Economics

There is some laughably bad “analysis” of Tesla out there

Whitney Tilson’s email to investors discussing America’s most profitable automotive factory right now — in Toledo; Tesla Inc (NASDAQ:TSLA) fell in customer satisfaction from 4th in 2018 to 51st in Norway; Tesla sales leap over 400% in Germany; Why Wall Street’s most controversial stock popped 9%.

Most Profitable Automotive Factory
Scozzy / Pixabay

From a friend, responding to Chris Brown’s letter (who’s from Toledo):

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Q1 hedge fund letters, conference, scoops etc

Toledo, Ohio, indeed:  It is the home of what may be America's most profitable automotive factory right now: FCA / Jeep Wrangler and Gladiator.  Actually, the Toledo factory is really two factories -- essentially two identical factories built back-to-back.  One makes the Jeep Wrangler, and one just started making the Jeep Gladiator.  Each side is sized for the industry-standard 200,000 units per year, before overtime.  In theory, the two back-to-back factories could spit out 500,000 per year with overtime.  For 2018 and 2019, they will operate at well under 400,000 because of one of them just started making the Gladiator after spending a year "down" for its total reconfiguration, and the other factory half will be down right now for the reason described at the bottom, below.

For 2020, if there is sufficient demand, production could swing up North of 400,000 and perhaps come closer to 500,000.

Here's what the latest creation looks like -- The Gladiator:

https://www.motor1.com/photo/3923022/2020-jeep-gladiator-rendered-with-bed-topper/

Video from the Wrangler factory, covering all stages of production as it existed as of December 2018:

Can you imagine if this plant simply had the "Tesla" logo on its rooftop?  It would be worth $150 billion!  Perhaps $500 billion...

The factory is down for a few weeks right now, this quarter.  Why?  Because they are reconfiguring the assembly line slightly in order to prepare for the plug-in hybrid (PHEV) production.  This will start mid-year 2019 with a few hundred units that will be tested to death until January 2020, after which point they will start regular production for consumers.  Then those first few hundred units will eventually be disassembled -- never sold consumers.  That's standard industry practice -- other than that one particular company...


1) From a friend (in the leading EV country in the world, where 58% of car sales last month were pure EVs):

I'm in Norway this week and attached is today's front page for Dagens Naeringsliv (One of Norway's top daily financial newspapers).

Headline: Tesla fell in customer satisfaction from 4th in 2018 to 51st

Some of the listed reasons:

  • Long delay in repair and service turnaround
  • Insufficient service infrastructure
  • Lack of certified/available mechanics
  • Recent rebate fiasco - caused cancelation of many orders

2) There is some laughably bad “analysis” of Tesla out there. Here’s one example from Teslarati: Tesla sales leap over 400% in Germany as Model 3’s European push continues.

Uh, sales were up 400% year over year because Model 3s weren’t available in Germany a year ago! From March to April, they collapsed by 75%!

3) And get a load of this nonsense!

Why Tesla's stock just jumped 9%...

Tesla (TSLA) is probably the most controversial stock on the market. I haven’t seen such a polarizing company in a long time… Probably since the dot-com days, 20 years ago.

Within my own publishing network, we have analysts who are split on Tesla. Some think the stock is doomed… And I think it’s going much higher. It’s also worth mentioning that I’m the only technologist in the group.

The topic of Tesla has even reached the Ivy League halls. I was on campus at Yale last week, for my continuing graduate studies, and many kept asking me about Tesla.

Specifically, they wanted to know why the stock jumped 9% in just two days.

My answer was simple: Tesla announced a $2.7 billion capital raise. According to Reuters, this is a record-setting raise.

The savvy executives pressed me on this. Typically, capital raises dilute existing shares and send the stock falling. That’s because, when companies issue new shares of stock, the existing shares become less valuable. Why was Tesla different?

The reasons are simple. Tesla didn’t need to raise any capital. It has $2 billion in cash, and it will generate free cash flow this year. It’s not hurting for money, but having some more, if there is demand, certainly won’t hurt.

What’s more, this was a mixed debt and equity offering. And the equity offering only makes up 41% of the total raise. That means the dilution will be less than expected.

Better yet, when we look at the bonds Tesla will issue, the interest rate will be between 1.5% and 2% annually. For comparison, the 10-year Treasury rate is around 2.5%.

Simply put, there’s no way Tesla could borrow money beneath the 10-year Treasury rate if investors did not see the company as a safe bet. If Tesla can raise debt on those terms, it would be foolish not to take the money right now.

Tesla originally planned to raise $2.3 billion but bumped it up to $2.7 billion because of overwhelming demand from investors. This was mostly unexpected, due to all of the irrational, negative press the company has been receiving. That would never have been possible if investors thought Tesla was in trouble.

The bottom line is this: Tesla is raising capital on favorable terms because of the company’s strength and expected growth. And shareholders will reap the benefits of this as Tesla continues to execute towards its vision.

Regards,

Jeff Brown

Editor, The Bleeding Edge

@JBTechResearch