We remain short shares of (and long put options in) 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.
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3) Elon Musk is extremely untrustworthy.
In Tesla’s long history of insane events, August had to be the most insane month ever, thanks to a completely fictional series of tweets Musk posted about a supposed $420/share bid to take the company private, thereby triggering an onslaught of lawsuits (and a billion-dollar plus liability), an SEC investigation (on top of an existing SEC investigation which may be preventing the company from raising desperately needed capital), and a tearful interview with the NY Times in which a guy living on a $72 million estate and commuting to work in a G650ER confessed to extensive drug use, admitted his “go private tweets” were a fabrication, and—being the pathological liar that he is—couldn’t even avoid lying in this “confessional interview” when he said that after attending his brother’s June wedding in Spain he immediately flew back to Tesla’s factory when in fact he spent several more days partying in Spain before flying to Ireland to visit the set of “Game of Thrones”, a fictional series comprised of devious, murderous characters who collectively have “a magnitude” (to use a favorite Musk expression) more integrity than the CEO of Tesla.
(As an aside, for those of you who still fantasize about a Tesla go-private deal at the roughly $80 billion fully-diluted enterprise value that Musk’s fictional Tweet implied, keep in mind that this fall nicely profitable Volvo—with a great brand selling 2x as many cars as Tesla and multiple upcoming electric models-- plans to IPO later this year at a valuation of $30 billion.)
Concurrent with the Musk “fake go-private craziness,” Tesla safety and financial whistleblower Martin Tripp posted on Twitter a substantial amount of damning photographic evidence before deleting his account the next day at the behest of his lawyer, and then the next day a new whistleblower emerged, accusing Tesla of illegally wiretapping its employees and failing to report the theft of $37 million of raw materials (as well as—presumably non-deliberately—employing a substantial drug trafficker).
Early in August Tesla released a horrendous Q2 financial report, showing a GAAP loss of $717 million and free cash flow of negative $812 million, forcing a major slash in projected 2018 capex for this manufacturing-intensive alleged “hyper-growth company.” (And recall that in July a memo leaked to the Wall Street Journal revealed that Tesla is so hard-up for money that it’s begging its suppliers for retroactive rebates, calling the needed cash “essential to its continued operation.”) On the Q2 conference call following the earnings release there were multiple anomalies and inconsistencies; Seeking Alpha published an excellent summary of several of them, and here’s a good summary of the 10-Q. And regarding those 5000 Model 3s Musk bragged about producing during the last week of the quarter, have a look at this. Meanwhile (courtesy of Twitter user @temp_worker) the most “exponential growth” at Tesla may be the number of mechanic’s liens filed against it:
Also in the Q2 earnings release was Tesla’s claim that that it will be GAAP profitable in Q3 & Q4 barring (and Musk said this on the call three times, as if he was trying to tell us something) a “force majeure.” However, I’ve run numbers every which way I can and the best I can come up with for Q3 is a GAAP loss of somewhere between $100 million and $300 million depending on the market for ZEV credits, and—as Models S&X demand continues to erode (see below) and a flood of competing EVs erodes the ZEV credit market—Q3 will be the best future quarter Tesla ever sees. Here’s a similar conclusion from one of the best Tesla analysts on Seeking Alpha.
Perhaps the most important ongoing Tesla story is the seeming evaporation of North American Model 3 backlog, at least for the versions currently being sold with a starting price of $50,000. Tesla has now abandoned its “reservation list” and thrown open orders to all comers while (as evidenced in on-line forums) reducing the delivery time to as little as one to two weeks, and fresh credit card data from research firm Second Measure indeed shows Model 3 demand to be a disaster, and here’s a great new overview from Seeking Alpha indicating the same. In fact, in July two giant lots in California were discovered holding thousands of Model 3s baking in the sun, some of which were covered with dust and seemingly unmoved for weeks. And this excess inventory is piling up despite the fact that-- according to a new leak given to Tesla fanboy blog Electrek-- Tesla is suffering through a Q3 Model 3 production miss.
Keep in mind too that after December 31st the Model 3’s (and all Teslas’) $7500 tax credits will be cut to $3750 for six months, then $1875 for six months, and then goes away completely. As this realization sinks into the minds of those awaiting the mythical $35,000 base-priced Model 3 (a car delayed multiple times already and now unavailable at least until the second half of 2019, if ever), look for an onslaught of additional reservation cancellations, as hinted in this fine article from the L.A. Times.
Meanwhile, the Model 3 continues to reveal itself to be a complete lemon; the latest survey from True Delta ranks it dead last among all available vehicles! In fact, even Musk finally admits the cars have a quality problem—good luck making money running a car company like this:
And keep in mind that 2018 is showing a year-to-date decline in Model S&X sales vs. 2017, even before the widespread availability this September of the new Jaguar I-Pace electric SUV which received fabulous reviews (and handily beats Tesla in comparison tests) and is $13,000 cheaper than the Model X and $7000 less than the Model S, gaps that will widen substantially as Tesla’s tax credits phase out. In fact I drove the Jaguar yesterday and I can assure you that no one who drives it will say it isn’t much nicer than any Tesla:
And the Models S&X sales decline is also occurring before the near-term introduction of an onslaught of other luxury EVs in addition to the Jag—the Audi e-tron to be formally unveiled in September and available in Europe this winter and the U.S. next spring, the Mercedes EQC, also to be unveiled in September and available next spring, and the Porsche Taycan (previously called the Mission E), available late 2019. And all those cars (except the Porsche) will be priced significantly less expensively than the comparable Tesla even before their U.S. buyers enjoy the $7500 tax credit that will soon expire for Tesla, while the Porsche’s base price will be similar to that of the base Tesla Model S. Hmmm, Tesla or Porsche… tough choice!
Meanwhile Tesla continues to downsize its SolarCity division while a securities fraud case accusing Musk of using Tesla to bail out his (and his family’s) interests there proceeds; Zero Hedge included an excellent summary of the suit by Twitter user @TeslaCharts in this story about SolarCity’s latest retrenchment, which will undoubtedly help fuel that fraud case, as will this later story describing how Tesla sales people have no idea when the solar tiles or PowerWalls used to justify that merger will ever be available. (Remember that when Musk was promoting that merger he used fake solar tiles on a fake house at a movie studio… How appropriate!)
And hey, remember when Musk called the heroic Thai cave diver a “pedo” after the guy said Musk’s stupid “mini-sub” was useless? You probably thought that incident was over (and so did I!), but with Musk the fun never ends—he revived the feud a few days ago on Twitter:
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 GM despite a $2.8 billion+ annualized net loss selling approximately 200,000 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 over $60 billion fully-diluted enterprise value and—thanks to its roughly $31 billion in debt and purchase obligations—may eventually be worth “zero.”
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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. -
Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver