The Growth In Demand For Tesla’s Cars Has Slowed To A Crawl

Updated on

Stanphyl Capital’s commentary for the month ended July 31, 2021, discussing their short position in Tesla Inc (NASDAQ:TSLA).

Get Our Icahn eBook!

Get The Full Carl Icahn Series In PDF

Q2 2021 hedge fund letters, conferences and more

Stanphyl Remains Short Tesla

We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA), which currently has a diluted market cap of nearly $770 billion, 85% of the $903 billion (non-diluted) combined market caps of Toyota ($251 billion), VW ($166 billion), Daimler ($96 billion), GM ($82 billion), BMW ($66 billion), Stellantis ($60 billion), Ford ($60 billion), Honda ($55 billion), Hyundai ($44 billion) and Nissan ($23 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:

  • 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 Q2 Earnings

In July, thanks to a 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). Taken at face value (a dubious assumption), this amounts to earnings of .70/share, which annualizes to $2.80/share. An auto industry PE multiple of 12x would thus make TSLA worth around $34/share (admittedly, considerably more than the “$0” I previously expected). A “growth multiple” of 20x would value it at $56, approximately a 92% discount to July’s closing price of $687. (Before you tell me that a 67% premium to the industry’s PE ratio isn’t high enough, keep in mind that Tesla’s actual Q1 to Q2 sequential unit growth was only 16,000 cars, a rounding error for any real car company. 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, speaking of which…

On the earnings call Musk said he’ll skip most future calls; will he get out before it all falls apart again? Also on the call, Musk admitted that the so-called “Full Self Driving” he’s been selling for five years doesn’t work, something which in a saner regulatory environment is called “consumer fraud.” Will there be major write-downs and refunds given, killing the company’s slight “profitability”?


China's Love Affair With Tesla

For several years now, one of the favorite hype stories 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 its EV market share declined from around 17% to 11%. In fact, because of faltering Chinese sales growth, in July Tesla was forced to introduce a much cheaper base Model Y (which will undoubtedly have extremely low margins) and slash prices on the Model 3. Despite once claiming it would need multiple Chinese factories, Tesla now has so much excess capacity there that it’s shipping even more cars to Europe and Australia (where it was also forced to slash prices). To be clear, because of the price cuts I fully expect Tesla’s Q3 Chinese sales to bounce from the level of Q2, but so what if there are minimal (or no) profits to accompany that bounce?

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. 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 Teslas look like a Yugo.

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 and it got 100,000 pre-orders in less than a month, while the semi-truck has now been delayed until at least 2022 (and possibly forever, as it depends on the aforementioned “4680” batteries that don’t exist).

Autopilot Crash

And now the Tesla “autonomy story”—presumably responsible for hundreds of billions of dollars of its market cap—is falling apart. In May there was yet another deadly “Autopilot” crash (now made even more deadly via the removal of radar sensors—for all known Tesla deaths see, Consumer Reports calls it outright dangerous, and the 2021 overview from Guidehouse Insights rates Tesla dead last among autonomous competitors:


In fact, now Tesla itself admits it may never achieve full autonomy, as does Musk personally:


In reality, that’s just the Fraudster-in-Chief’s whining excuse for not using LiDAR, radar and high-definition maps in his cars (unlike the rest of the industry). So for once I agree with Musk: with the current (and promised future) Tesla hardware suite, none of its cars will ever achieve full autonomy. Yet that doesn’t stop him from charging $10,000 for a product he explicitly calls “Full Self Driving.” Where are the FTC and SEC on this? As the Wall Street Journal reported: nowhere.

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


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


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

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

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!