Excerpted from Whitney Tilson’s latest email to colleagues on Tesla Inc. (NASDAQ:TSLA)
The anecdotal data on Tesla is all over the place – I don’t know what to make of it. One friend writes:
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
Out of my 30+ friends who’s got a Tesla, a majority of them fall into the following categories:
- Tesla had to buy back because of lemon law.
- Customer told Tesla he/she would sue and/or pursue lemon law, so Tesla bought back the car pre-emptively.
- Car died and Tesla won’t fix, so it’s sitting still like a brick.
- Spouse doesn’t dare to drive the car anymore because it tends to break down and require a tow, way too often.
- Owner is insanely unhappy with quality / service / repair and/or the sharply rising insurance bill.
Yes, I have a few friends who are happy with theirs. It’s not 10%, but it’s not 50% either. Perhaps a third. They’re happy — for now. But just wait until it hits them :)
But my experience is exactly the opposite: It’s not 30, but maybe a dozen of my friends have Teslas – and they LOVE them with an undying passion. True evangelists.
My analyst Kevin (a longtime Tesla owner and shareholder) weighs in:
Doesn’t seem to align with any of the data I’ve seen:
I guess we’ll find out more when CR releases this year’s data
Bloomberg’s Model 3 survey: www.bloomberg.com/graphics/2019-tesla-model-3-survey/market-evolution.html
While we’re on the topic, this has something that hasn’t been discussed enough. The amount Tesla influencers, YouTubers, podcasters, etc. (and of course customers) seems to be growing exponentially. How does the rest of the industry compete with this? Why is it that nobody seems to be as excited about anything else going on in the auto industry?
Here is another new guy that I just discovered (who is pretty funny) that discusses this “secret weapon” in his latest video:
This article, by the LA Times’ Russ Mitchell, who’s been pretty critical of Tesla, is bearish on EVs but bullish on Tesla: Car buyers shun electric vehicles not named Tesla. Are carmakers driving off a cliff? Excerpt:
Regulators are demanding zero-emission vehicles. And manufacturers are scrambling to provide them, spending billions on electric-car development.
“The number of battery-electric models available more than doubled last year, but EV sales didn’t budge much. That’s troubling,” said Mark Wakefield, who runs the automotive practice at consulting firm AlixPartners.
A friend comments:
The shortest comment on the article is this: Only one company in the market is willing to voluntarily sell cars at a loss.
A longer explanation is this: What automakers tell me, is that for any car, there are two reasons that they would produce and sell it:
- That it can be sold at a profit that equals or exceeds the risk-adjusted cost of capital.
- That they are forced to by law.
When it comes to electric cars, none is yet possible to sell at a profit, let alone a sufficiently high profit to make sense in a normal capital allocation. So, they make them because The Politburo has sent out the decree: Obey the government planning organ, or else.
This kind of forced supply will now lead to a dramatic oversupply in the market, with over 200 vehicles competing for way too few buyers at anything resembling a profitable market price.
But even before this kicks in now, for calendar year 2020 as a whole, we saw this in 2019:
- According to Insideevs, Tesla sold 192,250 cars in the U.S. in 2019, up only 0.3% from the 191,687 sold in 2018. There are many other auto brands that did better than that, in the U.S. market in 2019. Then add in Tesla’s worsening average selling price, and Tesla may have been one of the brands that lost the most dollar market share in the U.S. in 2018.
- In Europe in 2019, the Audi eTron matched or slightly exceeded the combined Model X and S unit sales volumes. Not bad for a single vehicle in its first year. Add the Jaguar i-Pace, and Tesla completely lost the plot in the luxury BEV market in 2019. I said that would happen going into 2019, and based on the year-end 2019 results, that looks like to have become the outcome indeed.
That’s what happened to Tesla with an ultra-minimal number of relevant competitive models entering the market approximately one year ago. Now extrapolate the impact when we go from a very small number of new competitors, scaling all the way up to 200 or more, over the next 96 months.
It’s almost as if wouldn’t matter whether we’re talking about soaps, pizzas, soccer balls or hammers — that kind of competitive change will almost surely reduce the net margins for the industry participants. Tesla is starting out on this journey with not a single profitable year under its belt, and only a small handful of scattered profitable quarters. And that’s before the onset of the next one-and-a-half decimal points of competition.
Another article: Tesla Model 3 is wreaking havoc in ICE luxury sedan market. Excerpt:
Tesla Model 3 is disrupting the luxury sedan market at an unprecedented rate. A compilation of historical sales data for top ten best selling luxury sedans in the US has revealed the extent of disruption in this segment.
A friend’s comment:
I guess that depends on the definition of “doing well.” The metric by which car company executives are evaluated, does not reside inside the metric of chasing units sold. Rather, the metric by which they are evaluated, is profitability.
Seeing as selling electric cars is a loss-making activity, the formula for success is to sell as few of them as possible, above the minimum that is required by the economically destructive wrecking-ball mandates. If the formula for the electric car mandate requires the company sell 5,000 EV units in so-and-so geography, the trick for the auto executive is to sell 5,000 of them, but not 5,001 or more.
This is no different than your county or state requiring that landlords make a certain number of apartments available at a maximum rental price of $350 or whatever, per month. Let’s say that the formula requires that 10% of the units be made available at $350 per month, and let’s say that a particular landlord has 10,000 units under management. At that point, 1,000 (10%) of the units will be available for $350 per month. Not 1,001 or 1,002 or whatever, units.
Why? Because the product is politically induced to lose money. Why should a sane individual in good conscience, sell any more of them than is legally mandated?
However, be that as it may, let’s play the 2019 unit game for a moment. How did Tesla do compared to the other luxury brands in the U.S. market in 2019?
|US sales||2019||2018||% growth||unit growth|
Lo and behold! Tesla added the fewest number of units sold in 2019. I guess that even if are counting only units, and not even bothering to adjust for average price per unit sold, let alone profitability, Tesla finished dead last.