A Look At Tesla’s Relatively Tiny Numerical Sequential Sales Growth

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A Look At Tesla’s Relatively Tiny Numerical Sequential Sales Growth
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Stanphyl Capital’s commentary for the month ended September 30, 2021, discussing their short position in Tesla Inc (NASDAQ:TSLA).

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Q2 2021 hedge fund letters, conferences and more

We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA), which currently has a diluted market cap of $868 billion, roughly equal to the $870 billion (non-diluted) combined market caps of Toyota ($253 billion), VW ($141 billion), Daimler ($96 billion), GM ($76 billion), BMW ($65 billion), Stellantis ($60 billion), Ford ($57 billion), Honda ($53 billion), Hyundai ($49 billion) and Nissan ($20 billion), despite annualized sales for Tesla of around 800,000 cars a year to their over 50 million. The core points of our Tesla short thesis are:

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  • Tesla has no “moat” of any kind; i.e., nothing meaningfully proprietary in terms of electric car technology, while existing automakers—unlike Tesla­—have a decades-long “experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably, as well as the ability to subsidize losses on electric cars with profits from their conventional cars.
  • Excluding sunsetting emission credit sales Tesla is barely profitable.
  • Growth in sequential unit demand for Tesla’s cars has slowed to a crawl.
  • Elon Musk is a pathological liar who under the terms of his SEC settlement cannot deny having committed securities fraud.

Tesla's Expected Q3 Sales Growth

Latest estimates are that Tesla is expected to report around 29,000 more deliveries for Q3 vs. Q2 (approximately 230,000 vs. Q1’s 201,000), a rounding error for an auto company trading at even one-tenth of Tesla’s valuation. If in any quarter GM or VW or Toyota sold 2.55 million vehicles instead of 2.58 million or 2.525 million, no one would pay the slightest bit of attention to the difference. Well guess what? Seeing as Tesla is being valued at more than eleven GMs, it’s time to start looking at its relatively tiny numerical sequential sales growth, rather than Wall Street’s sell-side hype of “percentage off a small base.” In other words, if you want to be valued at a giant multiple of “the big boys,” it’s time you were treated as a big boy!

Meanwhile in July, thanks to an suspiciously high gross margin and very “non-growthy” reduced R&D expense, Tesla reported an improved Q2 2021, claiming to have earned $788 million excluding $354 million of pure-profit emission credit sales (excluded because they’ll almost entirely disappear some time next year when other automakers will have enough EVs of their own). However, that earnings number also includes what I estimate to be around $300 million in unsustainably low warranty provisioning, and after adjusting for that plus the credit sales, I believe Tesla earned a sustainable .43/share, which annualizes to $1.72. An auto industry PE multiple of 10x would thus make TSLA worth around $17/share (admittedly, more than the “$0” I previously expected). A “growth multiple” of 20x would value it at $34, which is more than a 95% discount to September’s closing price of $775. And before you tell me that a 100% premium to the industry’s PE ratio isn’t enough, keep in mind that—as noted earlier—Tesla’s sequential unit growth is an auto industry rounding error. In fact, one could argue that Tesla’s multiple should carry a discount, considering the massive legal and financial liabilities continually generated by its pathologically lying CEO.

Meanwhile, on the Q2 earnings call Musk admitted that the so-called “Full Self Driving” he’s been selling for five years (and that Consumer Reports calls outright dangerous) doesn’t work, and he said it again in August following an “AI Day” in which he tried to cover up the Tesla’s autonomy cluelessness with an inert plastic statue of a robot and a man dancing in a unitard. (You had to see it to believe it and then you still wouldn’t believe it!)  In a saner regulatory environment Tesla’s selling of “Full Self Driving” for five years now would be considered “consumer fraud,” and indeed in August two U.S. Senators finally demanded an FTC investigation while the NHTSA opened yet another safety investigation. (For all known Tesla deaths see TeslaDeaths.com.) Will there be major write-downs and refunds given, killing the company’s slight “profitability”? Stay tuned!

Stanphyl Tesla

And remember, the 2021 overview from Guidehouse Insights rates Tesla dead last among autonomous competitors:

Stanphyl Tesla

The Chinese Government's Love Affair With Tesla Is Over

Another favorite hype story from Tesla fans has been “the China market.” Sadly, that government’s love affair with Tesla is over and Q2 Tesla sales there were down 10% from Q1 while Q3 looks to be down approximately 10% more. In July Tesla sold just 8621 cars in China (with the balance of that month’s production exported to Europe) and in August only 12,885. This an absolute disaster for Tesla, as massive July price cuts on both the Model Y and the Model 3 meant that in August in China it was supposed to sell around 30,000; instead it had to export all that excess capacity. (It still may sell around 50,000 in China in September, but so what? With insignificantly small sequential growth for three quarters now, Tesla’s Chinese “hypergrowth” story is over.) Remember when Musk claimed Tesla would have so much domestic Chinese demand that it would need multiple factories there to satisfy it? Ah, the good old days!

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. A recent story has been the supposedly imminent arrival of a new “4680” design that Teslemmings and their sell-side Wall Street shills claim will allow Tesla to “leapfrog” the batteries of its competitors. Sadly for them though, in a June interview with the CEO of Tesla’s primary battery supplier Panasonic, we learned that not only are these cells still in the “production testing” phase (and thus nowhere near ready for commercial production), but that if they *do* work, Panasonic will sell them to anyone.  And then news broke that Tesla extended its current battery supply deal with CATL until the year 2025, and in August it revealed it will even be using those Chinese-made batteries in the U.S. If those great proprietary 4680s were coming any time soon, why would Tesla need to do that? Obviously it wouldn’t, which explains why in the Q2 earnings press release (and on the call) Musk admitted they don’t know how long (if ever) it will take to get those 4680 batteries into production. Oh well… I guess it’s on to the next nonsensical stock pump!

Meanwhile, the quality of the Model Y—is awful, and that car faces current (or imminent) competition from the much better built electric Audi Q4 e-tron, BMW iX3, Mercedes EQA, Volvo XC40 Recharge, Volkswagen ID.4, Ford Mustang Mach E, Nissan Ariya, Hyundai Ioniq 5 and Kia EV6. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2 and the premium version of Volkswagen’s ID.3 (in Europe), and later this year from the BMW i4, plus multiple local competitors in China.

And in the high-end electric car segment worldwide the Audi e-tron and Porsche Taycan outsell the Models S & X (and the newly updated Tesla models with their dated exteriors and idiotic shifters & steering wheels won’t change this), while the spectacular new Mercedes EQS and Audi e-Tron GT make any Tesla look like a Yugo, while the extremely well reviewed new BMW iX does the same to the Tesla Model X.

And oh, the joke of a “pickup truck” Tesla previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as it will enter a dogfight of a market; in fact, in May Ford formally introduced its terrific new all-electric F-150 Lightning which now has over 150,000 reservations and Rivian’s pick-up has gotten fantastic early reviews. Also, the Tesla semi-truck  has been delayed until at least 2022 (and possibly forever, as it depends on the aforementioned “4680” batteries that don’t exist).

Meanwhile, Tesla quality ranks 30th among 33 brands in the most recent J.D. Power dependability survey…

Stanphyl Tesla

…and second-to-last in the most recent Consumer Reports reliability survey:

Stanphyl Tesla

…while the most recent What Car? survey shows similar results with Tesla finishing #29 out of 31, and now quality is slipping in China.

Flawed Autopilot System

Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called “Autopilot” system, which Consumer Reports has completely eviscerated; God only knows how many more people this monstrosity unleashed on public roads will kill, despite the NTSB condemning it. Elsewhere in safety, in 2020 the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and now Tesla has been hit by a class-action lawsuit in the U.S. for the same defect. Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen. In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate.

So here is Tesla’s competition in cars...

(note: these links are regularly updated)

And in China…

Here’s Tesla’s Competition In Autonomous Driving...

Here’s where Tesla’s competition will get its battery cells…

Here’s Tesla’s Competition In Charging Networks...

And here’s Tesla’s competition in storage batteries…

Thanks and stay healthy,

Mark Spiegel

Updated on

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)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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