Home Business Excluding sunsetting emission credit sales Tesla still loses money, as it has...

Excluding sunsetting emission credit sales Tesla still loses money, as it has every year in its 17-year existence

Stanphyl Capital commentary for the month of January 2021, discussing Tesla’s European sales declining due to new competition.

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Q4 2020 hedge fund letters, conferences and more

The Biggest Bubble In Modern Market History

We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA), which currently has a fully diluted market cap of approximately $844 billion, which is roughly $143 billion more than those (non-diluted) of Toyota ($195 billion), VW ($105 billion), GM ($73 billion), Daimler ($73 billion), BMW ($54 billion), Stellantis ($48 billion), Hyundai ($46 billion), Honda ($45 billion), Ford ($42 billion) and Nissan ($20 billion) combined (!) despite run-rate sales of 720,000 cars a year to their approximately 65 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 still loses money, as it has every year in its 17-year existence.
  • Unit demand for Tesla’s cars is only increasing via continual price cutting.
  • Elon Musk is a pathological liar who under the terms of his SEC settlement cannot deny having committed securities fraud.

In January Tesla reported its Q4 2020 financials, and excluding $401 million of pure-profit emission credit sales (an income stream that begins shrinking imminently then likely disappears after 2021 when other automakers have enough EVs of their own) it lost $131 million, nicely summarized in a graphic from @TeslaCharts:

StanCap

And if you think Tesla is really “an energy company,” well, that division had a negative gross margin.

Tesla's Q4 European Sales Decline

And for those of you who still think Tesla is a “growth stock,” the most competitive EV region in the world (and a bellwether for what will soon happen in Asia and then North America) is Europe, and due purely to new competition Tesla’s year-over-year Q4 sales declined by 4% there while its EV market share dropped from over 30% to just an estimated 10% (and in 2021 will likely be much lower). Courtesy of Twitter user @fly4dat, here’s a great chart showing that:

StanCap

And contrary to what bullish Teslemmings may tell you, Q4 European sales were not “production constrained,” as Tesla delivered 181,000 cars in the quarter while its October 8-K reported current quarterly production capacity of 210,000:

StanCap

Nothing is more amusing than seeing this giant stock promotion of a company try to perpetuate the illusion of being “supply constrained” by continuing to add capacity (expanding its Chinese factory while breaking ground on new factories in Texas and Germany) in order to desperately try to maintain an image of “limitless demand” while it continually slashes prices (including again in January 2021) just to utilize far less than its existing capacity. Tesla’s “plan” is now obvious: keep slashing prices to move as much volume as possible while using the world’s most illicitly creative accounting to maintain razor-thin profitability. But what’s the end game? If Tesla stops cutting prices volume will collapse. Tesla is no longer “a growth story”—it’s a nearly-profitless stock promotion for idiots!

Model 3 Price Cuts

In China during Q4 (and Europe in Q1 2021) Tesla cut its Model 3 price significantly (enabled by the use of an inferior LFP battery formulation that could soon bring a class action lawsuit), and thereby drove an improved Chinese sales number. Yet it still sold fewer than 60,000 cars there while GM sold over 963,000 and Ford sold 191,000.  In December Tesla sold 25,500 cars in a Chinese passenger vehicle market of 2.4 million; i.e., with its 1% share, Tesla is just a flea in an elephant-sized market. And now, exactly as in Europe, China’s EV competitive landscape is about to get vicious.

As for Tesla’s newest “hope,” the Model Y, its quality is awful and it faces current (or imminent) competition from the much better built electric Audi Q4 e-tron and Q4 e-tron Sportback, BMW iX3, Mercedes EQA, Volvo XC40 Recharge, Volkswagen ID.4, Ford Mustang Mach E and Nissan Ariya, as well as the less expensive yet excellent all-electric Hyundai Kona and Kia Niro. Meanwhile, Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful new Polestar 2 and the premium version of Volkswagen’s ID.3 (in Europe), and in 2021 from the BMW i4.

And oh, the joke of a “pickup truck” Tesla previewed in 2019 won’t be much of “growth engine” either, as it will enter a dogfight of a market.

And in the high-end electric car segment worldwide, the Audi e-tron now outsells both the Tesla Model S and the Model X, and almost outsells both of them together!

Meanwhile, Tesla ranks second-to-last in the latest Consumer Reports reliability survey:

Tesla European sales

…and last among 31 brands J.D. Power surveyed…

Tesla European sales

…while the latest What Car? survey shows similar results with Tesla finishing #29 out of 31.

As for batteries, Tesla has nothing proprietary—it doesn’t make them, it buys them from Panasonic, CATL and LG. And here’s a great graphic from @clausMller17 showing Tesla’s blatantly deceptive range claims:

Tesla European sales

Regarding safety, the Chinese government recently 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 it’s battling an NHTSA demand that it recall a dangerously defective touchscreen. And of course Tesla continues to sell and promote 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 as dangerous. 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. 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 number of lawsuits of all types against the company continues to escalate, including one proving blatant fraud by Musk in the SolarCity buyout. (If you want to be really entertained, read his deposition!)

Finally, Tesla has the most executive departures I’ve ever seen from any company; here’s the astounding full list of escapees. Telas seemingly hasn’t been able to hire or even retain a high-profile executive from outside in years; clearly no one with any real-world experience wants to work for Elon Musk.

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

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