Stanphyl Capital on issues Elon Musk faces ranging from competition facing Tesla Inc. (NASDAQ:TSLA) from electric SUVs to accounting issues. Excerpted from the hedge fund’s April letter to investors.
We remain short Tesla Inc. (TSLA), which I still consider to be the biggest single stock bubble in this whole bubble market. 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.
- In 2020 Tesla will again lose money, as it has every year in its 17-year existence.
- Tesla is now a “busted growth story”; revenue growth is flatlining while unit demand for its cars is only being maintained via price cutting.
- Elon Musk is a securities fraud-committing pathological liar.
I begin the “Tesla section” of this month’s letter with one of the funniest (Musk is apparently uninsurable!) and most conflicted things I’ve ever seen in a large-cap public company filing, excerpted from this week’s amended 10-K:
In April Tesla reported $16M in Q1 earnings thanks entirely to the sale of $354M in 100% margin regulatory credits that disappear after next year when other automakers no longer need to buy them as they’ll have enough EVs of their own. Additionally, Tesla’s earnings are typically inflated by around $200M/quarter from its ongoing warranty fraud (here’s an excellent Seeking Alpha article and another one in Fortune explaining some of this), so adjusted for these two factors the company would have lost over $500M in Q1, while free cash flow was minus $895M. This is not a viable business. Additionally, Tesla pulled all guidance for the rest of the year, and for good reason as Q2 (with sales dead and the U.S. factory closed for two months due to the coronavirus) will be a lot worse. And as @TeslaCharts pointed out on Twitter, Tesla is no longer a growth company:
(One caveat is that in Q2 Musk may try to recognize part of $600 million in non-cash [it’s already on the balance sheet] deferred revenue from its fraudulently named “Full Self-Driving” [the capabilities of which offer nothing of the kind], thereby turning a money-losing quarter into one showing paper profits. Meanwhile, God only knows how many more people this monstrosity unleashed on public roads will kill, despite February’s NTSB hearing condemning it as dangerous.)
Meanwhile Twitter user @TeslaCharts published a graphic that concisely destroys the latest fallacious Tesla bull arguments as encapsulated by an April research report from Goldman Sachs, which has made tens of millions of dollars raising money for the company and undoubtedly hopes to make tens of millions more:
Tesla’s rapidly eroding market share in Norway is particularly relevant, as it previews what the company will soon face worldwide, as Norway is the world’s most mature EV market with the most competitors. As Twitter user @EconomicManBlog points out, “COVID-19 is the best thing that could have happened to Tesla. This is the year that the “hyper growth” bubble was going to burst but now Tesla can blame the virus; this is why “market share” is so relevant—it’s unaffected by the virus.” Courtesy of Twitter user @fly4dat, look at how poorly Tesla is now doing there even before new competitors from VW, Audi, BMW, Daimler and Volvo/Polestar begin arriving this summer:
For those of you looking for a resumption of growth from Tesla’s upcoming Model Y, demand for that car is reportedly disastrous. This is unsurprising, as it will both massively cannibalize sales of the Model 3 sedan and (later this year and in 2021) face superior competition from the much nicer electric Audi Q4 e-tron, BMW iX3 (in Europe & China), Mercedes EQB, Volvo XC40 and Volkswagen ID.4, while less expensive and available now are the excellent new all-electric Hyundai Kona and Kia Niro, extremely well reviewed small crossovers with an EPA range of 258 miles for the Hyundai and 238 miles for the Kia, at prices of under $30,000 inclusive of the $7500 U.S. tax credit. Meanwhile, the Model 3 will have terrific direct “sedan competition” later this year from Volvo’s beautiful new Polestar 2, the BMW i4 and the premium version of Volkswagen’s ID.3.
And if you think China is the secret to the resumption of Tesla’s growth, let’s put that market in perspective even without the coronavirus problem: prior to a recent 10% sales tax exemption Tesla was selling around 30,000 Model 3s a year there, and “the story” is that avoiding the 15% tariff and that 10% sales tax will allow it to sell a lot more. There’s also a $3600 EV incentive available (which will be reduced over the next two years), but China just cut to 300,000 yuan the maximum price allowed for an EV to get it; Tesla is thus slashing its Model 3 price from 323,000 yuan to qualify and will now make little-to-nothing on the car, and thus all volume increases will be profitless. Meanwhile the rule of thumb for the elasticity of auto pricing is that every 1% price cut results in a sales increase of up to 2.4%. If we assume a 2.4x “elasticity multiplier,” domestically produced Model 3s that are 40% cheaper (than the original price at the 30,000/year sales rate) would result in annual sales of just 59,000 (40% x 2.4 = 96% more than the previous 30,000), meaning Tesla’s new Chinese factory would be a massive money-loser vs. its initial 150,000-unit annual capacity and the 500,000/year capacity it will supposedly have in 2021. Even if we were to increase the previous sales rate by 150% to 75,000 cars a year, it would be massively disappointing for Tesla bulls and the factory will be a huge money-loser.
Meanwhile, sales of Tesla’s highest-margin cars (the Models S&X) will be down by over 50% worldwide this year vs. their 2018 peak, thanks to cannibalization from the less expensive Model 3 and direct high-end competition (especially in Europe and China) from the Audi e-tron, Jaguar I-Pace, Mercedes EQC and Porsche Taycan, with multiple additional electric Audis, Mercedes and Porsches to follow, many at starting prices considerably below those of the high-end Teslas. (See the links below for more details.)
And oh, the joke of a “pickup truck” Tesla introduced in November won’t be any kind of “growth engine” either, especially as if it’s ever built it will enter a dogfight of a market.
Meanwhile, Tesla has the most executive departures I’ve ever seen from any company; here’s the astounding full list of escapees. These people aren’t leaving because things are going great (or even passably) at Tesla; rather, they’re likely leaving because Musk is either an outright crook or the world’s biggest jerk to work for (or both). And in January Aaron Greenspan of @PlainSite published a terrific treatise on the long history of Tesla fraud; please read it!
In May Consumer Reports completely eviscerated the safety of Tesla’s so-called “Autopilot” system; in fact, Teslas have far more pro rata (i.e., relative to the number sold) deadly incidents than other comparable new luxury cars; here’s a link to those that have been made public. Meanwhile Consumer Report’s annual auto reliability survey ranks Tesla 23rd out of 30 brands (and that’s with many stockholder/owners undoubtedly underreporting their problems—the real number is almost certainly much worse), and the number of lawsuits of all types against the company continues to escalate– there are now over 800 including one proving blatant fraud by Musk in the SolarCity buyout (if you want to be really entertained, read his deposition!).
So here is Tesla’s competition in cars (note: these links are regularly updated)…
Porsche Macan EV to get Taycan platform and tech
Audi e-tron: Electric Has Gone Audi
2020 Audi E-Tron Sportback debuts slick new roofline, a bit more range
AUDI E-TRON GT FIRST DRIVE: LOOK OUT, TESLA (available 2020)
Audi’s Q4 e-tron previews entry-level EV for 2021
Audi e-tron compact hatch to lead brand’s electrification plans
Audi TT set to morph into all-electric crossover
THE AWARD-WINNING ALL-ELECTRIC JAGUAR I-PACE
Jaguar Land Rover to invest £1bn in three new UK-built EVs
Mercedes EQC electric SUV available now in Europe & China and in 2021 in the U.S.
Mercedes EQV Electric Minivan Revealed – Available 2020
Mercedes EQB Small SUV to boost brand’s electric line-up
Mercedes EQS will be built in addition to the S-Class on a new dedicated electric platform
Volvo Polestar 2 Arrives 2020
Polestar 3 will be an electric SUV that shares its all-new platform with next Volvo XC90
Volvo XC40 Recharge, a 408-HP Electric SUV comes in 2020
Volvo confirms electric version of next XC90
Volkswagen unveils the ID.3, its first ‘electric car for the masses’
VW confirms ID4 name for electric crossover
VW Group to launch 70 pure electric cars over the next decade
GM Reveals New Ultium Batteries & a Flexible Global Platform to Rapidly Grow EV Portfolio
GM to Revive Hummer Name on New Electric Pickup Model
Chevrolet Bolt Now Offers 259 Miles of Range
GM’s Detroit-Hamtramck plant expected to build electric Escalade, Sierra
GM is transforming Cadillac into an electric brand
GM & Honda to Jointly Develop Next-Generation Honda EVs Powered by GM Ultium Batteries
258-Mile Hyundai Kona electric is available now for under $40,000
Genesis Electric Luxury SUV Coming in 2022
239-Mile Kia Niro EV is Available Now For Under $40,000
Kia Soul EV’s Range Jumps to 243 Miles
Imagine by Kia will launch as Tesla-fighting halo EV
All-Electric Ford Mustang Mach-E Delivers Power, Style and Freedom for New Generation
Electric Ford F-150 arrives in 2021
Ford to build two European EVs based on VW’s MEB platform
Nissan LEAF e+ with 226-mile range is available now
Nissan Ariya Electric SUV Concept Is Destined for Production
BMW 1 Series Electric Coming As Early As 2021
BMW iX3 electric crossover goes on sale in 2020
BMW reveals i4 Model 3 fighter in near-production form
BMW’s 2021 iNEXT Returns In New Teasers Showing Prototypes Production
Rivian electric pickup truck- funded by Amazon, Ford, Cox & others- is on the way
Renault upgrades Zoe electric car as competition intensifies
New all-electric Renault SUV to arrive in next 18 months
Peugeot 208 to electrify Europe’s small-car market
Peugeot to offer EV version of new 2008 small crossover
Toyota and Subaru Agree to Jointly Develop BEV-dedicated Platform and BEV SUV
Mazda extends MX name to new MX-30 electric crossover
SEAT will launch 6 electric and hybrid models and develop a new platform for electric vehicles
Opel sees electric Corsa as key EV entry
Opel/Vauxhall will launch electric SUV and van in 2020
Skoda accepting deposits for electric cars
New Citroen C4 Cactus to be first electrified Citroen in 2020
FCA to invest $788M to build new 500 EV in Italy
Maserati to launch electric sports car
Bentley Will Offer Hybrid Versions of Every Car It Makes and Add an EV by 2025
Lucid Motors closes $1 billion deal with Saudi Arabia to fund electric car production
Meet the Canoo, a Subscription-Only EV Pod Coming in 2021
Two new electric cars from Mahindra in India; Global Tesla rival e-car soon
Former Saab factory gets new life building solar-powered Sono Sion electric cars
And in China…
VW ramps up China electric car factories, taking aim at Tesla
SAIC Volkswagen to roll out 3 MEB-based EV models in 2020/2021
JAC-Volkswagen Launch SOL E20X, The 1st EV from the Joint Venture
Audi Q2L e-tron debuts at Auto Shanghai
Audi will build Q4 e-tron in China
FAW-Volkswagen’s Foshan plant said to produce e-tron Sportback
FAW Hongqi starts selling electric SUV with 400km range for $32,000
FAW (Hongqi) to roll out 15 electric models by 2025
China’s BYD launches six new electrified vehicles
Daimler & BYD launch new DENZA electric vehicle for the Chinese market
Geely, Mercedes-Benz launch $780 million JV to make electric smart-branded cars
Mercedes styled Denza X 7-seat electric SUV to hit market
Mercedes ‘makes mark’ with China-built EQC
Daimler and BMW to cooperate on affordable electric car in China
BMW, Great Wall to build new China plant for electric cars
BAIC Goes Electric, & Establishes Itself as a Force in China’s New Energy Vehicle Future
BAIC BJEV, Magna ready to pour RMB2 bln in all-electric PV manufacturing JV
Toyota, BYD will jointly develop electric vehicles for China
Lexus to launch EV in China taking on VW and Tesla
GAC Toyota to ramp up annual capacity by 400,000 NEVs
GAC unveils new NEV offshoot dubbed HYCAN
Chevrolet Menlo Electric Vehicle Launched in China
Buick Rolls Out First Electric Car for China
General Motors’ Chinese Venture to Sink $4.3 Billion Into Electric Vehicles by 2024
Nissan & Dongfeng to invest $9.5 billion in China to boost electric vehicles
PSA to accelerate rollout of electrified vehicles in China
Fiat Chrysler, Foxconn Team Up for Electric Vehicles
Hyundai Motor Transforming Chongqing Factory into Electric Vehicle Plant
Jaguar Land Rover’s Chinese arm invests £800m in EV production
Renault reveals series urban e-SUV K-ZE for China
Renault & Brilliance detail electric van lineup for China
Renault forms China electric vehicle venture with JMCG
Honda Debuts New Everus VE-1 All-Electric SUV, But Only For China
Honda to roll out over 20 electric models in China by 2025
Geely launches new electric car brand ‘Geometry’ – will launch 10 EVs by 2025
Mazda to roll out China-only electric vehicles by 2020
Xpeng Motors sells multiple EV models
Chery
China’s cute Ora R1 electric hatch offers a huge range for less than US$9,000
JAC Motors releases new product planning, including many NEVs
Seat to make purely electric cars with JAC VW in China
Iconiq Motors
Hozon
EV maker Bordrin skips flash, keeps real-car focus
NEVS launches electric-car output with Saab 9-3 platform in China
CHJ Automotive begins to accept orders of Leading Ideal ONE
Infiniti to launch Chinese-built EV in 2022
Zotye Auto to roll out 10 plus NEV models by 2020
Skywell makes inroads into China’s NEV domain
Leapmotor
Continental, Didi sign deal on developing EVs for China
Mine Mobility (Thailand)
Here’s Tesla’s competition in autonomous driving…
Consumer Reports finds Tesla’s Navigate on Autopilot is far less competent than a human driver
Navigant Ranks Tesla Last Among Automakers & Suppliers for Automated Driving
Tesla has a self-driving strategy other companies abandoned years ago
Waymo and Lyft partner to scale self-driving robotaxi service in Phoenix
Jaguar and Waymo announce an electric, fully autonomous car
Renault, Nissan partner with Waymo for self-driving vehicles
Fiat Chrysler partners with Aurora to develop self-driving commercial vans
Hyundai and Kia Invest in Aurora
Aptiv and Hyundai Motor Group complete formation of autonomous driving joint venture
Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving
Honda Joins with Cruise and General Motors to Build New Autonomous Vehicle
SoftBank Vision Fund to Invest $2.25 Billion in GM Cruise
Ford-VW alliance with Argo could redraw self-driving sector
VW taps Baidu’s Apollo platform to develop self-driving cars in China
Audi to join Daimler, BMW self-driving tech alliance
Daimler’s heavy trucks start self-driving some of the way
SoftBank, Toyota’s self-driving car venture adds Mazda, Suzuki, Subaru Corp, Isuzu Daihatsu
Volvo, Nvidia expand autonomous driving collaboration
Continental & NVIDIA Partner to Enable Production of Artificial Intelligence Self-Driving Cars
Intel’s Mobileye has 2 million cars (VW, BMW & Nissan) on roads building HD maps
Nissan gives Japan version of Infiniti Q50 hands-free highway driving
Nissan and Mobileye to generate, share, and utilize vision data for crowdsourced mapping
Magna joins the BMW Group, Intel and Mobileye platform as an Integrator for AVs
Hyundai to start autonomous ride-sharing service in Calif.
Uber unveils next-generation Volvo self-driving car
Pony.ai raises $462 million in Toyota-led funding
Baidu kicks off trial operation of Apollo robotaxi in Changsha
Toyota to join Baidu’s open-source self-driving platform
Baidu, WM Motor announce strategic partnership for L3, L4 autonomous driving solutions
Baidu plans to mass produce Level 4 self-driving cars with BAIC by 2021
Volvo, Baidu to co-develop EVs with Level 4 autonomy for China
Didi Chuxing Teams with NVIDIA for Autonomous Driving and Cloud Computing
Geely selects Volvo, Veoneer joint venture as autonomous tech supplier
BMW and Tencent to develop self-driving car technology together
BMW, NavInfo bolster partnership in HD map service for autonomous cars in China
FAW Hongqi readies electric SUV offering Level 4 autonomous driving
Tencent, Changan Auto Announce Autonomous-Vehicle Joint Venture
Huawei steps up ambitions in self-driving vehicles race
BYD partners with Huawei for autonomous driving
Lyft, Magna in Deal to Develop Hardware, Software for Self-Driving Cars
Deutsche Post to Deploy Test Fleet Of Fully Autonomous Delivery Trucks
ZF autonomous EV venture names first customer
Magna’s new MAX4 self-driving platform offers autonomy up to Level 4
Groupe PSA’s safe and intuitive autonomous car tested by the general public
Mitsubishi Electric to Exhibit Autonomous-driving Technologies in New xAUTO Test Vehicle
Apple acquires self-driving startup Drive.ai
Momenta – Building Autonomous Driving Brains
JD.com Delivers on Self-Driving Electric Trucks
NAVYA Unveils First Fully Autonomous Taxi
Fujitsu and HERE to partner on advanced mobility services and autonomous driving
Lucid Chooses Mobileye as Partner for Autonomous Vehicle Technology
First Look Inside Zoox’s Autonomous Taxi
Nuro’s Robot Delivery Vans Are Arriving Before Self-Driving Cars
Here’s where Tesla’s competition will get its battery cells…
Panasonic (making deals with multiple automakers)
LG
CATL
Northvolt (backed by VW & BMW)
Cenat
Wanxiang
Svolt
Toyota accelerates target for EV with solid-state battery to 2020
ProLogium Technology Will Produce First Next Generation Lithium Ceramic Battery For EVs
BMW invests in Solid Power solid-state batteries
Ford invests in Solid Power solid-state batteries
Hyundai Motor developing solid-state EV batteries
Most car makers will use those battery cells to manufacture their own packs. Here are some examples:
Daimler starts building electric car batteries in Tuscaloosa – one of 8 battery factories
GM picks Lordstown site for $2.3 billion battery plant
GM inaugurates battery assembly plant in Shanghai
PSA to assemble batteries for hybrid, electric cars in Slovakia
Honda Partners on General Motors’ Next Gen Battery Development
France’s Saft plans production of next-gen lithium ion batteries from 2020
Sokon aims to be global provider of battery, electric motor, electric control systems
BMW Group invests 200 million euros in Battery Cell Competence Centre
BMW Brilliance Automotive opens battery factory in Shenyang
Rimac is going to mass produce batteries and electric motors for OEMs
Here’s Tesla’s competition in charging networks…
Electrify America is spending $2 billion building a high-speed U.S. charging network
EVgo is building a U.S. charging network
191 U.S. Porsche dealers are installing 350kw chargers
ChargePoint to equip Daimler dealers with electric car chargers
GM and Bechtel plan to build thousands of electric car charging stations across the US
Ford introduces 12,000 station charging network, teams with Amazon on home installation
Petro-Canada Introduces Coast-to-Coast Canadian Charging Network
Volta is rolling out a free charging network
Ionity has over 150 European 350kw charging stations
E.ON and Virta launch one of the largest intelligent EV charging networks in Europe
Volkswagen plans 36,000 charging points for electric cars throughout Europe
Smatric has over 400 charging points in Austria
Allego has hundreds of chargers in Europe
BP Chargemaster/Polar is building stations across the UK
Instavolt is rolling out a UK charging network
Fastned building 150kw-350kw chargers in Europe
Deutsche Telekom launches installation of charging network for e-cars
Shell starts rollout of ultrafast electric car chargers in Europe
Total to build 1,000 high-powered charging points at 300 European service-stations
Volkswagen, FAW Group, JAC Motors, Star Charge formally announce new EV charging JV
BP, Didi Jump on Electric-Vehicle Charging Bandwagon
Evie rolls out ultrafast charging network in Australia
Evie Networks To Install 42 Ultra-Fast Charging Sites In Australia
And here’s Tesla’s competition in storage batteries…
Panasonic
LG
AES + Siemens (Fluence)
Bosch
NEC
ABB
Saft
EnerSys
NantEnergy
Kreisel
Leclanche
ESS
UET
ENGIE
Bluestorage
Powervault
Schmid
Ecoult
Natron Energy
So in summary, Tesla is about to face a huge onslaught of competition with a market cap approximately double that of Ford, GM and Fiat Chrysler combined, despite selling a bit over 400,000 cars a year while Ford, GM and Fiat-Chrysler sell 5.4 million, 7.7 million and 4.4 million vehicles respectively. Thus, this cash-burning Musk vanity project is worth vastly less than its $145 billion market cap and—thanks to nearly $30 billion in debt, purchase and lease obligations—may eventually be worth “zero.”