Tesla may put Ford and others out of business: Sharper Image Founder

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Tesla may put Ford and others out of business: Sharper Image Founder

Richard Thalheimer, founder and former CEO of The Sharper Image, and founder of RichardSolo.com, knows a few things about consumer trends and hot products. He conceived and built The Sharper Image into an international brand with a mail-order catalog, 200 retail stores, and a strong online presence.

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Now having personally owned four Tesla electric cars, he’s uniquely qualified to speak about the future of the industry’s transition to autonomous driving, and electric vehicles.

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When you think about it, computer-driven cars have the potential to be much safer. Imagine going down a freeway at high speed, separated by precise computer control. No wild swerving, no dangerous lane changes, no tailgating, no impaired driving. Just fast, safe, controlled movement.”

Not only is it much safer, but it also reduces traffic jams on the highway, while you relax and enjoy reading or texting.”

Electric cars, with their instant torque and silent motors, are especially suited for this environment. Their lack of tailpipe emissions is a huge plus as we combat global warming.”

While autonomous driving for everyone is a number of years away, the technology is rapidly arriving. Tesla is arguably the best example of what a future car will be.

Combining multiple vehicle cameras, a large touchscreen display, powerful electric drive motors, over-the-air updates to its operating system, and a huge Supercharger network to enable convenient long-distance driving, Tesla has a formidable competitive advantage.

So why do experts like Bob Lutz, former head of Ford and Chrysler, and Vice-Chairman of GM, predict Tesla is an “automobile company that is headed for the graveyard,” source

Thalheimer thinks he’s missed the point, and that what Elon Musk and Tesla are doing is extraordinary. “Perhaps at this point in his career, Bob Lutz wants to create headlines and see his name in the spotlight, regardless of the accuracy of his statements.”

“I remember when Sharper Image started selling the first Apple iPod. It was a revolutionary product that changed the industry, and ended the reign of Sony Walkman, though many observers and industry veterans didn’t see it coming.”
“Bob Lutz is missing this transition in the same way,” says Thalheimer. “It is a revolution, and traditional car makers are not going to catch up, just as Apple was so far ahead of the competition with iPod, that other mp3 music player manufacturers never caught up.”

Bob Lutz is also highly critical of Musk personally, saying “he (Elon Musk)  is a nice guy who doesn’t know how to run a car company,” source

Really? Thalheimer points out, “Musk started from scratch, and 14 years later his cars are outselling BMW, Mercedes, Audi and Jaguar in their respective niches. Tesla cars are consistently the highest rated for safety and customer loyalty.”

And in their most recent quarter, Tesla reported a substantial profit and dramatically increased revenue, surprising analysts and critics.

What’s more, the new affordable Tesla Model 3 sedan is a huge market success, and comes at a time when Ford has announced it is discontinuing all sedan production except the Mustang sports car and a compact Focus crossover, as consumer tastes shift to SUVs and trucks, and away from sedans. “That makes the Model 3 sedan success all the more remarkable.”

Thalheimer goes so far as to predict manufacturers like Ford is in danger of losing their following, as they are not competitive in the new electric and high technology vehicle marketplace. Ford’s stock price reflects this, hitting an eight-year low recently.

“Will Ford even be a viable car manufacturer in five years? Only their truck business might keep them going.”

GM has admitted as much, announcing it is closing 5 US car factories, as it transitions to electric cars:

“General Motors’ restructuring has sent shock waves throughout the auto industry, the political world and, most of all, in the communities of the five plants the company will shut down. Some observers see the move as driven by technology that’s forcing old-school automakers to become more like what Tesla has been doing all along.” source

Another pointed article criticizes traditional car makers in a MarketWatch Opinion piece Nov 27:

“The problem for traditional automakers is that they are too deeply wedded to an old technology headed for obsolescence — along with the way they’ve been doing business for decades.

Those who still believe in traditional automakers point their manufacturing expertise and well-established supply chains, sales and marketing partnerships, and distribution networks as a structural advantage. BMW, for instance, has 30 manufacturing sites for internal combustion engine-based vehicles in 14 countries. They are good at making cars.

But an electric vehicle is a different proposition, with a different manufacturing process, different parts, a different sales and education approach and different supporting infrastructure. The problem for the likes of GM and BMW is that the kind of quick transition that’s required for survival in an electric world would lay large parts of their existing businesses to waste.”  Marketwatch

Tesla meanwhile, continues on a roll. Coming up next for Tesla is their new affordable Model Y small SUV, and also a Semi Truck big hauler. Their production problems appear to be behind them, and cash flow has turned positive.

It’s an exciting time for Tesla as it travels fast, and silently, on autopilot down the curvy highway, gaining more ground on some of the worlds best car manufacturers. And, it’s looking like Bob Lutz missed the turn.

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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)www.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
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7 COMMENTS

  1. The only reason this stinking pile has yet to go full WorldCom is the CEO is a serial stock manipulator not yet brought to the bar of justice for his many, many sins.

    “A lot of the stuff being [spewed forth] about Tesla [by Tesla apologists] these days just reeks of desperation more than sound analysis.”

    Indeed.

  2. Thank you very much for that link to Technica, it was an interesting read and engaging enough that I did a deeper dive into some of TSLA’s cash flow statements as reported to the SEC.

    What I found in Q3 2018, an elephant in the room, was the change in “Accounts payable and accrued liabilities” increased over 850% from $170mil to $1.628b . In simple terms TSLA stopped/delayed paying their bills. That alone made the cash flow positive but it’s certainly not sustainable. So we’ll see next quarter.

    Then there is error in that article, they initially appear to be confusing “Net cash provided by operating activities” with “Free cash flow”. Technica states “generating free cash flow of $881 million”, well that is more then the SCE filing of Net cash of $863mil there is a problem :)

    There are a few ways to calculate FCF but none equal Net. So TSLA had a better qtr but sill increased debt and issued more stock.

    In the end I would not trust Technica numbers, they don’t explain their FCF and have no link for the chart data. Just look at the 2017 3rd with a massive $1.4b(est from the chart), I’ve looked at the SEC reported 2017 3rd and can’t find anything close. I go to the source, SEC.

    In the end the narrative sounds nice but the books look ugly to me. I’ve worked hard for my money so I take a more conservative(Graham/Buffet) approach it my investing. I wish TSLA best of luck but I’ll stay on the sidelines for the time being:)

  3. Hi. Sorry for the slow reply. Here is an article from October — https://arstechnica.com/cars/2018/10/how-tesla-proved-cash-flow-critics-wrong/ –, reporting on the Q3 results; it has a chart showing the historic cash flow for TSLA. It’s not the same as profit but it’s the closest I could find quickly for this reply, and it does a good job of showing the pattern.

    Another article here — https://www.cnet.com/roadshow/news/tesla-q3-2018-financial-report-profit/ — explicitly states that this is the third quarter in the black (see third paragraph).

    The US subsidy isn’t actually ending yet; it’s reducing to 50%, so it will still be there for a while yet albeit reduced. But in any case, I don’t think it is going to have much impact on them in the short term because they’re shifting the sales focus to the EU basically as soon as the current quarter ends; they opened ordering for EU customers this week, and are estimating delivery in February for orders made now. Allowing time for shipping over the Atlantic, that means they will start building EU-spec cars in early Jan. They’ve got a similar backlog in Europe to the one they had in the US, so I would allow two or three quarters of selling everything they can build.

    Beyond that, they’ll start having to rely on residual demand rather than back-orders. I’m fairly optimistic for them on that, but you’ll find plenty of people who will tell you that there’s no demand at all. Again, anyone looking to invest should make their own judgement on this, but be careful who you listen to; there’s a lot of disinformation around TSLA (on both sides).

  4. I’ve not kept a laser focus on TSLA could you please point to those other two quarter profits? I don’t question your statement but I’d like to peruse those 10-k,10q to see where that extra income came from. I am very interested reading TSLA 2018 4th and 2019 1st to see how the ending of the welfare checks to buy EVs results in sales changes. Thanks

  5. Totally agree with you that it’s for everyone to make their own judgement and place their own bets.

    I want to correct you on one thing you said though: As of now, they’ve actually had three quarters of profit, not one since 2010 as you said. Those three quarters were immediately after the ramp-up of each of their three models. It’s a pretty solid bet that the current quarter will break the pattern and will also be profitable. I leave it to your judgement to discern what it will be like for future quarters beyond that though.

  6. I have no Dog in this Race. TSLA makes so great EVs but 1 Qtr profit since the company went public in 2010 does not make a great company and their books still are awful. And the $7500 EV welfare checks end this month so it could be the model 3 sales were simply front loaded to get the welfare check. EVs may well be the Future but the first movers are not always the winner, e.g. who invented the mini MP3 player?, who invented the first home video recorder? How many Auto and motorcycle manufactures survived the Great Depression? Heck just look at how many companies are no more https://en.wikipedia.org/wiki/List_of_defunct_automobile_manufacturers_of_the_United_States

    TSLA is a very speculative stock at best. But the great thing about a relatively free country is we can place our own bets.

  7. The problem for the Tesla critics is that they’ve made so much noise about their theories over the years and been proved wrong so many times that it’s starting to sound a bit false. A lot of the stuff being dug up about Tesla these days just reeks of desperation more than sound analysis.

    It is of course possible that the critics may find some valid problem that really will spell doom for the company, but at this point, even if they do, nobody’s really going to take them seriously; they’ve cried wolf too many times.

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