Stanphyl: The “Cash-burning Musk vanity project” Is Headed To Zero

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
Andy_Bay / Pixabay

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 should still be around a $100 million quarterly earnings drag on Tesla. However, I find SCTY’s financials to be unfathomable (undoubtedly deliberately so on the part of the company), and it’s possible that in any given quarter (perhaps even Q1 2017, which reports next week) Tesla may be able to utilize this “SCTY unfathomability” to report a profit despite demonstrating awful cash flow. (In particular, watch out for the elimination of noncontrolling interests.) So the only thing in Tesla’s Q1 2017 earnings report that would shock me would be positive free cash flow… and the chance of that occurring is even less than that of Musk making me best man at wedding #4.

Meanwhile, in 2017 crash tests by the Insurance Institute For Highway Safety the Model S fell short of a safety rating awarded to 42 other cars while analysis of data from the state of California showed that its autonomous driving system was statistically far behind most of the competition’s. Then the excellent investigative journalists at Daily Kanban proved that the videos Tesla put out promoting its new system were hugely deceptive, while you can watch this or this to see what a disaster Tesla’s latest “autopilot” is. And in April a third and fourth key guy left the program after its director left a few months earlier. Take a look at those videos and the “Autonomous Driving” links a few pages below and tell me how anyone with a brain in his head could seriously think Tesla is ahead of the rest of the industry in safe autonomy? In fact, the current Tesla hardware suite has no LIDAR and experts say LIDAR is required for full autonomy. no wonder a class action suit was filed about this in April.

And what about the Gigafactory? Battery production is a mostly automated, modular process with few economies of scale beyond a size much smaller than “Giga”. Alpha published a terrific article about this specific to Tesla and soon Chinese producers will match or beat any price coming from the Gigafactory. fact, have a look at this amazing data showing where the real “gigafactories” are. Battery cells are indeed a commodity and watch out for a looming oversupply.

Meanwhile Tesla faces an onslaught of competition in all facets of its business. (Note: these links are updated monthly.) First, here are the competing cars…

The All-Electric 2017 Chevrolet Bolt EV

GM CEO: Chevrolet Bolt Is Our Platform For A Huge Range Of Vehicles

Audi Opens Reservations For 310 Mile E-Tron Quattro, Arrives 2018 Audi e-tron Sportback follows SUV in 2019

Mercedes Spotted Testing Four Electric Models For Launch in 2018-19 Daimler to invest $11 billion in electric vehicles

Daimler brings forward electric-car goal

2018 Jaguar I-Pace: production car set for September 2017 Frankfurt debut Jaguar Land Rover says half of its new cars will have electric option by 2020 Porsche Mission E electric car to have wide range of variants

All New 200-mile Nissan Leaf Coming September 2017 200-Mile Hyundai IONIQ Electric Coming In 2018 Hyundai to Release 200-Mile Electric SUV in 2018

Hyundai’s Genesis fashions itself as South Korea’s Tesla

Volvo’s 2019 Electric Car to Have 250-mile Range and Cost $35,000-$40,000 VW Plots Tesla Attack With Four Affordable Electric Vehicles

Ford to launch fully electric SUV with range of at least 300 miles & two electrified police vehicles BMW launches second wave of electrification

Toyota, in about-face, may mass-produce long-range electric cars New Mazda electric car due 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 MG E-Motion confirms new EV sports car on the way by 2020

Lucid Motors unveils its 400-mile range luxury EV Lucid Air to Start At $52,000 After Tax Credit 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

Seat to launch first electric car in 2019

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

2017 Karma Revero (nee Fisker) launches with updates

Karma Owner Building 50,000 Cars/Year Electric Car Factory in China Borgward BXi7 Electric SUV Flies Under The Radar

Skoda Citigo set to be brand’s first EV; will have five EVs by 2025 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 GM plans to launch 10 electric cars in China by 2020 Audi and FAW sign China electric car cooperation deal Ford to Make Electric Cars in China Amid Green Drive

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

Volvo’s first all electric car will be made in China

Chery Breaks Ground on $240M EV Factory in China Chery’s second EV plant to open in May in Dezhou NIO Unveils Production Vehicle for China Market

New Chinese Car Brand: WM Motors To Bring EVs To The Masses LeEco Starts Building Its 20 Billion Yuan Car Factory In China Guangzhou Auto to build electric vehicle plant

Chinese electric car start-up Future Mobility edges closer to taking on Tesla 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

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 set to expand EV battery capacity

Daimler subsidiary ACCUMOTIVE begins construction of second Li-ion factory

Panasonic Opens New Automotive Lithium-Ion Battery Factory in Dalian, China

China’s BYD takes aim at Tesla in battery factory race

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


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

Hyundai Motor developing solid-state EV batteries

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 Wanxiang is playing to win, even if it takes generations

UK provides millions to help build more electric vehicle batteries Former Tesla executives plan to build $4bn Nordic battery plant Rimac is going to mass produce batteries and electric motors for OEMs

Here are the competing storage batteries…


Samsung LG



AES Mitsubishi NEC Hitachi ABB

Saft EnerSys GS Yuasa E.ON

SOLARWATT Daimler Schneider Electric sonnenBatterie Kokam


Nissan – Eaton Tesvolt Kreisel Leclanche

Lockheed Martin Alevo

EOS Energy Storage

Energy Storage Systems Inc. UniEnergy Technologies

electrIQ Belectric Sunverge Stem

Green Charge Networks Imergy Power Exergonix

Redflow 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 Nidec Powervault ViZn Energy Schmid

(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 and the guy who invented the lithium-ion battery has now invented something better.)

Here’s the competition in autonomous driving…

Updated 2017 Mercedes-Benz S-Class – first ride with autonomous technology Nvidia and Mercedes-Benz to bring an AI car to market within a year

Bosch and Daimler join forces to market fully automated, driverless taxis by 2020 New 2017 Audi A8 lets its drivers take hands off the wheel

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

Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving

GM’s Cruise Automation does a 90-minute urban drive with no intervention

GM to Launch the World’s Largest Fleet of Self-Driving Cars

Volkswagen and Mobileye sign agreement to develop autonomous driving Autonomous Nissan Leaf Video

Nissan and Mobileye to generate, share, and utilize vision data for crowdsourced mapping 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 Intel’s $15 billion purchase of Mobileye shakes up driverless car sector Delphi & Mobileye to sell autonomous system to any car maker by 2019 Volvo plans to offer fully self-driving car to luxury buyers

Volvo, Uber to Jointly Develop Autonomous Sport-Utility Vehicles

Autoliv and Volvo Cars autonomous driving joint venture Zenuity starts operations 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 Alphabet’s Waymo to supply autonomous hardware & software to any car maker

Second Generation Automated Acura RLX Development Vehicle Revealed in California Baidu to open-source its autonomous driving technology

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

Apple drops clues about self-driving car program, confirms work with Bosch 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 France rolls out ‘world’s first’ driverless buses

And here are the competing charging stations…

ELECTRIFY AMERICA UNVEILS FIRST $300M OF $2B INVESTMENT IN ZEV INFRASTRUCTURE BMW, Daimler, Ford, VW, Audi & Porsche JV for 350kw Charging On Major Highways in Europe Chargepoint Europe Gets $82 million in new funding from Daimler

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

Nissan and EVgo to build i-95 Fast-Charge ARC connecting Boston and Washington D.C. 5 European fast charging networks form Open Fast Charging Alliance

Shell installing electric vehicle chargers at its gas stations 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???

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

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 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 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. Here’s a recent study from McKinsey supporting this:

So when the Germans (Audi, Mercedes and Porsche) and Jaguar 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 $82,500 with only five seats standard. By comparison, the Porsche Cayenne starts at $60,600, the Audi Q7 at $49,000, the BMW X5 at $56,600, 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. And as noted earlier, the upcoming pure electric “crossovers” from Jaguar, Audi and Mercedes are all expected to price at least $20,000 cheaper than the least expensive Model X.

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 nearly $60 billion fully-diluted enterprise value and—thanks to its nearly $7 billion in debt—may eventually be worth “zero.”