The latest from Stanphyl Capital on Tesla Inc. (NASDAQ:TSLA) short case – also make sure to check out Oceansquare thesis on the company – see below for an excerpt from their April letter – more can be found on ValueWalkPremium – see below for the excerpt on Tesla
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.
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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.
The month of April got off to a terrific start for Tesla, beginning with a “hilarious” (if you’re short) April Fool’s “joke”…
…and continuing the very next day with even more hilarity when (in addition to his multiple jobs at multiple other companies) Musk appointed himself Model 3 production head…
And remember that when Tesla’s worldwide head of sales & service quit a few months ago, Musk appointed himself to that job too! Next I expect him to impress Gisele by joining the New England Patriots and replacing both Brady and Gronkowski!
Next in April the Wall Street Journal ran a story with a great chart showing what has happened recently to the price of cobalt (approximately 50 pounds of which is in a Tesla battery)…
…thereby helping to ensure that Model 3 gross margin will remain negative while Model S/X gross margin—if Tesla accounted for it properly—would remain in the low single digits.
Next in April Tesla released disastrous Q1 automobile sales & delivery results, with Model S&X combined deliveries down a double-digit percentage both sequentially and year-over-year, and Model 3 production falling far short of (already drastically reduced) previous guidance. And keep in mind that this decline in S&X sales is occurring even before Tesla’s first real luxury EV competition rolls into showrooms this summer in the form of the Jaguar I-Pace, followed this winter by the Audi E-Tron Quattro and then next year by the Mercedes EQC and Porsche Mission E. And all those cars (except perhaps the Porsche) will be priced significantly less expensively than the comparable Tesla even before their U.S. buyers enjoy a $7500 tax credit that expires for Tesla later this year. For a great summary of just how bad Q1 deliveries were for Tesla, read this terrific article from Seeking Alpha.
Next in April, the NTSB booted Tesla off the panel investigating last month’s horrific fatal Autopilot crash (at least the third fatal Autopilot crash to have occurred), while Tesla hilariously tried to get ahead of the story by lying and saying it voluntarily quit. Upon receiving notice of its dismissal by the NTSB, Tesla then released a statement consisting of the following pure comedy gold:
Meanwhile, as the number of Autopilot-related crashes accumulates, it seems increasingly clear that this reckless system should be banned from public roads and deactivated, with appropriate refunds given to any purchaser who wants one.
Next in April, Musk admitted that Tesla’s “automate everything” approach to manufacturing (“the machine that builds the machine”) was wrong, and that the company will now scrap tens (or perhaps hundreds or billions) of dollars in robots and other mechanical devices previously used to justify claims of “a manufacturing edge” over the rest of the industry. Why? Because as someone with a lifetime of auto factory expertise wrote in Forbes: “Tesla is the worst car manufacturer in the developed world. Bar none.” Translation: yet another leg of the Tesla hype story has been chopped off and tossed into the fireplace. What’s particularly hilarious about this is that Tesla’s “solution” to the problem is to hire still more people, yet prior to this announcement Bloomberg published a great piece pointing out how incredibly inefficient Tesla’s factory is using the massive number of people it already has!
Next in April it was learned that due to its own inadequate testing (i.e., Musk rushing to pump the stock price), Tesla is stuck with a massive number of flawed Model 3 parts requiring re-machining. That same day, a bombshell securities fraud lawsuit appeared containing extensive documentation from former Tesla employees about how Elon Musk continually lied to shareholders about the progress of Model 3 production. And then just a day later, a story broke that Tesla under-counted worker injuries to make its safety record appear better. And keep in mind that in March the company’s Chief Accounting Officer and Treasurer/V.P. of Finance both quit on no notice. Now why would that happen? Could Tesla be the world’s largest fraudulent penny-stock?
Next in April, word leaked of a surprise multi-day shutdown of the FUBAR (if you don’t know that acronym, look it up!) Model 3 assembly line, along with a major OSHA safety inspection. Coincidence? I think not! Nevertheless, Tesla quickly claimed this shutdown was “planned” despite a long factory tour it gave to the CBS Morning Show just three days earlier in which it was never mentioned and the release of an 8-K just 13 days earlier which claimed everything at the factory was going great and production would “climb rapidly through Q2.” In other words, nothing Tesla says can be accepted at face value.
Following word of the factory shutdown, one of the most insane CEO memos in modern history (written by Subsidy Fraud-Boy—sorry, I mean “Elon Musk”—himself) was “leaked” (deliberately, no doubt, in yet another desperate attempt to pump TSLA stock). It threatens Tesla’s suppliers (perhaps creating an excuse for the cash-strapped company to not pay them), urges employees to walk out of meetings or hang up on calls (even ones arranged by their bosses!) if they don’t feel they’re productive, and vows to start running the Model 3 assembly line 24/7. (And here’s a great summary of the negative implications of THAT.)
Speaking of the Model 3, keep in mind that Bernstein Research estimates that fewer than 30% of current Tesla owners decided to exercise their Model 3 reservations, and based on anecdotal evidence from on-line Tesla forums it appears that the reservation uptake among non-Tesla owners may be as low as 15%. (And watch those reservations really vanish when Tesla’s $7500 tax credits expire later this year while over 100 competing new EV models entering the market over the next few years will still enjoy them.) In February Tesla quietly announced that the “$35,000 Model 3” (which I’ve been saying since 2014 would never be offered in quantity because Tesla would lose at least $10,000 on each one) will be delayed for at least a year, and I believe even then it will only be produced in token amounts (if at all), yet meaningful demand for this car clearly exists only at that lower price point. Meanwhile, extensive forum posts indicate that despite initially favorable reviews based on the short-term driving experience, over time the Model 3 is revealing itself to be a complete and total lemon. And finally regarding the Model 3, here’s my monthly reminder that 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.
Next in April, Tesla lost yet another head of autopilot, a renowned guy in tech circles who was supposedly designing some kind of brilliant, proprietary chip. And recall that the Autopilot head before him quit reportedly because Musk was a dick (okay, I’m paraphrasing) and the one before him quit reportedly because Musk was lying to the public about Autopilot’s safety. In fact, Jim Chanos recently said on CNBC that the only two companies in which he’s seen Tesla’s level of executive departures were Valiant and Enron– now there’s some exclusive company! Here (courtesy of Chanos) are the departures just since May 2016:
Tesla’s Q4 “earnings” report showed (using the total net loss ex ZEV credits) that it lost over $28,000 on each car it sold, and I expect the Q1 2018 numbers (to be released in early May) will be worse. At some point Tesla’s $31.4 billion in combined long-term debt and battery purchase obligations—accompanied by its negative cash flow and massive encroaching competition—will drive it into bankruptcy. In fact, Tesla’s interest expense is now at a run-rate of nearly $600 million a year, which in Q4 amounted to $4884 per car sold—fully one-third of Tesla’s gross profit went towards servicing its debt!
Finally in April, Bloomberg—normally one of the most Musk-loving outlets in financial journalism (perhaps because owner Mike Bloomberg is a keen user of his private air fleet to “fight global warming”)—published a terrific “Cliff’s Notes” version of what a financial disaster Tesla is; the story, “Tesla Doesn’t Burn Fuel, It Burns Cash” is well worth reading.
Meanwhile, Tesla is increasingly besieged by a wide variety of lawsuits, for labor discrimination, worker safety, union-busting, autopilot fraud, sudden acceleration, lemon law violations, investor fraud and, undoubtedly, many others of which I’m not yet aware.
And yet with all that, I don’t expect Tesla’s path to $0.00 will be straight down; as Twitter user @TeslaCharts points out, it never is:
So here is Tesla’s competition in cars (note: these links are continually updated)…
Audi e-tron Sportback in 2019 to be its second EV
Chevrolet Bolt Offers 238 Miles On A Single Charge For $37,495
2018 Nissan Leaf: 150 miles for $30,875, 200+ mile model by late 2018
Detroit Electric promises 3 cars in 3 years
And in China…
Mazda and Changan Auto join hands on electric vehicles
Here’s Tesla’s competition in autonomous driving…
An Overview of Audi Piloted Driving
Volkswagen and NVIDIA to Infuse AI into Future Vehicle Lineup
Volkswagen Group and Aurora Innovation Announce Strategic Collaboration On Self-Driving Cars
Hyundai, Aurora to release autonomous cars by 2021
Lucid Chooses Mobileye as Partner for Autonomous Vehicle Technology
Here’s Tesla’s competition in car batteries…
China to build many gigafactories’ worth of electric-car battery plants
Here’s Tesla’s competition in storage batteries…
Clean Energy Storage Inc.
And here’s Tesla’s competition in charging networks…
Enel kicks off the E-VIA FLEX-E project for the installation of European ultra-fast charging stations
Fastned building 150kw-350kw chargers in Europe
ABB powers e-mobility with launch of first 150-350 kW high power charger
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, June 2009: “Tesla will cross over into profitability next month”
How Tesla and Elon Musk Exaggerated Safety Claims About Autopilot and Cars
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 is nearly as large as GM’s 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 $60 billion fully-diluted enterprise value and—thanks to its roughly $31 billion in debt and purchase obligations—may eventually be worth “zero.”