Mark Spiegel’s Stanphyl Capital had a killer year up close to 31% in 2016 – see below for an excerpt on Tesla Inc (NASDAQ:TSLA) from their April 2017 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. Below is an excerpt on Tesla stock.

Tesla Inc TSLA
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I briefly contemplated skipping the Tesla section of this month’s letter and just letting you read this guy, but as that wouldn’t be any fun, I elected not to. Yes, we remain short shares of this bubble-market’s largest individual bubble, Tesla, Inc. (TSLA) which in April reported Q1 car deliveries of “just over 25,000 vehicles.” So let’s look at a full year of “growth” in this alleged “hypergrowth” company:

Q3 2016: 24,821 cars

Q4 2016: 22,252 cars

Q1 2017: 25,100 cars

Q2 2017: 25,000 cars (estimate)

Actually, Q2 2017 was headed for a negative sales comp vs. Q1 2017 (and Q3 2016) when in a mid-April move of desperation Tesla slashed the price of the Model S75 by $7500 to just $69,500. Considering that in Q4 2016 (the most recent quarter for which financials are available), COGS per car was $82,000 at an ASP of $104,000 (perhaps now reduced to $80,000 without lifetime free Supercharging, and with a slightly higher ASP as Tesla didn’t book Autopilot revenue in Q4), it seems pretty clear that Tesla will now be selling a lot of cars at or below cost hoping to make a small gross margin via the options. This doesn’t bode well for anything but losses on the Model 3, which will supposedly start at $35,000. (I discuss this in greater depth below.)

But perhaps the most important news in April is that Tesla’s “Supercharger moat” is definitively being drained, as Electrify America is building a charging network that’s vastly larger and faster. So the sole advantage Tesla had (easier but still klugey long-distance travel) over myriad soon-to-arrive competition will soon be gone.

Meanwhile Tesla now faces two significant concurrent class action lawsuits: one for sudden acceleration and one for dangerously malfunctional and deceptively marketed “Autopilot” (or as I affectionately call it, “Autocrash”), plus a slew of Model X lemon-law lawsuits. Perhaps as a distraction to demonstrate “safety pseudo-proactivity” rather than deal with those potentially life-threatening product flaws (or this one or

this one), Tesla instead announced a non-safety-related recall of 50,000+ cars for a parking brake that may occasionally not release. (“Hey, look at this shiny recall over here, not the much more significant ones we’re NOT doing!”)

And of course as is well known by now, in April Tesla’s market cap exceeded those of both Ford and GM, despite its losing massive amounts of money selling approximately 100,000 cars a year while Ford and GM make billions of dollars selling approximately 6.6 million and 10 million cars respectively.

Also in April, Musk pumped his stock with a nonsensical Tweet about (and TED-Talk mention of) a Tesla long-haul electric truck; good luck with that. And at that same TED Talk he also announced plans for some kind of tunneling business with car-carrying electric skateboards (how many billions per mile will that cost?) and four more Gigafactories. (I hope he builds the latter, presumably at $4-$5 billion each, as they’ll open just in time to be rendered obsolete by solid-state batteries.) Let’s face it: this guy will keep incinerating cash (or trying to) in various government-subsidized schemes until the taps are finally turned off, at which point it will be game-over for him just as it was for every other leveraged stock promoter in history, and 100 years from Elon Musk will be just another interesting but obscure Wikipedia entry.

Finally, perhaps my favorite Tesla-related “event” in April could be this hilariously petulant response to a group of TSLA institutional investors (but not the obsequious toadies at largest shareholder Fidelity) requesting the appointment of two independent (i.e, non-Musk-yes-man) directors:

Of course the “bright shiny object” now for Tesla shareholders is the “$35,000 mass-market Model 3”

(with an estimated ASP of $43,000), and yet Tesla’s normalized gross margin of 25% on cars selling for an ASP of approximately $105,000 reinforces my Seeking Alpha article’s claim that a $35,000 base-priced Model 3 can only happen at a massive per-car loss, and besides, good luck selling and servicing those cars. Meanwhile, Musk claims the Model 3 will be in true mass production later this year and yet the company is just starting to build some testing prototypes; thus, the only Model 3 “buyers” this year will likely be test pilots (either voluntary or involuntary), and here’s a terrific article pointing out what a logistical and financial disaster that will be. And what quality of car will buyers be getting for their $35,000? Have a look at the dashboard of a $33,500 BMW 320i (on the left) vs. a spyshot of the purported instrument-free dashboard of a Tesla Model 3:

Sorry officer, I couldn’t see the speedometer (or any other knobs or gauges) because I was watching the road! In fact, I have to pull this thing over just to turn on the A/C or radio!”

But hey, how about “Tesla Energy”? Sorry, but the Q4 battery storage gross margin was negative. And in January the Tesla Energy sales director left and in December the “VP of Products & Programs” was gone, so I’m sure things there are going GREAT! And oh, I almost forgot: at the beginning of the Q4 conference call it was announced that Tesla’s CFO quit (on one day’s notice) and was replaced by the (more flexible?) original CFO. Always a good sign!

Tesla’s Q4 2016 operating loss (the most recent quarterly report available as of this writing) was $267 million, although the recognition of deferred autopilot revenue might have reduced that to around $200 million. Now that deferred revenue may be added into the Q1 2017 report (providing a one-time artificial earnings boost), along with perhaps $140 million of additional gross profit for the higher delivery number and autopilot revenue recognition for cars sold in Q1. So depending on ZEV credits and additional D&A, all else being equal Tesla should report a Q1 operating loss of somewhere between $60 million and $100 million. But then there’s the “SolarCity factor”…

For the full year 2016 SolarCity (purchased by Tesla late that year as a bailout for Musk’s potentially worthless SCTY stock) had an operating loss of $650 million. Even if we assume that Tesla has slashed that loss considerably by shutting down some of the company (after Musk was safely bailed out, of course), it seems reasonable to guess that SCTY

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