Stanphyl Capital letter for the month of Febuary 2019 discussing their short position in Tesla stock and the U.S. tax credit advantage that will be gone by the end of 2019.
We remain short stock and call options in Tesla, Inc. (TSLA), which I consider to be the biggest single stock bubble in this whole bubble market. As a reminder, the three core points of our Tesla short position are:
Q4 hedge fund letters, conference, scoops etc
1) Tesla has no “moat” of any kind; i.e., nothing meaningfully or sustainably proprietary.
2) Tesla will again soon be losing a lot of money with a terrible balance sheet despite relatively light competition, yet is about to be confronted with massive competition in every aspect of its business.
3) Elon Musk is extremely untrustworthy.
Tonight (February 28th) Tesla announced multiple desperate price cuts as its backlog is nearly gone and new orders severely lag. It finally introduced a $35,000 version of the Model 3, and despite the fact that it has just 220 miles of range and comes only in black with a cheap cloth interior you’d be embarrassed to find on a ‘63 Dodge Dart, I estimate the company will lose at least $3000 (before options) on each one it sells; in the best possible scenario, perhaps buyers will option them up to the break-even point. It also introduced a 240-mile version with a nicer interior for $37,000; that one may “only” lose around $1500 but is less likely to be “optioned up” as it comes in a choice of five colors and has power seats and a nicer interior. (All Model 3s, however, have just a single touchscreen on their dashboards.)
Tesla also cut prices (for the third time this year!) on other versions of the Model 3 by around $3000, after having slashed them by $2000 in January and another $1100 earlier in February. Additionally, it slashed prices on the Model S by $6000 after cutting them on the long-range S and X by a whopping $11,000 earlier this month to create a mid-range model with very slightly reduced range via a software restriction (thereby enjoying no cost savings on the batteries). And finally, the company is closing nearly all its retail stores and switching to on-line only buying.
Tesla felt forced to do all this due to terrible U.S. demand and weakness in Europe and China (where it was already cutting prices). In January the company reported a Q4 2018 GAAP profit of $139 million that (as anticipated) was considerably smaller than Q3’s never-to-be-topped and highly misleading (as explained in previous letters) figure of $312 million, and now (as ASPs decline and service expenses soar) the company shall slide back into losses that I estimate on a GAAP basis will be well over $1 billion for 2019. But that’s not all, folks, because…
In late February the SEC finally lost patience with Elon Musk’s continual violation of last year’s settlement stemming from his fraudulent “$420 buyout” tweet and asked the presiding judge to hold him in contempt. Musk (of course) swiftly responded by further mocking the SEC. This may well result in his removal as an officer of Tesla, which would likely create a near-instant implosion of this bubble-stock, as without its grifting leader this “religion” becomes nothing more than an insolvent car company with a busted growth story.
Of course, Musk’s public persona of impetuous stupidity undoubtedly provides an illuminating window into his private persona. Tesla has the most executive departures I’ve ever seen from any company (here’s the astounding full list), a dubious achievement that continued in February as its new general counsel quit after fewer than two months on the job (a move perhaps related to Musk’s aforementioned settlement violations). This followed the January departure of its CFO, which itself followed the departures of a massive number of financial, manufacturing and engineering execs in 2018 and 2017. These people aren’t leaving because things are going great (or even passably) at Tesla; rather, they’re likely leaving because Musk is either an outright crook or the world’s biggest jerk to work for (or both). Could the business (if not the stock price) be saved in its present form if he left? Nope, it’s too late. Even if Musk steps down in favor of someone who knows what he’s doing, emerging competitive factors (outlined in great detail below) and Tesla’s balance sheet make the company too late to “fix” without major financial and operational restructuring.
How poorly is Tesla run? The quality of its products is one indication, and in February Consumer Reports published its annual auto reliability survey and guess who finished second-to-last? As one wag said on Twitter: you can now officially call Tesla “the Cadillac of electric cars”:
Consumer Reports’ awful Tesla reliability data jibes with the latest survey from True Delta, which ranks Tesla last among all available vehicles, while in September British magazine What Car? Ranked Tesla reliability so low that it’s in “a league” of its own.
But what about all those Tesla owners who tell you how much they love their cars despite the service and reliability problems?
I’ve always argued that Tesla owners (and TSLA bulls) confuse “luxury electric car love” for “Tesla love,” and now that superior European alternatives are beginning to roll out, Tesla drivers will flock to them. For instance, among those relatively near-term alternatives (out in late 2019) is the Porsche Taycan (here’s a great new video of it), and according to Porsche’s surveys it’s Tesla drivers who are most interested in buying it. After its U.S. tax credit price advantage over Tesla (whose credits will be gone at the end of 2019), the stunning, Autobahn and Nürburgring-tested Taycan will cost only slightly more than the least expensive Tesla Model S and, among innumerable other advantages, will charge 2 ½ times as quickly and in the U.S. include three years of that charging as part of the purchase price. Hmm, Tesla or Porsche… Not a tough choice! In January Porsche announced that it has the capacity to build 40,000 Taycans a year, roughly the expected number of 2019 Model S sales before the Taycan steps in to steal pretty much all of them. So Model S sales are about to be *so* dead. And if that’s not enough, a crossover version of the Taycan will follow soon thereafter, as will an all-electric version of the next Maycan. So Model X sales are *also* about to be *so* dead, especially in light of the other electric crossovers and SUVs discussed below…
Porsche’s offerings are just part of an onslaught of luxury EV competition that’s about to rip the face off sales of Tesla’s most profitable models, the S&X. This spring comes the Audi e-tron, an all-electric SUV with a much nicer interior (and better build quality!) than any Tesla and a price that’s around $13,000 lower than the Model X before the Audi’s (initial) $3750 to (eventual) $7500 U.S. tax credit advantage. (Although the Audi’s range is expected to come in at around 225 miles vs. 270 miles for the Model X, the Audi will charge faster.) The e-tron received solid reviews (here, here, here and here), and three more electric Audis will follow it: the Sportback in late-2019 and, in 2020, the spectacular e-tron GT that recently debuted at the L.A. Auto show, as well as (in 2020) a small electric crossover.
Available immediately is the Jaguar I-Pace (which received fabulous reviews, handily beating Tesla in comparison test after comparison test) and costing $18,000 less than the Model X and $15,000 less than the Model S, price gaps that widen by an additional $3750 with Jaguar’s current U.S. tax credit advantage and escalate to $7500 in January 2020. I’ve driven the Jaguar and can assure you that no objective person will say it isn’t much nicer than any Tesla.
The Mercedes EQC all-electric SUV will be widely available in Europe in the summer of 2019 and in the U.S. in early 2020, with an EPA range of around 225 miles and a price that will be around $20,000 (!) less than the Model X before the Mercedes’ (by then) $7500 U.S. tax credit advantage. And by 2022 Mercedes will have ten fully electric models, covering nearly all its model lines.
And let’s not count out BMW; here’s a fascinating interview with its head EV powertrain engineer and a preview of its upcoming 2021 i4.
Less expensive and available now are the excellent new all-electric Hyundai Kona and Kia Nero, extremely well reviewed small crossovers with an EPA range of 258 miles for the Hyundai and 238 miles for the Kia, at prices of under $30,000 inclusive of the $7500 U.S. tax credit. I expect these cars to have an immediate and negative impact on sales of Tesla’s Model 3 and a future negative impact on Tesla’s so-far unseen Model Y small crossover (assuming, of course, the latter makes it to market before Tesla declares bankruptcy).
Meanwhile the number of lawsuits of all types against Tesla continues to escalate-- there are now over 500!
So here is Tesla’s competition in cars (note: these links are continually updated)…
THE NEW ALL-ELECTRIC JAGUAR I‑PACE
2019 Jaguar XJ to be reborn as high-tech electric flagship
Audi e-tron electric SUV is available March 2019
Audi e-tron Sportback comes late 2019
AUDI E-TRON GT FIRST DRIVE: LOOK OUT, TESLA (available 2020)
Audi Q4 e-tron: affordable compact EV comes late 2020 with 500km range
Audi to show new baby e-tron electric SUV at Geneva 2019
Mercedes unveils the 2019 EQC Electric SUV
Mercedes to launch more than 10 all-electric models by 2022
The 2019 Porsche Electric Taycan
Porsche Electric Mission E Cross Turismo goes into series production
The next generation of the Porsche Macan will be electric
Porsche Aims At Tesla Again With An Electric SUV, Taycan Targa and Possible Boxster EV
258-Mile Hyundai Kona electric is available now for under $40,000
239-Mile Kia Niro EV is Available Now at Under $40,000
Kia Soul (available mid-2019) EV’s Range Jumps to 243 Miles
Kia Europe to have six pure electric models by 2022
Chevrolet Bolt Offers 238 Miles On A Single Charge
GM is transforming Cadillac into an electric brand
VW to spend $50.2 billion on electric, autonomous vehicles by 2023
Here's how Volkswagen plans to turn itself into the world's largest EV maker
New 2019 VW ID. hatch to be the world’s first carbon neutral production car
Nissan LEAF e+ with 226-mile range arrives April 2019
Nissan Leaf-based SUV coming in 2020
The Volvo Polestar 2 Is Priced to Beat Tesla’s Best-Selling Model 3
Volvo To Start Selling Electric Trucks In 2019, Some Will Hit The Road This Year
BMW iX3 electric crossover goes on sale in 2020
New BMW i4: Tesla-rivalling coupe seen winter testing
BMW to have 25 electrified models by 2025
Ford CEO says 16 electric models are in design & development
Peugeot 208 to electrify Europe's small-car market
Toyota, Mazda, Denso create company to roll out electric cars beginning 2019
Toyota to market over 10 battery EV models in early 2020s
New Renault Zoe to feature 400km range
Renault aims to remain EV leader in Europe
Infiniti will go mostly electric by 2021
DS 3 Crossback will give PSA's upscale brand an electric boost
ALL-ELECTRIC MINI COOPER COMING IN 2019
Smart Will Electrify Its Entire Line-up By 2020
SEAT's first electric car is due in 2020
Opel/Vauxhall will launch electric SUV and van in 2020
2019 Skoda e-Citigo confirmed as brand's first all-electric model
Skoda planning range of hot all-electric eRS models
New Citroen C4 Cactus to be first electrified Citroen in 2020
MG E-Motion confirms new EV sports car on the way by 2020
Fiat Chrysler bets on electrification for Alfa, Jeep and Maserati
Maserati offering three fully electric cars between 2020 and 2022
Rolls-Royce is preparing electric Phantom for 2022
Honda will offer full-EV or hybrid tech on every European model by 2025
Bentley mulls electric car to help reduce carbon footprint
Subaru to introduce all-electric vehicles by 2021
Korando will lead SsangYong's push into electrification
Dyson Moves Ahead on $2.6 Billion Electric Car Plan
Lucid Motors closes $1 billion deal with Saudi Arabia to fund electric car production
Rivian (electric pick-up truck maker) Announces $700M Investment Round Led By Amazon
Borgward BXi7 Electric SUV Flies Under The Radar
Detroit Electric promises 3 cars in 3 years
SF Motors reveals two electric SUVs for 2019 with 300 miles of range
Two new electric cars from Mahindra in India by 2019; Global Tesla rival e-car soon
Saab asset owner NEVS plans electric car production
EVelozcity Raises $1 billion For EV Startup
And in China…
VW, China spearhead $300 billion global drive to electrify cars
Audi China to roll out 12 locally-produced models in total by 2022
BYD launches EV535, all-electric SUV
BYD Song MAX BEV version with 500km range to hit market in 2019
Daimler & BYD launch new DENZA electric vehicle for the Chinese market
BAIC and Daimler to Build $1.9 Billion China Plant
BAIC brings EX5 Electric SUV to market
Daimler to Start EQC Electric SUV Production in China in 2019
GM China raises new-energy vehicle target to 20 models through 2023
Nissan & Dongfeng to invest $9.5 billion in China to boost electric vehicles
Toyota to Introduce 10 New Electrified Vehicles in China by 2020
Infiniti bringing EVs to China’s luxury car market
NIOS ES8 Electric Crossover debuts with half the Tesla Model X’s price tag
536 HP Nio ES6 Midsize Electric SUV Launches With 317-Mile Range (at 1/2 the price of Tesla X
NIO’s third model said to be a sedan dubbed EP7
BMW will develop and produce electric Mini in China
Ford ramps up electric vehicle push in China
Jaguar Land Rover's Chinese arm invests £800m in EV production
SAIC building factory in China for EVs from Roewe and MG
Renault and Brilliance Automotive to build 3 new electric light commercial vehicles for China
Honda launches new all-electric Everus VE-1 for ~$25,000 in China
Honda to roll out over 20 electric models in China by 2025
Changan building large scale NEV factory
Mazda and Changan Auto join hands on electric vehicles
XPENG Motors kicks-off sales of Tesla-infused EV for €30,000
XPENG Motors to unveil second model at Auto Shanghai 2019
WM Motors/Weltmeister EX5 Electric SUV Launched On The Chinese Car Market
Geely invests $5 billion into new electric car factory in China
Geely’s new all-electric sedan code-named GE11 hits market in Q1 2019
Geely to release new Emgrand GSe BEV with range increased to 450km
Chery Breaks Ground on $240M EV Factory in China
Chery's second EV plant open in Dezhou
BYTON to launch mass-produced M-Byte into market at the end of 2019
DearCC Launches ENOVATE Electric SUV
GAC NE to roll out 12 new models for Aion series, including solar-powered models
Guangzhou Auto To Launch Four New Electric Cars By 2020
Great Wall Launches New EV Brand (ORA) In China
Singulato iS6 Electric SUV Debuts With 249-Mile Range
Singulato, BAIC partner to promote smart new energy vehicles
Hongqi launches E-HS3 BEV SUV with AWD option, 390km range and 0-100kh/h in 5.9 seconds
FAW (Hongqi) to roll out 15 electric models by 2025
JAC’s Electric Car Has A Range Of 500 Kilometers
ICONIQ to build electric cars in Zhaoqing with total investment of RMB 16 billion
Quianu Motor aims to grab share of US electric vehicle market
Hozon Kicks Off Mass Production With All-Electric Neta N01
Aiways U5 long-range electric SUV
All-electric NEVS 9-3 sedans (nee Saab) being built in China
Youxia Motors raises $1.25 billion to start 2019 EV production
CHJ Automotive buys Lifan for shortcut to EV production
Wanxiang Gets China Electric Vehicle Permit to Make Karma Cars
Qoros Auto's new owner plans to be an EV power
JMC (Jianling Motor Corp.) Starts New EV Brand In China
Thunder Power Chinese EV manufacturer clinches deal with Belgian investment fund
Leapmotor raises RMB2.5 billion for Series A round to build electric cars
Continental, Didi sign deal on developing EVs for China
Here’s Tesla’s competition in autonomous driving…
Tesla Ranks Last for Automated Driving
What Smart Tesla fans Get Wrong about Full Self-Driving
Waymo Starts First Driverless Car Service
Jaguar and Waymo announce an electric, fully autonomous car
Waymo Expands Chrysler Self-Driving Fleet 100-Fold to 62,000
Nissan-Renault alliance to tie up with Waymo on self-driving cars
Uber, Waymo in talks about self-driving partnership
Lyft and Waymo Reach Deal to Collaborate on Self-Driving Cars
Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving
GM ride-hailing fleet would ditch steering wheel, pedals in 2019
Honda Joins with Cruise and General Motors to Build New Autonomous Vehicle
SoftBank Vision Fund to Invest $2.25 Billion in GM Cruise
Ford and VW Discuss Autonomous Car Team-Up at a $4 Billion Valuation
Volkswagen Group and Aurora Innovation Announce Strategic Collaboration On Self-Driving Cars
VW taps Baidu's Apollo platform to develop self-driving cars in China
An Overview of Audi Piloted Driving
Daimler, BMW deepen cooperation with self-driving venture
Mercedes plans advanced self-driving tech for next S class
Bosch and Daimler join forces to market fully automated, driverless taxis by 2020
Daimler's heavy trucks start self-driving some of the way
Volvo, Nvidia expand autonomous driving collaboration
Continental & NVIDIA Partner to Enable Production of Artificial Intelligence Self-Driving Cars
Intel’s Mobileye has 2 million cars (VW, BMW & Nissan) on roads building HD maps
Toyota's moonshot: Self-driving car for sale - in 2020
Nissan and Mobileye to generate, share, and utilize vision data for crowdsourced mapping
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
Baidu, WM Motor announce strategic partnership for L3, L4 autonomous driving solutions
Baidu plans to mass produce Level 4 self-driving cars with BAIC by 2021
Volvo, Baidu to co-develop EVs with Level 4 autonomy for China
Lyft, Aptiv (formerly Delphi) partner on driverless ride-hailing at 2018 CES in Vegas
Lyft, Magna in Deal to Develop Hardware, Software for Self-Driving Cars
Hyundai, Aurora to release autonomous cars by 2021
Deutsche Post to Deploy Test Fleet Of Fully Autonomous Delivery Trucks This Year
Byton cooperating with Aurora on autonomous vehicles
ZF autonomous EV venture to start output this year, names first customer
Magna’s new MAX4 self-driving platform offers autonomy up to Level 4
Groupe PSA’s safe and intuitive autonomous car tested by the general public
Tencent, Changan Auto Announce Autonomous-Vehicle Joint Venture
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
First Look Inside Zoox’s Autonomous Taxi
Nuro’s Robot Delivery Vans Are Arriving Before Self-Driving Cars
Here’s Tesla’s competition in car batteries…
LG Chem targets electric car battery sales of $6.3 billion in 2020
LG Chem to build $1.8 bln EV battery plant in China
Samsung SDI Unveils Innovative Battery Products at 2018 Detroit Motor Show
SK Innovation to boost EV battery production capacity more than tenfold by 2022
New Toshiba EV Battery Allows 320km Charge in 6 Minutes
Daimler starts building electric car batteries in Tuscaloosa – one of 8 battery factories
Panasonic Opens New Automotive Lithium-Ion Battery Factory in Dalian, China
Panasonic forms battery partnership with Toyota
CATL’s Chinese battery factory will be bigger than Tesla’s Gigafactory
CATL to set up battery cell manufacturing in Germany
BYD to quadruple car battery output with lithium site plants
GM inaugurates battery assembly plant in Shanghai
Volkswagen plans entry into battery cell production
VW Wants to One-Up Tesla With a Next-Generation Battery
Honda Partners on General Motors' Next Gen Battery Development
Energy Absolute Plots Asian Project Rivaling Musk's Gigafactory
France's Saft plans production of next-gen lithium ion batteries from 2020
Northvolt making ground on Gigafactory in Sweden
ABB teams up with Northvolt on Europe's biggest battery plant
Chinese Battery Maker to Open Factory Next to Swedish EV Plant
Sokon aims to be global provider of battery, electric motor, electric control systems
BMW Group invests 200 million euros in Battery Cell Competence Centre
BMW Brilliance Automotive opens battery factory in Shenyang
BMW announces partnership with solid-state battery company
Toyota promises auto battery 'game-changer'
VW increase stake in solid-state batteries with $100M investment
Hyundai Motor developing solid-state EV 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
Evergrande acquires Cenat battery production
Bracing for EV shift, NGK Spark Plug ignites all solid-state battery quest
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)
NEC
ABB
Saft
EnerSys
sonnenBatterie (acquired by Shell)
Sharp
Kreisel
Leclanche
UET
ENGIE
Bluestorage
Clean Energy Storage Inc.
Younicos
Powervault
Schmid
24M
Ecoult
Natron Energy
And here’s Tesla’s competition in charging networks…
EVgo Installing First 350 kW Ultra Fast Public Charging Station In The US
Tritium’s First 350-kW DC Fast Chargers Coming To U.S.
Porsche plans network of 500 fast chargers for U.S.
ChargePoint To Equip Mercedes Dealerships With 150kw Charging Stations For EQC
Recargo Ultrafast West Coast Charging
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
Enel kicks off the E-VIA FLEX-E project for the installation of European ultra-fast charging stations
Europe’s Allego “Ultra E” ultra-fast charging network now operational
Allego & Fortum Launch MEGA-E High Power Charging network for Europe’s Metropolitan areas
ChargePoint Secures $240 Million in Additional Funding; $500 million raised in total
UK's Podpoint installing 150kW EV rapid chargers this year; 350kW by 2020
UK National Grid plans 350kW EV charge point network
Fastned building 150kw-350kw chargers in Europe
Deutsche Telekom to build electric car charging network in Germany
ABB powers e-mobility with launch of first 150-350 kW high power charger
Shell buys European electric vehicle charging pioneer NewMotion
BP buys UK's largest car charging firm Chargemaster
Total planning EV charging points at its French stations
VW Is Setting Up Electric Car Charging Stations in China
Yet despite all that deep-pocketed competition, perhaps you want to buy shares of Tesla because you believe in its management team. Really???
Elon Musk Settles SEC Fraud Charges
Elon Musk, June 2009: “Tesla will cross over into profitability next month”
Tesla SEC Correspondence Shows A Pattern Of Inaccurate, Incomplete & Misleading Disclosures
Tesla: Check Your Full Self-Driving Snake Oil Expiration Date
As Musk Hyped and Happy-Talked Investors, Tesla Kept Quiet About a Year-Long SEC Probe
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 market cap tops that of Ford and matches GM’s despite selling approximately 300,000 cars a year while Ford and GM make billions of dollars selling 6 million and 8.4 million vehicles respectively. Thus this cash-burning Musk vanity project is worth vastly less than its roughly $65 billion enterprise value and—thanks to nearly $34 billion in debt, purchase and lease obligations—may eventually be worth "zero."
