Whitney Tilson’s email to investors discussing Tesla Inc (NASDAQ:TSLA) losing its Co-Founder JB Straubel, and a piece of its soul; comments on VIC message board.
1) A beautiful and well-deserved tribute to JB Straubel, Tesla Loses a Founder, and a Piece of Its Soul, by Ashlee Vance, the author of the excellent book: Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. Excerpt:
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There’s a photo of JB Straubel from 2004 that has become part of Tesla lore. It was taken back when the company was more of a hopeful concept than an actual carmaker. He’s in the backyard of his house, hand-gluing lithium ion batteries to a case as part of the arts and crafts project that was Tesla’s first vehicle. Straubel, the company’s longtime chief technology officer, looks the part of the youthful, eager, problem-solving engineer who has no idea of the hell that’s coming for him, and that’s exactly what he was. Of course, that version of Straubel also could never have imagined the heights he would achieve.
On Wednesday, as Tesla announced that it had delivered 95,356 cars in its most recent quarter and another net loss, it also revealed that JB Straubel will cede his CTO position and step away from the daily grind to become an adviser to the company. For longtime Tesla watchers, it’s an astonishing change. Straubel, 43, represents, alongside Elon Musk, the soul of the automaker—a true believer in electric cars and how they could reshape the world. He has been the quiet, grounded complement to Musk’s drama-filled, visionary persona.
“It’s been an amazing time, and I really, really love the mission and this personal connection and ownership with the whole company,” JB Straubel said in a phone interview. “Tesla has evolved. What we need now is a focus on sales, delivery and manufacturing. I have been helping with that in recent years, but it’s not what I am best at. There are people in the world who are better at this stuff and enjoy it more.”
My take: I take back part of what I said yesterday about JB Straubel's departure. I don’t think he’s leaving because he thinks Tesla is a sinking ship (though it likely is) or he can’t deal with Musk anymore. He’s just burned out.
But I stand behind my belief that “this is a huge blow,” that "JB Straubel was (and, I would bet my last dollar, still is) critical to: a) Tesla's remarkable engineering achievements, and b) holding together an incredibly chaotic organization,” and that “If Tesla does end up encountering financial distress that crushes the stock over the next couple of years (a 50% probability, I'd guess), we will no doubt look back on Straubel's departure as a major milestone on that path...”
2) An interesting discussion of the stock on the ValueInvestorsClub message board (read from the bottom up):
358 - puppyeh
Re: Re: Re: Re: Questions
A $35k model 3 has been available for 3+ months now, and next to no one is buying them (ignoring the fact that tsla loses gross margin selling them). What is going to change that over time?
357 - HTC2012
Re: Re: Re: Questions
Didn't they just have record Model 3 units sold this quarter at the lower price point? Agree it's not exponential. But again a bull would argue that the only reason they didn't do more volumes is because they are still figuring out production and logistics which they are horrific at clearly.
356 - puppyeh
355 - HTC2012
Re: Re: Re: Questions
In theory it would be price. Tesla owns less than 1% of the global auto market. I think that for a typical EV, the battery is the majority of the cost of the car. So the theory would be that as they sell more cars they can drive the cost of the battery down significantly and bring the cost of the car down a lot. This would in turn drive more demand and they would become much more attractive to average buyers of cars. At the same time if they do have a lead in battery technology that would help the case.
Again, just playing devils advocate.
354 - Condor
Re: Re: Questions
On that last point, even if one believed that they could sell enough cars, why is there an assumption that whatever that scaled level is will ultimately be repeatable annually?
If I think about other higher-end consumer products, like a smartphone, the ability for AAPL to keep selling the same or greater units annually in years past was due to meaningful leaps in the technology / features that catalyzed upgrades from people who had just bought phones the year prior. Today, AAPL's problem is that everyone has a smartphone, everyone has (for the most part) chosen their "team" (android vs. iOS), and the innovation / feature improvements have slowed dramatically. What's left is - like any other mature product market - a replacement market, where growth comes from population growth and pricing inflation with maybe another few points from small, incremental improvements in the product.
353 - hkup881
Katana handled all but 2 and 4.
2-they're cutting cap-ex b/c they are broke and Musk doesn't want to raise more equity b/c he'll lose control of the float and not be able to manipulate it with Tweet emojis. It's short-sited but Musk doesn't want a margin call. They've absolutely starved maintenance/support/sales/etc. It's a brand killer. I also have no idea how they build a china factory ($600m supposed cost) + continue building maintenance facilities + operate a facility at peak production + whatever they're burning money on for Model Y (so Musk to brag about S3XY) + a bunch of other stupid things they keep wasting money on to support the stock promotion side of the business (core biz) and do this all at 43% of depreciation spend. It likely is not possible and they are hiding this spending somewhere else (goodwill maybe?)
352 - katana
Addressing a few of these:
1. It doesn't matter to long-term margins whether EVs are cheaper to make than gas vehicles, because everyone is going to be making EVs and will compete away any such cost savings and drive margins back to the normal levels. Or even lower than that for several years, in order to grab EV market share and to meet their regulatory requirements for overall fuel efficiency. Your question is akin to asking whether memory chip makers' margins are about to jump because the cost per bit will fall on the next generation of technology, or wireless carriers' margins are about to jump because 5G's cost per Mb delivered is lower than 4G's.
351 - HTC2012
1. Given this is an OEM that is 100% electric and isn't saddled by all the legacy issues of existing ICE OEMs with a car that only has 8 moving parts (vs. hundreds for ICE cars), could the cost structure be drastically different from that of legacy OEMs? Could automotive gross margins be 25-30% or higher in the long-run given its a very different company from everything it's being comped to?
350 - hkup881
I really am going to miss this fraud...
I have to admit, I wait all quarter for the TSLA earnings call. Musk and his (rapidly depleting) team never disappoint. A few friends and I spent the first half trying to guess which drug cocktail they were on. After they rambled about how hard it is to produce cars, how exponential it is going anyway, Musk gave some rambling anecodes about how fixing cars is like going to the grocery store for cocoa puffs, we learned that JB was quitting the sh*tshow, Zach and Musk contradicted each other on regulatory credits, etc.
I'd love to have seen some analysts ask real questions, but Musk was too high to make sentence fragments and Zach was a bit timid. Besides, JB had left the building by then so there was no adult supervision anyway.