit a separate line in the company’s financial statements and this month CTO Straubel admitted it won’t for years. Also in January, the sales director left and in December the “VP of Products & Programs” was gone. I’m sure things there are going GREAT!
Next in January, it was revealed that Musk’s sister company SpaceX outright lied on its web site about its profitability. But then I’ve previously documented many Musk lies regarding Tesla and it hasn’t stopped some of America’s largest mutual funds from owning its stock (or that of SpaceX). It’ll be fascinating when the class action lawyers interrogate those PMs about all the red flags that were waving right in their faces!

Next in January, all references to “global warming” were deleted from the web sites for the White House and EPA and Trump vowed to eliminate the Climate Action Plan and is reportedly pulling out of the Paris climate accord. Despite this obvious 180 degree turn against subsidy-queen Musk’s empire (controlled from either his “environmentally friendly” Gulfstream G650 or the small “carbon footprint” of five adjoining houses in Bel Air), stock-pumping sell-side analysts and a complacent media began promulgating the nonsensical assertion that Musk and Trump have developed some kind of “relationship” simply because Trump (undoubtedly as a favor to friend-in-common Peter Thiel) stuck Musk on a couple of job-creation “advisory committees.” Does anyone with a brain in his head think Trump isn’t well aware of these comments from Musk in November and isn’t one heck of a grudge-bearer? At one of those meetings you can watch Trump brush right by Musk while happily greeting pretty much everyone else in the room, and note that he explicitly didn’t invite Musk to a well-publicized meeting with the heads of all the other U.S. automakers. But again, the bottom line here is “policy” and in that regard the Trump administration has clearly rejected the “global warming phobia” that Tesla and SolarCity need to survive. Trump wants to create American manufacturing jobs by cutting environmental regulation (do Teslemmings really think that’s good for Tesla?) and slashing corporate taxes, which is great for real businesses with profits, but of zero help to a cash-burning Musk vanity project such as Tesla.

Perhaps Teslarians hope that a proposed “border adjustment tax” will block the massive wave of looming imported electric car competition, particularly from Germany. If so, don’t get your hopes too high, especially as U.S.-based German factories export much of their production, and even if German manufacturers were to pass along the $5000-$10,000 per car cost of such a tax, they’d still remain easily attainable to the same people who might otherwise have bought a Tesla. Additionally, a stronger dollar will allow the Germans to absorb much of a border adjustment tax’s cost without significantly raising prices while likely overseas retaliation against Tesla (and that same stronger dollar) will make Tesla uncompetitive in the rest of the world, thereby vastly shrinking its addressable market and destroying Musk’s plan of selling two-thirds of his cars to Europe and Asia.

Of course, the “bright shiny object” now for Tesla shareholders is the “$35,000 mass-market Model 3”; I thus urge you to read my Seeking Alpha article as to why that will never happen, reinforced by a Bloomberg article about how much money GM is losing on the Bolt despite having a battery cost equivalent to Tesla’s and vastly great manufacturing scale.

Simple math implies that Tesla will need to do yet another massive capital raise to finish the Gigafactory and get the Model 3 into production (not to mention to replenish the cash drain from the financial Giga-sinkhole created by buying SolarCity), even though it raised nearly $2 billion in 2014 explicitly to build the factory and $1.7 billion in May 2016 explicitly to put the Model 3 into production. We’ll have updated

financials in February but I’m guessing that Tesla will be out of cash by this fall and will thus look to raise money at least a quarter ahead of that, perhaps even as early as mid-February after the 10-K is published.

Meanwhile, GM’s new Bolt EV (being delivered to customers now and Motor Trend’s 2017 “Car of the Year”) an EPA-rated range of 238 miles, handily topping the 210-miles of the cheapest Tesla Model S (which is over $30,000 pricier) while matching its 94 cubic feet of interior passenger space and posting a zippy 0-60 time of 6.5 seconds. Seeing as studies show that 15% of Tesla buyers come from a Prius and many others come from other inexpensive “eco-favorable” cars, I expect the Bolt to grab back a significant number of them—what I call the “stretch buyers” who paid up for a Tesla because they wanted an electric car with over 200 miles of range; those people can instead now choose the much less expensive/easier to park Bolt over the current Model S, probably at least 18 months before Tesla’s so-called “mass market” Model 3 can be in true mass production (mid-to-late 2018 vs Tesla’s claim of 2017) at a base price (as noted in my linked article earlier in this letter) I estimate will have to be at least $13,000 higher than the Bolt. In addition to Motor Trend’s praise of the Bolt, “Car & Driver” wrote:

With the arrival of the 2017 Chevrolet Bolt EV, the electric car reaches a major milestone, one that also secures its future: a move toward mass appeal. It no longer matters if your in-laws show up at the airport unannounced. The Bolt has enough range to cover a day’s tasks plus the unexpected… Anyone with a typical new-car budget can afford a Bolt. And, in the bigger picture, it no longer matters if Tesla goes belly-up.

(That last sentence might indicate that even car reviewers pay more attention to Tesla’s financial statements than do its shareholders!)

Of course, the Bolt is just the first of an onslaught of competition Tesla will soon confront in all facets of its business. (Note: these links are updated monthly.) First, here are the competing cars…

Introducing the All-Electric 2017 Chevrolet Bolt EV

GM CEO: Chevrolet Bolt Is Our Platform For A Huge Range Of Vehicles All-Electric Audi Q6 e-tron Coming in 2018 with 300+ Miles of Range Audi A9 e-tron production confirmed

Daimler confirms EQ subbrand – 10 new electric cars by 2025 Daimler to invest $11 billion in electric vehicles

Jaguar Unveils 2018 All-Electric I-Pace SUV

Jaguar Land Rover says half of its new cars will have electric option by 2020 All-electric Porsche Mission E confirmed for production

Next Nissan Leaf: ProPilot self-driving included, 200-mile range or more confirmed 200-Mile Hyundai IONIQ Electric Coming In 2018

Hyundai to Release 200-Mile Electric SUV in 2018

VW’s new electric car will cost less, and go farther than, Tesla’s Model 3 Volkswagen to build electric Microbus

VW’s EV platform ready for Skoda, Seat brands

Ford to launch fully electric SUV with range of at least 300 miles & two electrified police vehicles BMW to produce electrified versions of entire luxury lineup

Volvo Linking Up With LG Electronics To Develop Electric Cars

Honda Will Re-Enter the EV Race in 2017 with an All-Electric Version of Its Clarity Toyota, in about-face, may mass-produce long-range electric cars

Mazda CEO Says Electric Cars Coming in 2019 Electric Kia Stinger GT to rival Tesla Model 3

Infiniti to launch performance EV with Nissan tech by 2020 Nissan, Renault, Mitsubishi to share electric car platform Lucid Motors unveils its 400-mile range luxury EV

Aston Martin gears up to take high road on electric drive Bentley Mulsanne to swap its V8 for electric power Maserati executive confirms electric Alfieri

Peugeot and Citroen Promise 450 km (280 Miles) Electric Vehicle in 2019 New 2017 Renault ZOE ZE 40: 400 km Range*, 41 kWh Battery

Mitsubishi To Launch New All-Electric and PHEV Compact SUV Between 2017-2020 Subaru to introduce all-electric crossover by 2021

Dyson car: former Aston Martin product development director joins Dyson 2017 Karma Revero (nee Fisker) launches with updates

Karma Owner Building 50,000 Cars/Year Electric Car Factory in China Borgward plans 10,000-unit electric SUV plant in Germany

Skoda electric SUV under development

NextEV plans Tesla Model X fighter for U.S. in late ’18 or early ’19

And in China…

Daimler strengthens dedication to emission-free mobility with new DENZA 400km EV for China Daimler to produce electric cars for EQ subbrand in China

Volkswagen To Launch 8 New Energy Vehicles In China Audi and FAW sign China electric car cooperation deal

Tesla Is Playing Catch-Up With China’s BYD in Nearly Every Business Category SAIC to spend $2.2 billion on EVs, connectivity, aftersales services Tencent-Backed Company Aims to Launch Smart-Electric Cars Before 2020 Chery Breaks Ground on $240M EV Factory in China

New Chinese Car Brand: WM Motors To Bring EVs To The Masses

Check Out These Five New Electric Cars From China, World’s Largest EV Market 10 New Electric Cars From China

LeEco Starts Building Its 20 Billion Yuan Car Factory In China

Future Mobility building $1.7B electric car factory in Nanjing for 300,000 cars a year

New Honda plant in China will “accommodate electrified vehicles”

Singulato is China’s latest e-car newcomer to rev up with big fundraising Quianu Motor aims to grab share of US electric vehicle market

NEVS receives approval for electric car factory with capacity of 200,000 units per year

Here are the competing car batteries…

LG Chem targets electric car battery sales of $6.3 billion in 2020

Samsung Presents Innovative Fast Charging Battery with 600km Range Samsung SDI to build $358 million car battery plant in Hungary by 2018 SK Innovation to quadruple capacity of EV batteries

Daimler subsidiary ACCUMOTIVE begins construction of second Li-ion factory Panasonic to build (non-Tesla) green-car battery plant in China

China’s BYD takes aim at Tesla in battery factory race Sony enters the EV battery business

China’s Contemporary Amperex building more battery capacity than Tesla Gigafactory Contemporary Amperex building an EV battery/drivetrain facility in Europe

BMW Shows Off Its Battery And Electric Motor Production Facility

FORD ACCELERATES ELECTRIFIED VEHICLE BATTERY RESEARCH AND DEVELOPMENT

Volkswagen will invest $3.7 billion in battery cell & electric drive plant

Jaguar holds talks with Ford and BMW over building a giant battery factory Toyota works to develop advanced electric-car battery

Kreisel Seeks to Overtake Tesla With Souped-Up Plug-In Cars Dyson Commits $1.4 Billion for Solid-State Battery Development Wanxiang is playing to win, even if it takes generations

Rimac is going to mass produce batteries and electric motors for OEMs

Here are the competing storage batteries…

Panasonic

Samsung LG

GE

BYD

AES Mitsubishi NEC Hitachi ABB

Saft EnerSys GS Yuasa E.ON

SOLARWATT Daimler Schneider Electric sonnenBatterie Kokam

Sharp

Nissan – Eaton Tesvolt Aquion Energy Kreisel Leclanche

Lockheed Martin Alevo

EOS Energy Storage

Energy Storage Systems Inc. UniEnergy Technologies electrIQ

Belectric

Sunverge Stem

Green Charge Networks Imergy Power Exergonix

ZCell

Fluidic Energy

Primus Power

Simpliphi Power redT Energy Storage Bluestorage

Adara Blue Planet

Clean Energy Storage Inc. Swell Energy

Tabuchi Electric Younicos Orison

Moixa Powin Energy

And by the time the lithium ion Gigafactory is completed, it will not only be an oversized white elephant but may be obsolete, as “ Argonne Settles On The Two Most Promising Successors To Lithium Ion Batteries.

Here are the competing autonomous vehicles…

Mercedes will give Tesla’s Autopilot its first real competition this year Nvidia and Mercedes-Benz to bring an AI car to market within a year New Audi A8 to be world’s first Level 3 autonomous production car

Audi and NVIDIA team up to bring fully automated driving accelerated with artificial intelligence Volvo plans to offer fully self-driving car to luxury buyers

Volvo, Uber to Jointly Develop Autonomous Sport-Utility Vehicles Autoliv and Volvo form ADAS joint venture

BMW, Intel and Mobileye Partnership Will Have Autonomous Test Vehicles on the Roads in 2017 Intel to Acquire 15 Percent Ownership of HERE For Autonomous Vehicles

GM Expands Connected and Autonomous Vehicle Engineering to Approximately 1000 Positions GM and Lyft aim to make autonomous taxis available in early 2019

Ford expands fleet of self-driving test cars

Toyota Bets Big On Autonomous Tech, Swallows Millimeter Radar Maker Hyundai Presents Autonomous IONIQ Electric Prototype at 2017 CES

Delphi & Mobileye to sell autonomous system to any car maker by 2019

Alphabet’s Waymo to supply autonomous hardware & software to any car maker Nissan debuts ProPILOT auto drive system

Second Generation Automated Acura RLX Development Vehicle Revealed in California Chery, Baidu test fleet of 10 self-driving EVs

Lucid Chooses Mobileye as Partner for Autonomous Vehicle Technology Continental AG Working on Self-Driving Partnerships

Apple Drops Hints About Autonomous-Vehicle Project BlackBerry to open autonomous vehicle hub

Baidu Announces Strategic Autonomous Driving Partnership with BAIC Mitsubishi Electric Adapts Missile Guidance Systems for Self-Driving Cars California gives Nvidia the go-ahead to test self-driving cars on public roads Hitachi demonstrates vehicle with 11-function autonomous driving ECU DENSO and NEC Collaborate on Automated Driving and Manufacturing France rolls out ‘world’s first’ driverless buses

And here are the competing charging stations…

BMW, Daimler, Ford, VW, Audi & Porsche JV for 350kw Charging On Major Highways in Europe White House announces new EV corridors to accelerate deployment of charging stations

Volkswagen pays $2 billion to fund clean cars infrastructure

EVgo Installing First 350 kW Ultra Fast Public Charging Station In The US ChargePoint Express Plus Debuts: Offers Industry High 400 kW DC Fast Charging BMW and Volkswagen Take on Tesla Motors With a New U.S. Fast-Charging Network BMW, Nissan fund EVgo fast-charging network expansion

Fastned Readies For 150 kW, 300 kW Charging

Switzerland getting new fast-charging network: 150kW chargers at 100 sites

Yet despite all that deep-pocketed competition, perhaps you want to buy shares of Tesla because you believe in its management team. Really???

Who You Gonna Believe? Elon Musk’s Words Or Your Own Lying Eyes?

How Tesla and Elon Musk Exaggeraged Safety Claims About Autopilot and Cars When Is Enough Enough With Elon Musk?

Musk Talked Merger With SolarCity CEO Before Tesla Stock Sale Debunking The Tesla Mythology

Tesla Continues To Mislead Consumers

Tesla Misses The Point With Fortune Autopilot Story

Tesla Timeline Shows Musk’s Morality Is Highly Convenient

Tesla Scares Customers With Worthless NDAs, The Daily Kanban Talks To Lawyers Tesla: Contrary To The Official Story, Elon Musk Is Selling To Keep Cash

Tesla: O, What A Tangled Web We Weave When First We Practice To Deceive I Put 20 Refundable Deposits On The Tesla Model 3

Tesla’s Financial Shenanigans Tesla: A Failure To Communicate

Tesla Is Stiffing Nevada On The GigaFactory Can You Really Trust Tesla?

Elon Musk Appears To Have Misled Investors On Tesla’s Most Recent Conference Call

Understanding Tesla’s Potemkin Swap Station Tesla’s Amazing Powerwall Reservations

I’ve argued for a while that the “Tesla love/loyalty” one reads about on the forums (“Even though my Tesla is in the shop a lot I’ll never go back to a regular car!”) and in the latest Consumer Reports owner survey is really “EV loyalty/EV love”—in other words, many people like the instant torque and quietness of their EV drivetrains, not necessarily the fact that their frequently repaired cars happen to come from Tesla equipped with the interior “luxury level” of a 1990s Acura. A September survey from UBS seemed to support this:


So when the Germans (Audi, Mercedes, Porsche and BMW) roll out their 300-mile luxury EVs in 2018/2019 they’ll capture a lot of Tesla owners who love Tesla’s driving experience but not its reliability or interior, especially as fear grows that Tesla’s cash bleed means it may not be around to honor the eight-year drivetrain warranty that those “reliability issues” force it to provide. Tesla’s Model X has been a quality-plagued disaster, with Consumer Reports in November giving it an overall rating of 59 on a scale of 100— tied for worst among 16 competing vehicles in its class.

In addition to its quality problems, the X’s multi-thousand-dollar premium to a comparable Model S sedan is a huge sales-limiting factor, as nearly all the luxury competition prices its premium SUVs considerably less expensively than its premium sedans. For instance, the most basic “X” with no options and a warm-weather range of just 237 miles (well under 200 miles in cold weather) starts at $88,800 with only five seats standard. By comparison, the Porsche Cayenne starts at $59,600, the Audi Q7 at $49,000, the BMW X5 at $55,500, the Volvo XC-90 at $45,750, the Jaguar F-Pace at just $41,990 and the seven seat Mercedes GLS at $68,700, and all those vehicles average more than twice the range of the Tesla with far more flexible refueling capabilities for long trips.

Meanwhile, the heretofore revered Model S is now on the Consumer Reports “Used Cars to Avoid” list with “much worse than average reliability” (although the new models have improved to “average”). On the bright side though, Tesla owners get to make lots of new friends at their local service centers, assuming they don’t mind the month-long wait times for an appointment.
So in summary, Tesla is losing a massive amount of money even before it faces a huge onslaught of competition, and things will only get worse once it does. Thus this cash-burning Musk vanity project is worth vastly less than its approximately $45 billion enterprise value and—thanks to that debt—may eventually be worth “zero.” But hey, go ahead and buy it—look at what’s hot off the press: