Mark Spiegel’s biggest alpha comes from his picks in micro-caps which are under the radar – Indeed, 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 from Stanphyl’s latest letter to investors.
As noted in previous letters, this year’s terrible performance has been primarily due to our short position in Tesla, whereby despite having an overwhelming number of facts on our side (detailed, as usual, below) the stock is up 45% this year. However, following a considerable amount of recent bad news for Tesla—much of which is discussed below—that trend may have finally reversed, with the stock now trading below its 200-day moving average for the first time since December 2016. Although as a value investor it’s been tough to find new companies cheap enough to buy in this free-money-driven “everything bubble,” we do have a number of short positions (detailed below) that I think will work out quite profitably. So let’s get to the specifics…
As noted above, we remain short shares of Tesla, Inc. (TSLA), which I consider to be the biggest single stock bubble in this whole bubble market—a company so landmine-filled that I think it can implode at any moment regardless of what the broad market does. To reiterate the three core points of our Tesla short position:
1) Tesla has no “moat” of any kind; i.e., nothing meaningfully or sustainably proprietary.
2) Tesla loses a huge (and increasing) amount of money despite relatively light competition but will soon be confronted with massive competition in every aspect of its business.
3) Elon Musk is extremely untrustworthy.
In November Tesla reported an awful Q3, with a record quarterly loss of $619 million and over $1.6 billion in negative free cash flow. The company’s flagship Model S&X sales were up just 4.5% year over
year (hypergrowth!) despite massive discounting that drove automotive gross margin all the way down to 18.3%, a number already grossly inflated by Tesla’s non-standard calculation method, something I wrote about back in 2014. (Keep in mind that this drastic growth slowdown is occurring before the 2018/19 onslaught of luxury EV competition from Jaguar, Audi, Mercedes and Porsche.) Tesla also pushed back by three months its prediction of when it would be making 5000 Model 3s a week, a delay that wouldn’t be so bad if it weren’t complete and total bullshit. Additionally, the company refused to reiterate at all that it would be making 10,000 Model 3s a week by late 2018, despite Musk’s statement on the Q2 call just three months earlier that “what people should have absolutely zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year.” In fact, Tesla now admits that it hasn’t even begun to implement the capacity needed to enable such a production rate. (The discovery process during the multiple ongoing shareholder fraud lawsuits should be fun!) Zero Hedge published a great summary of the disastrous quarter as did Seeking Alpha from a slightly different angle, and the FT published a great piece about what a manufacturing disaster Tesla’s factory is. It’s also important to note that the battery storage division had a horrendous negative 33% gross margin, and I urge all of you to listen to the audio from the conference call (don’t just read the transcript!) as it’s one of the most (unintentionally) hilarious things you’ll hear all year!
Also in November, Tesla introduced a new Ponzi-powered Roadster (wire in your $50,000 to $250,000 in unsecured funds today for a car it may deliver some time between 2020 and “never” (my bet is on “never”) and a semi-truck with a range of 500 miles which Tesla claims will sell for around $180,000 (except for the $200,000 Ponzi edition) but I (and many others) estimate will cost at least $250,000 to build. Additionally, Tesla is guaranteeing to cap electricity rates at .07/kWh for the first million-miles of the truck’s usage; as national rates average around .12/kWh, I estimate this will cost Tesla—on average—an additional $100,000 for each truck it sells-- a typical Musk “business proposition” if I’ve ever heard one! And most hilariously, even if Tesla receives the pre-paid $250 million it’s targeting for 1000 “Founders Series” Roadsters, that money would cover only a bit over two weeks of its current cash consumption. Seeing as Tesla appears to have a destiny with bankruptcy, calling it the “Founders Series” seems rather appropriate:
so in November, the Republican members of the House released a tax reform plan that proposes to completely eliminate (as of January 1) the $7500 electric vehicle tax credit. If approved this will be a major negative for Tesla which—thanks to the existing plan’s gradual phase-out provision—was hoping buyers would be able to apply that credit to approximately 100,000 price-sensitive Model 3s in 2018. However, as the Senate bill leaves the credit untouched, it’s unclear how this will be resolved. Regardless, when the Model 3 eventually does go into real production it will be a huge sales disappointment, as reservation holders realize that only around 100,000 of them will qualify for that $7500 credit (if it continues to exist), and almost nothing can be done in the car without a multi-step process on the touchscreen—not even changing the windshield-wiper speed, adjusting the air vents or opening the glovebox. Thus, operating a Tesla Model 3 may potentially be as dangerous as texting while driving! And of course Tesla will make little (if any) money on the car, as it currently loses a fortune on models starting at twice the price. But hey, at least Musk is laser-focused on getting things corrected!
Also in November, yet another non-existent Tesla “moat” (its European so-called “Supercharger” network) was filled when BMW, Daimler, Ford and VW formed a joint venture to build high-powered EV chargers across Europe and E.ON committed to build an even larger network. (A similar network—“Electrify America” —is being built in the U.S.) And note that ALL these chargers are 150kw to 350kw while the no-longer-so-super Tesla “Superchargers” max out at only 120 kw.
Also in November, three more senior Tesla executives departed—the Director of Battery Engineering, the President of Tesla Finance and the Vice President of Investor Relations. Seeing as there seems to be even more executive turnover at Tesla than in Kim Jong-un’s cabinet, how’s this for a slogan: “Tesla: We make North Korea look stable.”
Next in November, Tesla proudly announced that in Australia it installed the world’s largest battery energy storage project. What it didn’t announce is how much money it lost on this PR fluff project, considering that it had to buy the batteries from Samsung whose own energy storage division was happy to not match whatever low bid Tesla submitted!
Late in November, Reuters ran a story outlining what a manufacturing disaster Tesla is, with nearly all its cars requiring extensive repair work before being delivered to customers. Good thing the bulls think it’s an 18% gross margin, double-digit negative operating margin “tech company” and not a “car company”! Also in late November, a story broke in German media about Tesla committing fraud to qualify its cars for subsidies. (Ever hear “the cockroach theory” of investing? When it comes to corporate fraud, there’s never just one! Read the next paragraph and you’ll see what I mean…)
Back in October, Nvidia—the maker of the primary computer processor for Tesla’s so-called “Autopilot” system—announced mid-2018 availability for its first processor capable of full self-driving, thus providing further proof (in addition to the lack of necessary LiDAR) that since last year Tesla has been committing fraud in charging $8000 for “software upgradeable future full self-driving” for its current system. (And remember that in September Tesla’s SolarCity paid a $29.5 million fraud settlement. Once again, “the cockroach theory”!) In fact, Tesla is increasingly besieged by a wide variety of lawsuits, for labor discrimination, union-busting, autopilot fraud, sudden acceleration, lemon law violations, investor fraud and, undoubtedly, many others of which I’m not yet aware. And that’s even before it brings in the (inevitable) bankruptcy lawyers!
So here is Tesla’s competition in cars (note: these links are continually updated)…
CHEVROLET BOLT EV: THE 2017 MOTOR TREND CAR OF THE YEAR
GM to introduce 3 more electric cars before 2020, battery cells at <$100/kWh
2018 Nissan Leaf debuts: 150 miles for $30,875, 200-plus mile model by late 2018
2018 Jaguar Electric I-Pace has over 25,000 confirmed orders
Audi Launching Three Pure Electric Cars Beginning 2018
Audi will build EVs in factories worldwide, CEO says
VW to spend €34 billion on electric mobility & autonomous driving in 2018-2022
Honda to launch two new electric cars in 2018
2018 Hyundai Kona Electric SUV Will Have 220 Mile Range
Hyundai plans long-range premium electric car in strategic shift
2019 Porsche Mission E Priced Around $85,000; 80-percent Charge in 15 Minutes
Mercedes Announces First EQ Production for 2019
Mercedes spending €10 billion to electrify its entire lineup
Daimler Trucks launches E-FUSO and all-electric heavy-duty truck Vision One
Electric Land Rover “Road Rover” to launch in 2019
All new Jaguar and Land Rover vehicles will be electrified from 2020
Volvo’s Polestar reveals its vision to be the new electric performance brand
Toyota, Mazda, Denso create company to roll out electric cars beginning 2019
Infiniti Performance EV On Sale In 2019
PSA will launch full-electric Peugeot 208 and DS 3 Crossback in 2019
Seat to launch first electric car in 2019
Ford to increase EV offerings beyond 2020 300-mile electric crossover
Ford mulls building electric van in Germany
Opel bets on electric power in bid for profitability
Skoda Vision E revealed for 2020 production
MG E-Motion confirms new EV sports car on the way by 2020
Dyson looks to launch first electric car by 2020
BMW previews 2021 electric i5 production model
BMW to have 25 electrified models by 2025
2022 Toyota electric car to use solid-state batteries
Renault to have 8 pure electric models by 2022
Rolls-Royce is preparing electric Phantom for 2022
Citroen preparing EV push with 80 per cent electrified range by 2023
Honda will offer full-EV or hybrid tech on every European model by 2025
Electric Kia Stinger GT to rival Tesla Model 3
Bentley plan for electric and hybrid car roll-out is well advanced
Maserati executive confirms electric Alfieri
Subaru to introduce all-electric vehicles by 2021
Borgward BXi7 Electric SUV Flies Under The Radar
Detroit Electric promises 3 cars in 3 years
And in China…
BYD Plans to Expand Daimler Partnership With New EVs for China
Daimler to invest $755 million in China EV, battery output
Daimler, BAIC agree to make electric cars in China
Volkswagen Plans $12 Billion Electric-Car Blitz in China
GM plans to launch 10 new energy models in China by 2020
Audi and FAW sign China electric car cooperation deal
Ford, China's Zotye Auto invest $756 million in electric vehicle JV
Ford Steers to Electric Vans in China
China's BYD has overtaken Tesla in the battery and electric car business
SAIC to spend $2.2 billion on EVs, connectivity, aftersales services
Toyota to re-enter EV sector starting in China from 2020
Renault, Nissan, Dongfeng Motor partner to develop electric cars in China
Renault-Nissan Alliance To Electrify China's Trucks And Vans
Geely’s Volvo gears up to make electric cars in China
Changan Spending $15 billion To Have 21 Pure Electric Cars By 2025
Chery Breaks Ground on $240M EV Factory in China
Chery's second EV plant open in Dezhou
China electric car startup Nio raises over $1 billion from Tencent, others
Leapmotor’s electric car to hit the market in 2018
Tesla Model 3 Watch Out: Here Is The XPeng Identity X
All The Specs Of The NextEV NIO ES8 Electric SUV
New Chinese Car Brand: WM Motors To Bring EVs To The Masses
GAC Begins Construction of $6.5 Billion Industrial Park to Boost EV Business
China e-car venture Future Mobility names brand Byton, eyes U.S., Europe
Honda to debut electric vehicle in China next year
The Singulato iS6 From China Is Aimed At The Tesla Model 3
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
Wanxiang Gets China Electric Vehicle Permit to Make Karma Cars
Qoros Debuts Its Super EV at 2017 Shanghai Auto Show
Thunder Power electric cars at the 2017 Frankfurt motor show
Here’s Tesla’s competition in autonomous driving…
An Overview of Audi Piloted Driving
Waymo is first to put fully self-driving cars on US roads without a safety driver
Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving
GM and Cruise on track to field a self-driving ride hailing service by 2019
Updated 2017 Mercedes-Benz S-Class - first ride with autonomous technology
Volvo Promises Uber Fleet of Self-Driving Taxis By 2019
Nvidia and Mercedes-Benz to bring an AI car to market within a year
NVIDIA and Toyota Collaborate to Accelerate Market Introduction of Autonomous Cars
Audi and NVIDIA team up to bring fully automated driving accelerated with artificial intelligence
NVIDIA Partners with Bosch for System Based on Next-Generation DRIVE PX Xavier Platform
Bosch and Daimler join forces to market fully automated, driverless taxis by 2020
Volkswagen and Mobileye sign agreement to develop autonomous driving
Toyota, Intel and others form big data group for autonomous tech
Autonomous Nissan Leaf Video
Nissan and Mobileye to generate, share, and utilize vision data for crowdsourced mapping
Subaru, Nissan hit highway with affordable self-driving
Magna joins the BMW Group, Intel and Mobileye platform as an Integrator for AVs
Intel collaborates with Waymo on self-driving compute design
Fiat Chrysler to Join BMW, Intel and Mobileye in Developing Autonomous Driving Platform
Continental Joins Autonomous Driving Platform from BMW, Intel & Mobileye as System Integrator
Continental Sees Huge Growth in Automated Driving, Unveils Mobility Tech
Delphi acquires autonomous vehicle software supplier NuTonomy
Ford expands fleet of self-driving test cars
Ford Buys Laser System Firm as It Boosts Driverless Car Development
Hyundai Presents Autonomous IONIQ Electric Prototype at 2017 CES
Lyft and Waymo Reach Deal to Collaborate on Self-Driving Cars
Lyft teams up with NuTonomy to put ‘thousands’ of self-driving cars on the road
Magna’s new MAX4 self-driving platform offers autonomy up to Level 4
Bosch Creates a Map That Uses Radar Signals for Automated Driving
Honda Targeting Level 3 Automated Driving By 2020, Level 4 by 2025
Groupe PSA’s safe and intuitive autonomous car tested by the general public
Baidu plans to mass produce Level 4 self-driving cars with BAIC by 2021
Tencent is reportedly testing its own autonomous driving system
JD.com Delivers on Self-Driving Electric Trucks
NAVYA Unveils First Fully Autonomous Taxi
Fujitsu and HERE to partner on advanced mobility services and autonomous driving
Lucid Chooses Mobileye as Partner for Autonomous Vehicle Technology
Apple Is Focusing on Making an Autonomous Car System
Samsung enters autonomous driving race with new business, funding
BlackBerry to open autonomous vehicle hub
Mitsubishi Electric Develops Automated Mapping For Autonomous Driving
Hitachi demonstrates vehicle with 11-function autonomous driving ECU
DENSO and NEC Collaborate on Automated Driving and Manufacturing
Who Leads the Autonomous Driving Patent Race?
Here’s Tesla’s competition in car batteries…
LG Chem targets electric car battery sales of $6.3 billion in 2020
Samsung Introduces New High-tech EV Batteries
SK Innovation to produce EV batteries with 500 km range in 2018
New Toshiba EV Battery Allows 320km Charge in 6 Minutes
Daimler to ramp up battery production
General Motors China To Open Battery Factory In Shanghai
Panasonic Opens New Automotive Lithium-Ion Battery Factory in Dalian, China
China to build many gigafactories' worth of electric-car battery plants
China's BYD takes aim at Tesla in battery factory race
Contemporary Amperex’s Chinese battery factory will be bigger than Tesla’s Gigafactory
Contemporary Amperex building an EV battery/drivetrain facility in Europe
Energy Absolute Plots Asian Project Rivaling Musk's Gigafactory
ABB teams up with Northvolt on Europe's biggest battery plant
BMW Group invests 200 million euros in Battery Cell Competence Centre
BMW Brilliance Automotive opens battery factory in Shenyang
Toyota promises auto battery 'game-changer'
Hyundai Motor developing solid-state EV batteries
Continental eyes investment in solid-state batteries
Wanxiang is playing to win, even if it takes generations
UK provides millions to help build more electric vehicle batteries
Rimac is going to mass produce batteries and electric motors for OEMs
Elon Musk Has A New Battery Rival (Romeo Power) Packed With His Ex-Employees
ProLogium Technology Will Produce First Next Generation Lithium Ceramic Battery For EVs
Here’s Tesla’s competition in storage batteries…
Panasonic
LG
AES + Siemens (Fluence)
Mitsubishi
Saft
EnerSys
SOLARWATT
Sharp
Tesvolt
Kreisel
Leclanche
Lockheed Martin
UniEnergy Technologies
electrIQ
Green Charge Networks
Blue Planet
Clean Energy Storage Inc.
Younicos
Orison
Powin Energy
Powervault
ViZn Energy
Schmid
And here’s Tesla’s competition in charging networks…
ELECTRIFY AMERICA UNVEILS FIRST $300M OF $2B INVESTMENT IN ZEV INFRASTRUCTURE
EVgo Installing First 350 kW Ultra Fast Public Charging Station In The US
BMW and Volkswagen Take on Tesla Motors With a New U.S. Fast-Charging Network
Tritium’s First 350-kW DC Fast Chargers Coming To U.S.
Porsche is bringing its ultra-fast electric car charging stations to the US
Nissan and EVgo to build i-95 Fast-Charge ARC connecting Boston and Washington D.C.
Shell, BMW, Daimler, Ford, VW, Audi & Porsche form IONITY European 350kw Charging Network
E.ON to have 10,000 150KW TO 350KW EV charging points across Europe by 2020
Chargepoint Europe Gets $82 million in new funding from Daimler
ChargePoint - InstaVolt partnership; more than 200 UK rapid charge systems
ChargePoint Express Plus Debuts: Offers Industry High 400 kW DC Fast Charging
Fastned building 150kw-350kw chargers in Europe
ABB powers e-mobility with launch of first 150-350 kW high power charger
DBT unveils the 1st 150 kW universal ultra-fast charging station
5 European fast charging networks form Open Fast Charging Alliance
Shell buys European electric vehicle charging pioneer NewMotion
BP in talks with electric carmakers on service station chargers
Total planning EV charging points at its French stations
Yet despite all that deep-pocketed competition, perhaps you want to buy shares of Tesla because you believe in its management team. Really???
The Truth Is Catching Up With Tesla
With Misleading Messages And Customer NDAs, Tesla Performs Stealth Recall
Who You Gonna Believe? Elon Musk's Words Or Your Own Lying Eyes?
How Tesla and Elon Musk Exaggerated Safety Claims About Autopilot and Cars
When Is Enough Enough With Elon Musk?
Musk Talked Merger With SolarCity CEO Before Tesla Stock Sale
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: A Failure To Communicate
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
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), while its fully diluted market cap (assuming 177 million shares “all-in”) now exceeds that of Ford and almost equals that of GM despite a nearly two-billion-dollar annualized net loss selling just 100,000 cars while Ford and GM make billions of dollars selling 6.6 million and 9 million cars respectively. Thus this cash-burning Musk vanity project is worth vastly less than its nearly $64 billion fully-diluted enterprise value and—thanks to its roughly $10 billion in debt—may eventually be worth “zero.”
