Tesla Analysis: Raising Equity And Capital

Whitney Tilson’s email to investors sharing his friend’s analysis of Tesla Inc (NASDAQ:TSLA).

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A Friend's Analysis Of Tesla:

It’s entirely possible that the cost reductions of the Model Y make it similar to the Model 3, compensating for the additional content such as more metal, including bigger components all-around in order to handle the additional weight. Just consider the thickness of the Model Y rear doors, that make its rear seat narrower than the Model 3, for example.

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Put three average-size guys in the rear seat of the 3 vs the Y in an immediate back-to-back comparison and you’ll see. Strange, huh?

Anyway, you have to look at the Y and the 3 on a combined basis, and what it’s doing to Tesla sales. The way to do that, in turn, is to break it down into the three major geographies:

Model 3/Y

Europe N Am Asia TOTAL

2019 Q2

18170

49797

9877

77844

2019 Q3

26617

43408

9816

79841

2019 Q4

32472

46775

13202

92449

2020 Q1

21286

22500

20090

63876

2020 Q2

12251

30600

35270

78121

 

As you can see in the table above, sales have been about flat for a year now. Maybe that’s okay if you’re Kroger or Macy’s, but if you claim to be a growth company, then this is an abysmal failure. There’s just no growth at all for Tesla over the last year.

And the only reason Tesla has managed to keep the story even “flat” is because of Asia, which is mostly China. Tesla derives zero economic value from its China factory, because of the way that the Chinese banks have first dibs on all the output from that factory, and will milk it totally dry before Tesla gets to see a single penny of even an accounting profit, let alone any cash flow, from that factory.  

Without China, just look at how much sales in Europe and North America have fallen. It’s a disaster.  

Model Y vs Model 3: Better Per-Unit Economics

So yes, the Model Y will, at least for now, have better per-unit economics than the Model 3. However, if Tesla sold five Model 3 cars in any given moment in 2019, and now it sells one Model Y unit and two Model 3 units instead of those five Model 3 units, it’s still down, no matter what. That’s why Tesla’s revenue has gone nowhere in a year, despite one new factory and the advent of its "most attractive" new nameplate (the Y): 

  1. In Europe, Tesla is plainly being crushed by competition in almost all countries. Just look at each country’s sales charts, from month to month. It’s devastating.
  2. In North America, demand is tepid (economy etc), and the Model Y is only cannibalizing the Model 3, leading to huge net declines in unit sales. It’s devastating.
  3. In Asia, things are still good, with rising sales. But Tesla doesn’t get any economic value from its China factory. So it’s all for naught. 

Tesla analysis:

TSLA had better raise as much equity as it can, ASAP. I fully expect that we will wake up on July 23 and see Tesla having filed both its 10-Q and a capital raise -- as much equity as conceivable. That would be the smart thing to do, I think -- and that’s what I expect will happen.