Stanphyl Capital letter to investors about Tesla Inc (TSLA) stock.
Check out our H2 hedge fund letters here.
Friends and Fellow Investors:
For February 2018 the fund was up approximately 2.2% net of all fees and expenses. By way of comparison, the S&P 500 was down approximately 3.7% while the Russell 2000 was down approximately 3.9%. Year-to-date the fund is down approximately 8.9% while the S&P 500 is up approximately 1.8% and the Russell 2000 is down approximately 1.4%. Since inception on June 1, 2011 the fund is up approximately 82.1% net while the S&P 500 is up approximately 132.8% and the Russell 2000 is up approximately 95.8%. Since inception the fund has compounded at approximately 9.3% net annually vs 13.3% for the S&P 500 and 10.5% for the Russell 2000. (The S&P and Russell performances are based on their “Total Returns” indices which include reinvested dividends.) As always, investors will receive the fund’s exact performance figures from its outside administrator within a week or two; meanwhile I continue to waive the annual management fee until we regain our high-water mark.
As noted last month, through this entire bull market low interest rates were used to justify egregious earnings multiples on stocks, as well as being responsible for creating much of those earnings via cheap mortgages, auto loans, etc., and yet we’re now in a rising rate environment. Even before the arrival of (or perhaps anticipating) a massive amount of deficit-related U.S. debt issuance beginning later this year, the 10-year U.S. treasury bond yield appears to have definitively broken its very long-term downtrend, ending the month with a yield of just under 2.9%. Meanwhile, recent “hot” CPI data combined with mediocre growth may even be indicative of a whiff of 1970s style stagflation. So I think the catalysts are finally here for the high-multiple stock party to end, and we’re positioned for it.
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 February Tesla released its worst quarterly “earnings” report ever, with a record GAAP loss of $675 million even including a $179 million one-time injection of near-100% net margin ZEV credit sales; the loss would have been around $850 million (!) without those ZEV credits. Also, automotive gross margin ex-ZEV sales dropped to an embarrassingly low 13.8%, and remember that unlike the rest of the auto industry Tesla doesn’t include any engineering or dealership costs on that line; measured the same way as its competitors, Tesla actually had a negative gross margin on its cars. In fact, overall in Q4 (using the total net loss ex those ZEV credits) Tesla lost over $28,000 on each car it sold! Additionally, this “hypergrowth” company guided to flat 2018 sales of Models S&X and I think they’ll actually be down, as much nicer Jaguar and Audi electric cars will be in showrooms this June and November respectively. Then 2019 will be even worse for the S&X as Mercedes and Porsche will begin selling luxury EVs. Yes, Tesla did manage to juice its Q4 negative free cash flow to be not as bad as expected but that was accomplished by the aforementioned ZEV credit sale, a massive one-time inventory liquidation and the inclusion of customer deposits in “cash flow from operations.” Here’s an excellent explanation of those shenanigans. And of course the follow-up conference call was filled with the usual combination of lies, obfuscation and inadvertent hilarity—here’s a great summary of the “highlights.”
What Tesla can’t obfuscate (courtesy of its new 10-K) is the $31.4 billion in combined long-term debt and battery purchase obligations that—accompanied by its negative cash flow and massive encroaching competition—will drive it into bankruptcy. In fact, Tesla interest expense is now at a run-rate of nearly $600 million a year, which in Q4 amounted to $4884 per car sold!
And remember that in December Panasonic announced a partnership with Toyota (and possibly other Japanese automakers) that casts a spotlight on how technologically behind Tesla’s cylindrical battery format (the one with that $17 billion purchase obligation!) now is. I urge you to read this excellent summary of the event from The Daily Kanban.
Would you like to see a few more examples—courtesy of Tesla’s 10-K- of what a horrible business (i.e., one with no or negative scale) looks like? Here you go:
Then immediately after Tesla’s disastrous February conference call two additional bombshells dropped: first, its Global President of Sales & Service became the latest among scores of C-level execs to leave the company, then its web site quietly announced that the “$35,000 Model 3” (which I’ve been saying since 2014 would never be offered in any quantity because Tesla would lose $10-$15,000 on each one) will be delayed for at least a year and in my opinion will never be offered except in token amounts. The latter may finally be causing many deposit holders/shareholders to realize that Musk is the securities fraudster we’ve always known him to be, and is likely to result in hundreds of thousands of demands for deposit refunds as potential buyers flock to alternative vehicles. In fact, after delivering only around 8000 Model 3s in total, Tesla is now offering quick delivery of the $49,000+ configuration to fill reservations from non-Tesla owners, indicating a massive number of either cancellations or postponements from current owners. And watch those reservations really vanish when the $7500 tax credit goes away later this year (one quarter after Tesla sells its cumulative 200,000th U.S. car) while over 100 competing new EV models entering the market over the next few years will still enjoy it. And finally, remember that almost nothing can be done in the Model 3 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.
Also in February, Seeking Alpha published a terrific article explaining why Tesla’s so-called “Superchargers” (and battery format!) are about to be obsoleted by far better technology used by competitors. And speaking of Tesla “technology,” remember that in January Navigant Research published a new “Leaderboard Report” for autonomous driving, in which Tesla tied for dead last among 19 contenders. In fact unlike the rest of the industry, apparently Tesla has NO patents whatsoever related to autonomous driving!
As for the heavily promoted “$180,000, 500-mile” Tesla electric truck, I (and many others) estimate that a 500-mile electric truck will require a 1000/kWh battery pack and—with its fancy carbon fiber cab and chassis– will thus 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, meaning it will supposedly charge $180,000 for a product that will cost around $350,000 to build and subsidize– a typical Musk “business proposition” if I’ve ever seen one! In other words, the Tesla semi-truck will either never be built and sold (hey by the way—where’s the factory and assembly line for that “2019 product”?) or the real price (with the lifetime .07/kWh electricity subsidy) will be over $400,000 (vs. $120,000 for a conventional truck) and all those big-name “reservations” will disappear even faster than the proceeds from a Tesla financing. And oh, by the way, Tesla is actually behind much of the industry in developing an electric truck.
And hey, speaking of Tesla being “behind,” read this Bloomberg article about its China situation, then click on the “China competition links” below.
Meanwhile, Tesla is increasingly besieged by a wide variety of lawsuits, for labor discrimination, union-busting, autopilot fraud, sudden acceleration, lemon law violations (including an interesting new one), 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: 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
Nissan IMx Electric Crossover Coming in 2019
Jaguar I-Pace electric SUV debuts March 2018; on sale in June
Jaguar XJ to transform into Tesla Model S rival
New 2018 Audi e-tron: all-electric SUV nearing autumn release
Audi Launching Three Pure Electric Cars Beginning 2018
2018 Hyundai Kona Electric SUV Has Up To 292 Miles of Range
14 new EV models by Hyundai-Kia by 2025
Volkswagen To Speed Up EV Development With Big Investments
Volkswagen I.D. Crozz 311-Mile Electric CUV For $30,000-ish Before Incentives
Target Tesla: 2019 Porsche Mission E to come in three power levels
Porsche to develop Mission E variants as part of £5.3bn investment
Mercedes Wheels Out Electric Car Roadmap, Car And Battery Factories Everywhere
Daimler Trucks launches E-FUSO and all-electric heavy-duty truck Vision One
Electric vans from Mercedes-Benz: Also reliable in the cold, ice and snow
Ford plans $11 billion investment, 40 electric vehicles by 2022
Electric Land Rover “Road Rover” to launch in 2019
First electric Volvo to be an all-new hatchback due in 2019
Volvo’s Polestar1 pioneers electric-luxury brand; U.S. sales begin in 2019
Volvo To Start Selling Electric Trucks In 2019, Some Will Hit The Road This Year
Toyota, Mazda, Denso create company to roll out electric cars beginning 2019
Infiniti will go mostly electric by 2021
PSA will launch full-electric Peugeot 208 and DS 3 Crossback in 2019
Electric MINI Cooper E confirmed for late 2019
PSA will electrify global product lineup by 2025
SEAT’s first electric car is due in 2020
Opel will launch full electric Corsa in 2020
Skoda Vision E revealed for 2020 production
MG E-Motion confirms new EV sports car on the way by 2020
Dyson plans three-car EV range
BMW iNext Electric SUV arrives in 2021 with a 435-mile range
BMW to have 25 electrified models by 2025
Toyota to market over 10 battery EV models in early 2020s
235mph Lucid Air due in 2019 as electric BMW 7 Series rival
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
Kia Unveils Plan for 16 New Electric or Hybrid Vehicles by 2025
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
Faraday Future raises £747 million for 2018 Production
Borgward BXi7 Electric SUV Flies Under The Radar
Detroit Electric promises 3 cars in 3 years
Two new electric cars from Mahindra in India by 2019; Global Tesla rival e-car soon
Saab asset owner NEVS plans electric car production
Flush with new cash, electric-car company Faraday Future hopes for a fresh start
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 Rev Up China EV Production With New $1.9 Billion Factory
Volkswagen Plans $12 Billion Electric-Car Blitz in China
Audi to launch 7 new energy vehicle models in China by 2020
GM plans to launch 10 new energy models in China by 2020
Nissan to invest $9.5 billion in China to boost electric vehicles
Renault-Nissan Alliance To Electrify China’s Trucks And Vans
BMW Group plans joint venture for MINI electric vehicles in China
Ford ramps up electric vehicle push 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
Honda to launch three electric vehicles in China in 2018
Toyota to re-enter EV sector starting in China from 2020
Mazda and Changan Auto join hands on electric vehicles
NIO’s ES8 is China’s answer to the Tesla Model X – at about half the price
Geely invests $5 billion into new electric car factory 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
Leapmotor’s electric car to hit the market in 2018
Alibaba-backed Xpeng emerges as Chinese answer to Tesla
WM Motor Technology to put ‘Weltmeister’ electric car brand on road in 2018
GAC Trumpchi to launch range-extended EVs
Chinese-backed electric car start-up Byton woos CES with model 40% cheaper than a Tesla
Great Wall Starts New EV Brand (ORA) In China
The Singulato iS6 From China Is Aimed At The Tesla Model 3
FAW (Hongqi) to roll out 15 electric models by 2025
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 Auto’s new owner plans to be an EV power
Thunder Power electric cars at the Frankfurt motor show
Here’s Tesla’s competition in autonomous driving…
A Tesla self-driving blind spot that few are focusing on
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 ride-hailing fleet would ditch steering wheel, pedals in 2019
Updated 2017 Mercedes-Benz S-Class – first ride with autonomous technology
Volvo Promises Uber Fleet of Self-Driving Taxis By 2019
NVIDIA and Toyota Collaborate to Accelerate Market Introduction of Autonomous Cars
Volkswagen and NVIDIA to Infuse AI into Future Vehicle Lineup
NVIDIA Partners with Bosch for System Based on Next-Generation DRIVE PX Xavier Platform
Continental & NVIDIA Partner to Enable Production of Artificial Intelligence Self-Driving Cars
Bosch and Daimler join forces to market fully automated, driverless taxis by 2020
Intel’s Mobileye will have 2 million cars (VW, BMW & Nissan) on roads building HD maps in 2018
Volkswagen Group and Aurora Innovation Announce Strategic Collaboration On Self-Driving Cars
Toyota, Intel and others form big data group for autonomous tech
Nissan’s Robo-Taxis Will Hit the Road in March
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
Ford expands fleet of self-driving test cars
Ford Buys Laser System Firm as It Boosts Driverless Car Development
Lyft, Aptiv (formerly Delphi) partner on driverless ride-hailing at 2018 CES in Vegas
Lyft and Waymo Reach Deal to Collaborate on 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
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 unveils autonomous driving platform backed by 90 global partners
Baidu plans to mass produce Level 4 self-driving cars with BAIC by 2021
BlackBerry and Baidu Partnering to Accelerate Connected and Autonomous Vehicle Technology
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
First Look Inside Zoox’s Autonomous Taxi
Apple Is Focusing on Making an Autonomous Car System
Samsung, Harman gear up for self-driving automobiles
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
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
Samsung SDI Unveils Innovative Battery Products at 2018 Detroit Motor Show
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
Panasonic forms battery partnership with Toyota
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
European Battery Alliance (EBA) is taking shape
ABB teams up with Northvolt on Europe’s biggest battery 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’
Hyundai Motor developing solid-state EV batteries
Honda considers developing all 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
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)
Mitsubishi
Saft
EnerSys
SOLARWATT
Sharp
Tesvolt
Kreisel
Leclanche
Lockheed Martin
UniEnergy Technologies
electrIQ
Green Charge Networks
Blue Planet
Clean Energy Storage Inc.
Younicos
Powervault
ViZn Energy
Schmid
24M
And here’s Tesla’s competition in charging networks…
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’s 189 US dealers will offer 350kw fast charging stations for its Mission E sedan
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
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 Europe Gets $82 million in new funding from Daimler
ChargePoint – InstaVolt partnership; more than 200 UK rapid charge systems
UK National Grid plans 350kW EV charge point network
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???
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 exceeds that of Ford and GM despite a $2.5 billion annualized net loss selling a bit over 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 approximately $70 billion fully-diluted enterprise value and—thanks to its roughly $31 billion in debt and purchase obligations—may eventually be worth “zero.”
E
Thanks and regards,
Mark Spiegel
