Mark Spiegel’s Stanphyl Capital is famous for its questioning of Tesla but its biggest alpha comes from his picks in small caps – see below for an excerpt on Tesla Inc (TSLA) from their July 2017 letter. But first… although he is known as Elon Musk’s number one enemy, Mr. Spiegel makes most of his money from killer small cap picks. His under the radar small caps which could pop just based on this piece (if we discussed it publicly) were profiled in ValueWalk’s 2nd edition of our quarterly premium newsletter. Below is an excerpt on Tesla stock.
Also see: Tesla Tax Incentives: When Will The Federal Credit Start To Wind Down?
Yes, we remain short shares of Tesla, Inc. (TSLA), this bubble-market’s largest individual bubble, as well as the operator of what may be the world’s least efficient car factory which—according to new insurance industry crash tests— produces cars with a lower safety rating than many of its peers yet crash 37% more often with overall losses that are 124% higher.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
Of course the big July event for Tesla was the “official” debut of the (already widely seen) Model 3, which will come in a base version with 220 miles of range (fewer than the Bolt’s 238) for $35,000 (if it’s actually made widely available) and a larger battery version with 310 miles of range starting at $44,000. For both cars, a package of heated power seats and upgraded audio costs another $5000, as does driver assist/Autopilot. More expensive AWD and “performance” versions will supposedly be available sometime next year. The positive news (for Tesla) from the event was:
Musk’s claim that they’ve had over 500,000 reservations (vs. the 400,000 consensus); however, it’s unclear if this is net of cancellations (and speaking of “cancellations” check out THIS ultimate sleaze move) and regardless, this is a statistic from before the (high) option pricing and (late) availability was announced
- Favorable reviews of the car from those who drove it at low speed around the Tesla factory neighborhood before having to extensively use the sightline-offset touchpad to control or view every function of the car, even something as mundane as the windshield wiper speed
The negative news from the event was:
- The above-noted touchscreen to control or view everything for the car is both inconvenient and outright dangerous
- As evidenced by comments on blogs & forums, the touchscreen, high option prices and late (if ever) availability of a $35,000 model and/or expiration of the $7500 tax credit subsidy will scare off a huge number of those who made deposits
- Musk warned multiple times of “hellish” production delays. (And keep in mind that delays and cost overruns have historically always been worse than he claims/predicts.)
(Embedded in this sentence is a link to another great summary of the event.)
A recent report from UBS thinks a high-volume, well-optioned Model 3 with the base battery could break even at $41,000. Although I think UBS is optimistic, for the sake of argument I was willing to assume it was correct and in May wrote an article for Seeking Alpha incorporating that information to explain why despite (and partially because of) the Model 3, Tesla’s current $1 billion annualized operating loss is likely to worsen in 2018. Rather than repeating that explanation here, please do read the article.
Additionally, Model 3 sales (regardless of its profit margin) are likely to disappoint. As noted above, I expect mass reservation cancellations to occur even before the $7500 tax credit phase-out begins in mid-2018. Have a look at the Model 3’s spartan dashboard vs its direct EV competitor the Chevrolet Bolt or the new $30,000, 50+ mpg, 850+ mile range (!) 2018 Honda Accord hybrid…
Or how about a $33,450 (before discounts) BMW 3-series?
Heck, even THIS interior seems safer and more user friendly than that of a Tesla Model 3:
(1987 Yugo)
Also in July, Tesla released its Q2 2017 delivery number, confirming zero growth (actually, a decline) over four consecutive quarters and thus proving that the market for its luxury EVs (Models S&X) is clearly saturated even before the arrival of the $35,000 less expensive Model 3 (which I expect to extensively cannibalize far more profitable Model S sales) or next year’s competition from Jaguar, Audi and Mercedes:
Q3 2016 deliveries: 24,821
Q4 2016 deliveries: 22,252
Q1 2017 deliveries: 25,051
Q2 2017 deliveries: 22,100
In fact, Q2 2017 was headed for a much worse sales comp vs. the previous three quarters when in mid-quarter moves of desperation Tesla slashed the price of the Model S75 by $7500 to $69,500 and brought back free lifetime Supercharging for buyers with (easily found) “referral codes.” (Say hello to an instant 2% margin hit for that one!) Then in June Tesla desperately offered multi-thousand dollar discounts (sometimes more than $10,000) on brand new inventory cars (see last month’s letter for details.) In May Tesla reported a disastrous Q1 with an operating loss of $258 million and a net loss of $330 million, and I expect Q2 (to be reported on August 2nd) to be even worse.
Also in July we also learned that Tesla’s latest battery cell, the 21700 made by Panasonic and used in the Model 3 (that’s right, Teslarians: Tesla doesn’t make its own batteries!) is already matched by or inferior to upcoming cells from LG and Samsung (and yet due to long-term “take or pay” contracts imposed on it by Panasonic, Tesla may actually now be among the industry’s highest-cost battery buyers). And we also learned that Toyota now expects to have EVs using solid-state batteries on the road within five years, thereby instantly turning any and all Tesla “gigafactories” into obsolete white elephants.
Also in July we learned of the departures of the key guys (Peter Rive and Jack West) in charge of developing the “solar roof tiles” (a hopelessly overpriced product I dissected several months ago) that were used to justify the SolarCity bailout. (Regarding those tiles, apparently last October’s debut was a complete fake designed solely to push through approval for the SolarCity merger and there’s very little happening at the factory—a New York State taxpayer boondoggle-- where they’ll allegedly be mass-produced.)
Finally in July there was this, which I present without further comment:
You can add the above-mentioned July SolarCity executive departures to a long list of recent escapees, including (in June) yet another Tesla “Head of Autopilot” (the second in six months), as well as three key engineers on the team plus (a few months previously) the “Head of Autopilot Hardware.” And as noted in previous letters, the excellent investigative journalists at Daily Kanban proved that the videos Tesla put out promoting its new autonomous system were hugely deceptive, and in May we learned that the CPU in Tesla’s hardware suite may be incapable of full autonomy despite Tesla charging $8000 up-front for that “future capability.” (Hello, “future class action lawsuit”!) In fact, current Teslas also have no LIDAR and yet experts universally say LIDAR is required for full autonomy. So have a look at the “Autonomous Driving” links a few pages below (note that the new Audi A8 is the world’s first production car with “Level 3”) and tell me how anyone with a brain in his head could seriously think Tesla is ahead of the rest of the industry in safe autonomy or that within a few years autonomy won’t be commoditized.
Meanwhile, Tesla’s “Supercharger moat” is now definitively being drained as Electrify America is building a charging network that will be both larger and faster. So the sole advantage Tesla had (easier but still klugey long-distance travel) over myriad soon-to-arrive competition (see the links below) will soon be gone. As for those “Tesla China factory” rumors (i.e., the search for a local JV partner to share half its losses), here’s a great story that puts it all in perspective.
And how is Tesla energy storage doing? (Because, you know, Tesla is really a battery company!) Well in Q1 total revenue was just $5.2 million (down 76% year over year!) at a double-digit negative gross margin. How’s that for “crazy off the hook”? (Storage revenue—but not profits-- should be up considerably later this year, as in July Tesla announced the sale of a big battery to Australia, a no-margin (or possibly negative margin) deal I estimate at around $25 million in revenue to Tesla). Meanwhile, Tesla battery cell supplier Panasonic (again, Teslarians: Tesla doesn’t make its own batteries) is going all out to supply its own batteries to all comers.
Meanwhile, Tesla also now faces significant class action lawsuits for sudden acceleration and defective regenerative braking, as well as a slew of Model X lemon-law lawsuits. And how about all that great Tesla IP because, you know, it’s really a “technology company”? Oops… what IP?
And what about the Gigafactory? Battery production is a mostly automated, modular process with few economies of scale beyond a size much smaller than “Giga”. Seeking Alpha published a terrific article about this specific to Tesla and soon Chinese producers will match or beat any price coming from the Gigafactory as China builds a vast number of new battery factories; in other words, watch out for a looming oversupply. And in June Audi revealed that its battery cost (probably at the cell level) for the long-range EVs it’s rolling out beginning next year is only around 100 euros per kWh, which (as noted earlier in this letter) may be significantly less than Tesla’s cost due to older “take or pay” commitments Panasonic demanded before installing its equipment in the Gigafactory. And as noted above,in five years solid-state batteries are likely to obsolete the Gigafactory anyway.
Meanwhile Tesla faces an onslaught of competition in all facets of its business. (Note: these links are updated monthly.) First, here are the competing cars…
The All-Electric 2017 Chevrolet Bolt EV
GM CEO: Chevrolet Bolt Is Our Platform For A Huge Range Of Vehicles
All New 200-mile Nissan Leaf Coming September 2017
Jaguar I-Pace: 2018 production car set for September 2017 debut
Jaguar Land Rover says half of its new cars will have electric option by 2020
Audi Launching Three Electric Cars Beginning 2018
Daimler to invest $11 billion in electric vehicles
Daimler brings forward electric-car goal
New Mercedes EQ Concept ride review
Porsche Mission E electric car to have wide range of variants
BMW to introduce electric 3-series in September 2017
BMW Flexible vehicle architecture to enable electrification of every model series
200-Mile Hyundai IONIQ Electric Coming In 2018
Upcoming Hyundai Kona Electric SUV With 50 kWh Battery, 220 Mile Range
Hyundai’s Genesis fashions itself as South Korea's Tesla
Honda to launch two new electric cars in 2018
Volvo Plans to Go Electric, to Abandon Conventional Car Engine by 2019
Volvo’s Polestar brand to build its own electric sports cars
Volkswagen plans to ‘leapfrog’ Tesla in electric car race
Ford to launch fully electric SUV with range of at least 300 miles & two electrified police vehicles
Ford, German Postal Service Form EV Joint Venture
Toyota, in about-face, may mass-produce long-range electric cars
New Mazda electric car due in 2019
Electric Kia Stinger GT to rival Tesla Model 3
Infiniti to launch performance EV with Nissan tech by 2020
Nissan, Renault, Mitsubishi to share electric car platform
MG E-Motion confirms new EV sports car on the way by 2020
All electric Lucid Air to Start At $52,000 After Tax Credit
Maserati executive confirms electric Alfieri
Peugeot and Citroen Promise 450 km (280 Miles) Electric Vehicle in 2019
New 2017 Renault ZOE ZE 40: 400 km Range*, 41 kWh Battery
Seat to launch first electric car in 2019
Mitsubishi To Launch New All-Electric and PHEV Compact SUV Between 2017-2020
Subaru Considers Electric Versions of Its Cars to Leverage Brand
2017 Karma Revero (nee Fisker) launches with updates
Borgward BXi7 Electric SUV Flies Under The Radar
Skoda Citigo set to be brand’s first EV; will have five EVs by 2025
NextEV plans Tesla Model X fighter for U.S. in late '18 or early '19
And in China…
Daimler strengthens dedication to emission-free mobility with new DENZA 400km EV for China
Daimler to produce electric cars for EQ subbrand in China
Daimler, BAIC agree to make electric cars in China
Volkswagen To Launch 8 New Energy Vehicles In China
Volkswagen Eyes Third China Joint Venture in Continued Push Into Electric Vehicles
GM plans to launch 10 electric cars in China by 2020
Audi and FAW sign China electric car cooperation deal
Ford to Make Electric Cars in China Amid Green Drive
China's BYD has overtaken Tesla in the battery and electric car business
SAIC to spend $2.2 billion on EVs, connectivity, aftersales services
Toyota may mass produce electric cars in China in 2019
Renault-Nissan Alliance To Electrify China's Trucks And Vans
Volvo’s first all electric car will be made in China
Chery Breaks Ground on $240M EV Factory in China
Chery's second EV plant to open in May in Dezhou
NIO Unveils Production Vehicle for China Market
New Chinese Car Brand: WM Motors To Bring EVs To The Masses
GAC Begins Construction of $6.5 Billion Industrial Park to Boost EV Business
Chinese electric car start-up Future Mobility edges closer to taking on Tesla
Honda to debut electric vehicle in China next year
The Singulato iS6 From China Is Aimed At The Tesla Model 3
Quianu Motor aims to grab share of US electric vehicle market
NEVS receives approval for electric car factory with capacity of 200,000 units per year
Karma Owner Building 50,000 Cars/Year Electric Car Factory in China
Here’s the competition in autonomous driving…
Audi takes pole position in race for fully autonomous cars
Updated 2017 Mercedes-Benz S-Class - first ride with autonomous technology
Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving
GM Produces First Round of Self-Driving Chevrolet Bolt EV Test Vehicles
GM’s Cruise Automation does a 90-minute urban drive with no intervention
GM’s Cruise Automation Wades Into HD Mapping to Aid Autonomous-Car Efforts
Nvidia and Mercedes-Benz to bring an AI car to market within a year
NVIDIA and Toyota Collaborate to Accelerate Market Introduction of Autonomous Cars
Audi and NVIDIA team up to bring fully automated driving accelerated with artificial intelligence
Volvo and Autoliv team up with Nvidia for self-driving cars
NVIDIA Partners with Bosch for System Based on Next-Generation DRIVE PX Xavier Platform
Bosch and Daimler join forces to market fully automated, driverless taxis by 2020
Volkswagen and Mobileye sign agreement to develop autonomous driving
Autonomous Nissan Leaf Video
Nissan and Mobileye to generate, share, and utilize vision data for crowdsourced mapping
Subaru, Nissan hit highway with affordable self-driving
BMW, Intel, Mobileye & Delphi Developing Autonomous Driving For Multiple OEMs
Continental Joins Autonomous Driving Platform from BMW, Intel & Mobileye as System Integrator
Ford expands fleet of self-driving test cars
Hyundai Presents Autonomous IONIQ Electric Prototype at 2017 CES
Waymo to supply autonomous hardware & software to any car maker
Lyft and Waymo Reach Deal to Collaborate on Self-Driving Cars
Lyft teams up with NuTonomy to put ‘thousands’ of self-driving cars on the road
Bosch Creates a Map That Uses Radar Signals for Automated Driving
Honda Targeting Level 3 Automated Driving By 2020, Level 4 by 2025
Groupe PSA’s safe and intuitive autonomous car tested by the general public
Baidu to open-source its autonomous driving technology
Lucid Chooses Mobileye as Partner for Autonomous Vehicle Technology
Cook Says Apple Is Focusing on Making an Autonomous Car System
Samsung Gets Green Light to Test Self-Driving Cars
BlackBerry to open autonomous vehicle hub
Mitsubishi Electric Develops Automated Mapping For Autonomous Driving
Hitachi demonstrates vehicle with 11-function autonomous driving ECU
DENSO and NEC Collaborate on Automated Driving and Manufacturing
Here are the competing car batteries…
LG Chem targets electric car battery sales of $6.3 billion in 2020
Samsung Presents Innovative Fast Charging Battery with 600km Range
Samsung SDI to build $358 million car battery plant in Hungary by 2018
SK Innovation Focusing on Becoming the Top Global Company for EV Batteries
Daimler's battery gigafactory begins Europe challenge to Tesla
Daimler builds battery factory in Beijing
General Motors China To Open Battery Factory In Shanghai
Panasonic Opens New Automotive Lithium-Ion Battery Factory in Dalian, China
China's BYD takes aim at Tesla in battery factory race
Contemporary Amperex’s Chinese battery factory will be bigger than Tesla’s Gigafactory
Contemporary Amperex building an EV battery/drivetrain facility in Europe
Energy Absolute Plots Asian Project Rivaling Musk's Gigafactory
BMW Shows Off Its Battery And Electric Motor Production Facility
TerraE confirms German Giga factory for battery cells
FORD ACCELERATES ELECTRIFIED VEHICLE BATTERY RESEARCH AND DEVELOPMENT
Volkswagen will invest $3.7 billion in battery cell & electric drive plant
Hyundai Motor developing solid-state EV batteries
Jaguar holds talks with Ford and BMW over building a giant battery factory
Ultrafast-Charging Solid-State EV Batteries Around The Corner, Toyota Confirms
Kreisel Seeks to Overtake Tesla With Souped-Up Plug-In Cars
Wanxiang is playing to win, even if it takes generations
UK provides millions to help build more electric vehicle batteries
Former Tesla executives plan to build $4bn Nordic battery plant
Rimac is going to mass produce batteries and electric motors for OEMs
Here are the competing storage batteries…
Panasonic
LG
GE
AES + Siemens (Fluence)
Mitsubishi
Saft
EnerSys
SOLARWATT
Sharp
Tesvolt
Kreisel
Leclanche
Lockheed Martin
UniEnergy Technologies
electrIQ
Green Charge Networks
Blue Planet
Clean Energy Storage Inc.
Younicos
Orison
Powin Energy
Powervault
ViZn Energy
Schmid
24M
And here are the competing charging networks…
ELECTRIFY AMERICA UNVEILS FIRST $300M OF $2B INVESTMENT IN ZEV INFRASTRUCTURE
EVgo Installing First 350 kW Ultra Fast Public Charging Station In The US
BMW and Volkswagen Take on Tesla Motors With a New U.S. Fast-Charging Network
Nissan and EVgo to build i-95 Fast-Charge ARC connecting Boston and Washington D.C.
BMW, Daimler, Ford, VW, Audi & Porsche JV for 350kw Charging On Major Highways in Europe
Porsche's latest electric car chargers put Tesla to shame
Chargepoint Europe Gets $82 million in new funding from Daimler
ChargePoint - InstaVolt partnership; more than 200 UK rapid charge systems
ChargePoint Express Plus Debuts: Offers Industry High 400 kW DC Fast Charging
Fastned building 150kw-350kw chargers in Europe
DBT unveils the 1st 150 kW universal ultra-fast charging station
5 European fast charging networks form Open Fast Charging Alliance
Shell starts equipping petrol stations with electric chargers
Total planning EV charging points at its French stations
Yet despite all that deep-pocketed competition, perhaps you want to buy shares of Tesla because you believe in its management team. Really???
With Misleading Messages And Customer NDAs, Tesla Performs Stealth Recall
Who You Gonna Believe? Elon Musk's Words Or Your Own Lying Eyes?
How Tesla and Elon Musk Exaggerated Safety Claims About Autopilot and Cars
When Is Enough Enough With Elon Musk?
Musk Talked Merger With SolarCity CEO Before Tesla Stock Sale
Tesla Continues To Mislead Consumers
Tesla Misses The Point With Fortune Autopilot Story
Tesla Timeline Shows Musk's Morality Is Highly Convenient
Tesla Scares Customers With Worthless NDAs, The Daily Kanban Talks To Lawyers
Tesla: Contrary To The Official Story, Elon Musk Is Selling To Keep Cash
Tesla: O, What A Tangled Web We Weave When First We Practice To Deceive
I Put 20 Refundable Deposits On The Tesla Model 3
Tesla: A Failure To Communicate
Elon Musk Appears To Have Misled Investors On Tesla's Most Recent Conference Call
Understanding Tesla’s Potemkin Swap Station
Tesla's Amazing Powerwall Reservations
I’ve argued for a while that the “Tesla love/loyalty” one reads about on the forums (“Even though my Tesla is in the shop a lot I’ll never go back to a regular car!”) and in the Consumer Reports owner survey is really “EV loyalty/EV love”—in other words, many people like the instant torque and quietness of their EV drivetrains, not necessarily the fact that their frequently repaired cars happen to come from Tesla equipped with the interior “luxury level” of a 1990s Acura. Here’s a recent study from McKinsey supporting this:
So when the Germans (Audi, Mercedes and Porsche) and Jaguar roll out their 200-300-mile luxury EVs beginning in 2018 they’ll capture a lot of Tesla owners who love Tesla’s driving experience but not its reliability or interior, especially as fear grows that Tesla’s cash bleed means it may not be around to honor the eight-year drivetrain warranty that those “reliability issues” force it to provide. (Tesla’s Model X has been a quality-plagued disaster, with Consumer Reports in November giving it an overall rating of 59 on a scale of 100—tied for worst among 16 competing vehicles in its class.)
Meanwhile, the heretofore revered Model S is now on the Consumer Reports “Used Cars to Avoid” list with “much worse than average reliability” (although the new models have improved to “average”). On the bright side though, Tesla owners get to make lots of new friends at their local service centers, assuming they don’t mind the month-long wait times for an appointment.
So in summary, Tesla is losing a massive amount of money even before it faces a huge onslaught of competition (and things will only get worse once it does), while its fully diluted market cap now exceeds those of Ford and GM despite a billion-dollar annualized operating loss selling just 100,000 cars while Ford and GM make billions of dollars selling 6.6 million and 9 million cars respectively. Thus this cash-burning Musk vanity project is worth vastly less than its $60+ billion fully-diluted enterprise value and—thanks to its roughly $8 billion in debt—may eventually be worth “zero.”
