Is Tesla TOAST ?

[jk]

Re: Is Tesla TOAST ?

Tesla Is The New Theranos (With A Curious Nazi Twist)

July 4, 2018





I originally started following Tesla (TSLA – USA) as I felt it was a structurally unprofitable business nearing a cash crunch as hundreds of competing products were about to enter the market. As I’ve studied Tesla more closely, I’ve come to realize that Elon Musk appears to be running a Ponzi Scheme disguised as an auto-manufacturer; where he has to keep unveiling new products, many of which will never come to market, in order to raise new capital (equity/debt/customer deposits) to keep the scheme alive. The question has always been; when will the Tesla Ponzi Scheme collapse?

Tesla’s Bullshit Conversion Cycle is the key financial metric underlying this Ponzi Scheme (from @ProphetTesla)

As part of my research on Tesla, I decided to read Bad Blood by John Carreyrou, the journalist who first uncovered the Theranos fraud. It is the story of how Elizabeth Holmes created Theranos and then lurched between publicity events in order to raise additional capital and keep the fraud going, despite the fact that the technology did not work. The key lesson from Theranos for determining when a fraud will implode is that there are always idiots willing to put fresh money into a well marketed fraud—so you need a catalyst for when the funding dries up.
The other salient fact was that most senior employees actually knew that something wasn’t quite right, but feared losing their jobs or getting sued if they did anything about it. Therefore, employee turnover was off the charts but no one was willing to risk their career by saying anything publicly. However, when Theranos started risking customers’ lives, the secret got out pretty fast. This is because most people are inherently ethical—especially when they know that their employer is doing something immoral, like releasing flawed lab results to sick patients. Eventually, some employees felt compelled to become whistle-blowers and started to reach out to journalists and regulators. This started a cascading event.

First, one intrepid journalist took the career risk to write about the Theranos fraud. Then other whistle-blowers felt emboldened to step forward and contact this first journalist, as they also wanted their story told—especially as they had already reached out to government regulators who were too scared to investigate a politically powerful company.

Once a few good articles had been written about Theranos, the dam broke open and the feeding frenzy began. Other journalists, smelling page-clicks rapidly descend on Theranos; more workers spoke out, more incriminating evidence came to light and then there was a sense of voter outrage. Finally, the regulators who were first contacted by the whistle-blowers many months previously, felt compelled to act—at which point the fraud collapsed and the money spigot shut off.

We’ve already seen the mass exodus of senior Tesla executives. When they say they “want to spend time with their family,” it really means they “want to spend less time in prison.” Next, we have the first whistle-blowers—there will be MANY more. Currently there are at least 3 different ones feeding information to journalists. Using past frauds as a guide, once we get to this point of the media cycle, the fraud usually unravels pretty fast. Given the perilous state of Tesla’s finances, they are in urgent need of new capital. The question is; who would want to invest new capital when Tesla is now admitting to knowingly selling cars without testing the brakes in order to hit some arbitrary one week production target? When a company admits that it will sacrifice vehicle quality and even risk killing its customers to win a twitter feud and start a short squeeze, regulators must step in. The question is; what else has Tesla done illegally to hit its targets? We know that Tesla long ago passed over the ethical threshold of selling faulty products that have killed people—what other allegations will soon come to light? Elon Musk demanded that Tesla stop testing brakes on June 26. Doug Field, chief engineer, resigned on June 27. Is this a coincidence? Of course not—Doug Field doesn’t want to be responsible for killing people. I think Tuesday’s article will speed up the pace of Tesla’s bankruptcy quite dramatically and I purchased some shorter dated puts after reading it.

Executives Fleeing Tesla Is A True Bull Market “Up And To The Right”

Tesla is the fluke stock-promote that found a way to address society’s fascination with ‘green technology’ and the ‘next Steve Jobs.’ Elon Musk eagerly stepped into the role of mad scientist and investors gave him a free pass. It now increasingly seems that everything he’s done for the past few years was simply designed to keep the share price up, keep the dream alive and raise more capital—as opposed to creating shareholder value. Along the way, customer safety has been ignored in order to hit production targets and appease the stock market. In addition to not testing brakes, a recent whistle-blower has accused Tesla of installing over 700 dangerously defective batteries into Model 3 vehicles. I suspect there will be many more allegations as whistle-blowers come out of the woodwork. It really is the Theranos of auto makers. I suspect it will all end soon. Theranos and Enron both collapsed within 90 days of the journalists getting up to speed. The reporters now know the right questions to ask and Tesla will be out of cash by the time they are all answered.

Stock Promotion In Overdrive Lately. What’s Elon Trying To Distract People From?

Besides, Elon Musk isn’t even all that innovative. Hitler already tried this same automotive customer deposit scam 80 years ago (From Wages of Destruction)

http://adventuresincapitalism.com/20...s-hitler-twist

[dcarrigg]

Re: Is Tesla TOAST ?

By about six months from now they will cancel the base model and stop taking reservations for more.

That was fast. As of today, the $35k option is scrubbed from the Tesla website. Configurator now starts at $49k when you click buy now. http://3.tesla.com/model3/design


Whether this is temporary or permanent, I do not know. But either way, there you have it. We'll see when/if the news catches on.


Oh, and yesterday they announced the tax credit phase-out. Starting Jan 1, it's cut in half, then in half again on July 1 2019. So no new $35k model 3s (any mention of it is gone on their website), and $7,500 tax credit going bye-bye even for the base $49k model for anyone who takes delivery after December 2018, with months-long waiting list as it is, even if they can keep up production, which is questionable.


All of the sudden that mass-market Model 3 is looking like a $50k monster. Wonder what they people who already plunked down $1,000 and then another $2,500 on a deposit will think about that...

EDIT: First news story picked it up--they say they will make it at some point, just not now, and aren't taking any reservations for it now, but nothing changed, they just scrubbed the website of almost all mentions of it (outside of the old presskit pages) and stopped letting people configure it. Hahaha.

[bpr]

Re: Is Tesla TOAST ?

...At some point he's going to "leave to focus on SpaceX."

All of this is very damning, and very convincing. But the SpaceX (and to a lesser extent the odd Boring Company) situation is where it differs from the Theranos or any other Ponzi scheme. Musk has delivered. It has been wildly expensive, but anyone who watched that SpaceX rocket land had to be impressed.

SpaceX is still privately held, and Musk owns >50% of the stock, >70% of voting stock. It's a brilliant move, and, frankly, who would want to be lead engineer of a car company for a guy that's doing this stuff? Why isn't he the lead engineer at SpaceX?

I don't doubt that any of your criticisms are valid, but you're not factoring in Musk's privately held cash machine. If it's worth $20 billion in private equity, it must be worth what? $40 billion? $50 billion as an IPO? There's no shortage of public companies with their eyes on space exploration that have the capital to make Tesla solvent via investment in SpaceX.

What about a stock transfer from SpaceX to TSLA shareholders? Possible, though unimaginative. I would expect Musk to come up with something grander, and his final sights are definitely not on terrestrial transport.

Truth be told, I can't stand him. And I'd love to buy a pile of out-of-the-money puts against TSLA. But I'm going to have to stand on the sidelines for this one, because I think this guy can remain solvent longer than I can short him. And when the history books are written, he'll be in them, so good for him. I hope for our sake and for his sake the entry ends with the common clause, "He died penniless."

[Techdread]

Re: Is Tesla TOAST ?

I think Tesla will go bust, especially if he can hive off the Giga-Factory part off.

Musk expected Space X, and Tesla to fail he has said this he's just not afraid to take big gambles ..in the best entrepreneurial spirit.

[GRG55]

Re: Is Tesla TOAST ?

With egos this size I've seen two forms of failure:

1) The company outgrows the ability of the founder to manage and continue growing it, but they cannot stand the thought of handing off their creation to anyone else. So they end up destroying what they have built instead.

2) The founder continues to run it, but when it fails due to either flawed strategy or flawed execution (the result of the founders own demands) they blame everyone else but themselves. I think this may be the scenario that plays out at Tesla, and the steady exodus of executives is suggestive of this. Each one is a mini no-confidence vote in Musk's leadership of the company.


I will always wonder what would ultimately have happened at Apple if Steve Jobs had not died.

[Milton Kuo]

Re: Is Tesla TOAST ?

I'd love to buy a pile of out-of-the-money puts against TSLA. But I'm going to have to stand on the sidelines for this one, because I think this guy can remain solvent longer than I can short him.

Munro and Associates has completed their teardown and cost analysis of the Model 3 and it looks like there is a good chance that Musk will be able to trigger a short squeeze. In the video, Munro states that there is a 30% margin for the Model 3 his company took apart. Even for the $35,000 Model 3, Munro claimed that there were double digit margins.

I suspect the margins Munro is stating assume costs of labor that are perhaps lower than what is the reality for Tesla. I think Munro's estimates for cost of materials and parts is quite accurate so the only question is if Tesla can control labor and warranty costs. I'm not long or short Tesla stock but I'm seriously tempted to wait for a dip to buy some calls to speculate on a potential short squeeze. Long term, I still think that Tesla shareholders are going to get shellacked but maybe Tesla will be able to survive as a company

[thriftyandboringinohio]

Re: Is Tesla TOAST ?

Thanks Milton

[dcarrigg]

Re: Is Tesla TOAST ?

Munro and Associates has completed their teardown and cost analysis of the Model 3 and it looks like there is a good chance that Musk will be able to trigger a short squeeze. In the video, Munro states that there is a 30% margin for the Model 3 his company took apart. Even for the $35,000 Model 3, Munro claimed that there were double digit margins.

I suspect the margins Munro is stating assume costs of labor that are perhaps lower than what is the reality for Tesla. I think Munro's estimates for cost of materials and parts is quite accurate so the only question is if Tesla can control labor and warranty costs. I'm not long or short Tesla stock but I'm seriously tempted to wait for a dip to buy some calls to speculate on a potential short squeeze. Long term, I still think that Tesla shareholders are going to get shellacked but maybe Tesla will be able to survive as a company

I don't doubt that this is more or less right. Tesla themselves report margins in the 20s. I figured probably about 15% gross margin for the $35k version. But they're still going to be operating at a loss at that point due to SG&A. Tesla's dumping over 20% as a % of revenue into SG&A costs where other auto manufacturers are down around 8%. No dealer network means they don't hit economies of scale either. Even with a 15% gross margin on the car, I think they're destined to lose money the way they've structured the business. The Model S needed a 25% average gross margin to make the math work. But if the margin on any $35k Model S drops below 20, they can't sell many of them compared to more expensive versions at 30, or the average dips too low and they operate at a loss. For the foreseeable future, they need to keep it about 25% to stay treading water. Could be they somehow get miraculously efficient on the SG&A side. But I don't think they can trim too much fat without a dealer network. They've also got a weird solar division albatross hanging out there too. It's a very strange car company from the business side, totally apart from any actual auto manufacturing.

[lakedaemonian]

Re: Is Tesla TOAST ?

Over at Hacker News(Y-Combinator’s highly credible forum) a user with industry expertise has stated that modern cars assembly plants run 15-30 labour hours per car.

Teala is somewhere around 110 hours per car on a good week, much worse on average weeks.

[DSpencer]

Re: Is Tesla TOAST ?

Over at Hacker News(Y-Combinator’s highly credible forum) a user with industry expertise has stated that modern cars assembly plants run 15-30 labour hours per car.

Teala is somewhere around 110 hours per car on a good week, much worse on average weeks.

This is where perspective causes people to fall into one extreme or the other. A Tesla bull says "once they get their automation figured out and reduce the labor component, they will be profitable" whereas a Tesla bear says "this company is a joke and has no idea how to actually manufacture cars at scale."

[dcarrigg]

Re: Is Tesla TOAST ?

This is where perspective causes people to fall into one extreme or the other. A Tesla bull says "once they get their automation figured out and reduce the labor component, they will be profitable" whereas a Tesla bear says "this company is a joke and has no idea how to actually manufacture cars at scale."

This is a company, not a partisan debate. There is no one side or the other. The financials are the financials. The question is only how long investors will stay irrational. Just put aside all the engineering and production and whatnot for a moment, and look at the beancounter's ledger.

I think they can profitably and realistically pump out about 3,500 $50,000+ cars per week @ 30% gross margin and cover 20-25% average SG&A costs with no dealer network. They have proven that. But dip below it, and they cannot--e.g. if the price comes down much and the gross margin drops below 20 the net margin goes negative like it is today, and not based on anything to do with production workers or the line itself. Add in coming debt service, and the margins they have to hit get even higher.

Maybe think about it this way: They already pay production workers lower wages and worse benefits than any car company operating in the developed world. There's not a lot of labor fat to cut on the assembly side. Even if you cut it down to zero and have miracle robots blessed by the Pope himself to do everything Ray Kurzweil dreams they could do, and the taxpayers foot the entire bill for Tesla to buy the robots, the parts suppliers' labor costs aren't going to change much and it's not going to shift the overall gross margins by more than single digit percentages. The sales, general and administrative expenses, on the other hand, are huge compared to competitors. Competitors typically "instantly" sell everything coming off the line to dealer networks who take on the SG&A costs and mark up the product to cover expenses (or take a loss if they don't sell well, etc). Tesla has to cover all that. Plus it has to cover the failed solar city ventures. And service and repair calls. And they're doing it with roving vans. Never mind if a recall hits. They just don't have the garages. And Tesla has a small mountain of debt built up. Its long term debt to equity is already higher than GM's, with all the union legacy costs and pensions and worldwide capital assets GM already has. Its income/employee is -$52,244. Its earnings per share is -$11.86. It's gross margin is over 19%, but net margin is -17%. The P/E ratio is -23.32. This isn't software. It's a car company. No matter how much you try to compare it to facebook and google, it's not an app. It can't scale like that. The growth company myth simply cannot apply the same way. You can't grow your customer base by orders of magnitude per year.

I mean, I'm not going to say you shouldn't buy calls. I think Tesla stock, much more than even Tesla bonds, trades on hype and feelings more than fundamentals. So it could double over the next six months for all I know. But it won't change the fundamentals. The financials will still be the financials. Past debts will still come due. A dealer network will not spring up over night. You're not going to get 25%+ gross margins on a car outside of the luxury ~$40-$50k+ segment. There's just too much competition. And you're not going to be able to sell, maintain, administer, and service all the vehicles for a modern car make with various models for much less than 20-25%. Warranties and customer service demand no less. You could let them suffer, but that will cost the brand, and maybe end up coming out in legal costs on the other side.

I mean, instead of asking the question, "Can or cannot Tesla eliminate its assembly line workforce and replace it with robots?" maybe better questions to ask are the following:

1. Next year, the Model S will be 10 years on the same platform; same body, same chassis. Will the country club set still want a car designed in the aughts when the new 2020 designs start coming out from competitors? Or will it be old hat?

I can't answer that either. But I know competition is incoming.

2. Everything Tesla managed to do thus far they managed to do because they essentially had a monopoly on the luxury EV that goes 200+ miles segment. When competitors enter the market, do you think that might push their margins down? And if so, what will that do to the financials here? Do you see any scenario in which their margins increase significantly?

I know their margins aren't good enough to produce a major run of $35k Model 3s. The CEO himself basically admitted as much on twitter for crying out loud.

3. Tesla has pretty much come near the max long term debt load it can take on. It's already floating junk bonds north of 7%. Its market cap is already ludicrously high for what it does. Do you see a scenario where they get easy access to the affordable capital necessary to drastically expand production capacity? If so, from where do you suspect it will come? If not Wall Street, maybe Russia or China or some bored Emirati? Perhaps. Maybe he could float money from SpaceX or himself over to kite it for a bit too. But do you think it's going to be easy or conventional or likely for Tesla to find a way to scrape up that kind of money?

I mean, if you ask these sorts of questions, I think it becomes less an exercise in partisan squabbling over how good robots are or how much automation can eliminate labor or how visionary elon musk's magical brain is. You can answer those questions any way you like, and the questions I pose above still apply. They're simply obviously not questions that are driving investment in the stock, even though they probably should be for any prudent investor.

[Mega]

Re: Is Tesla TOAST ?

https://www.autocar.co.uk/magazine

"Jag Beats Tesla"

Nissan said two years ago it lost money on every Leaf it sold.......but you think Tesla can?................has this company ever made a profit?

Mike

[GRG55]

Re: Is Tesla TOAST ?

Over at Hacker News(Y-Combinator’s highly credible forum) a user with industry expertise has stated that modern cars assembly plants run 15-30 labour hours per car.

Teala is somewhere around 110 hours per car on a good week, much worse on average weeks.

Which confirms, once again, that Tesla is a producer of low volume, hand-built cars, and therefore MUST stay in the high margin luxury vehicle niche as long as it remains such.

[GRG55]

Re: Is Tesla TOAST ?

This is a company, not a partisan debate. There is no one side or the other. The financials are the financials. The question is only how long investors will stay irrational. Just put aside all the engineering and production and whatnot for a moment, and look at the beancounter's ledger.

I think they can profitably and realistically pump out about 3,500 $50,000+ cars per week @ 30% gross margin and cover 20-25% average SG&A costs with no dealer network. They have proven that. But dip below it, and they cannot--e.g. if the price comes down much and the gross margin drops below 20 the net margin goes negative like it is today, and not based on anything to do with production workers or the line itself. Add in coming debt service, and the margins they have to hit get even higher.

Maybe think about it this way: They already pay production workers lower wages and worse benefits than any car company operating in the developed world. There's not a lot of labor fat to cut on the assembly side. Even if you cut it down to zero and have miracle robots blessed by the Pope himself to do everything Ray Kurzweil dreams they could do, and the taxpayers foot the entire bill for Tesla to buy the robots, the parts suppliers' labor costs aren't going to change much and it's not going to shift the overall gross margins by more than single digit percentages. The sales, general and administrative expenses, on the other hand, are huge compared to competitors. Competitors typically "instantly" sell everything coming off the line to dealer networks who take on the SG&A costs and mark up the product to cover expenses (or take a loss if they don't sell well, etc). Tesla has to cover all that. Plus it has to cover the failed solar city ventures. And service and repair calls. And they're doing it with roving vans. Never mind if a recall hits. They just don't have the garages. And Tesla has a small mountain of debt built up. Its long term debt to equity is already higher than GM's, with all the union legacy costs and pensions and worldwide capital assets GM already has. Its income/employee is -$52,244. Its earnings per share is -$11.86. It's gross margin is over 19%, but net margin is -17%. The P/E ratio is -23.32. This isn't software. It's a car company. No matter how much you try to compare it to facebook and google, it's not an app. It can't scale like that. The growth company myth simply cannot apply the same way. You can't grow your customer base by orders of magnitude per year.

I mean, I'm not going to say you shouldn't buy calls. I think Tesla stock, much more than even Tesla bonds, trades on hype and feelings more than fundamentals. So it could double over the next six months for all I know. But it won't change the fundamentals. The financials will still be the financials. Past debts will still come due. A dealer network will not spring up over night. You're not going to get 25%+ gross margins on a car outside of the luxury ~$40-$50k+ segment. There's just too much competition. And you're not going to be able to sell, maintain, administer, and service all the vehicles for a modern car make with various models for much less than 20-25%. Warranties and customer service demand no less. You could let them suffer, but that will cost the brand, and maybe end up coming out in legal costs on the other side.

I mean, instead of asking the question, "Can or cannot Tesla eliminate its assembly line workforce and replace it with robots?" maybe better questions to ask are the following:

1. Next year, the Model S will be 10 years on the same platform; same body, same chassis. Will the country club set still want a car designed in the aughts when the new 2020 designs start coming out from competitors? Or will it be old hat?

I can't answer that either. But I know competition is incoming.

2. Everything Tesla managed to do thus far they managed to do because they essentially had a monopoly on the luxury EV that goes 200+ miles segment. When competitors enter the market, do you think that might push their margins down? And if so, what will that do to the financials here? Do you see any scenario in which their margins increase significantly?

I know their margins aren't good enough to produce a major run of $35k Model 3s. The CEO himself basically admitted as much on twitter for crying out loud.

3. Tesla has pretty much come near the max long term debt load it can take on. It's already floating junk bonds north of 7%. Its market cap is already ludicrously high for what it does. Do you see a scenario where they get easy access to the affordable capital necessary to drastically expand production capacity? If so, from where do you suspect it will come? If not Wall Street, maybe Russia or China or some bored Emirati? Perhaps. Maybe he could float money from SpaceX or himself over to kite it for a bit too. But do you think it's going to be easy or conventional or likely for Tesla to find a way to scrape up that kind of money?

I mean, if you ask these sorts of questions, I think it becomes less an exercise in partisan squabbling over how good robots are or how much automation can eliminate labor or how visionary elon musk's magical brain is. You can answer those questions any way you like, and the questions I pose above still apply. They're simply obviously not questions that are driving investment in the stock, even though they probably should be for any prudent investor.

A very nice analysis dcarrigg!

- The mass-market Dealers make their greatest margins with the Service Dept and Used Car Sales. New car sales is a pathetic business; essentially pushing commoditized Chevys and such out the door to keep the pipeline supplied (the new Chevy XXX Dealer A will sell you is exactly like the new Chevy XXX you can buy from Dealer B across town). Musk said Tesla didn't need dealers, in part because the cars don't need servicing like an ICE powered vehicle, and they are all networked to be remote supported. We'll see how that all works out.

- To update the Model S requires development capital to have been set aside. Lack of development capital is the Achilles heel that has wiped out so many car makers in history. And I think this is going to play a big role in how Tesla fares in the future. In recent years the capital markets want BIG stories. Musk understood that better than most. And he is still pitching it that way - new Roadster, EV highway tractor, pick-up truck teaser and on it goes. The Tesla product development budget seems to be going into these things. But one never knows what might be going on behind the scenes, and perhaps a surprise reveal of "the new Model S" will be front and center one day.

- Personally, I think Elon Musk shows some of the same genius for perfection that Steve Jobs did. The Model S, designed and refined during a more relaxed time in Tesla's (and Musk's) history was a beautiful and elegant piece of work when it was introduced. And just like Apple's products, I have the impression Musk's instincts and demanding nature to create something truly attractive played a big part in that. The Model X, on the other hand, looks like it was designed by a committee (those gull wing doors remind me of not only DeLorean, but also Bricklin). And the rather pug shaped Model 3, with its fat lip, looks like it came out of a GM beancounter efficiency contest for new graduates. $50k and up for a sedan that looks like that? The heat is on.

- The new luxury EV competition doesn't have much incentive to squeeze Tesla's margins imo. They will benefit from those high margins themselves if they can retain them, knowing full well that in time Tesla will implode financially as it gradually loses both market share and (more) money.

- Tesla's ludicrous market cap is the reason it has no potential to be sold except, as you noted, to a "bored Emirati" or similar. It might ultimately be the major PE investors in Tesla that engineer such a sale to create a liquidity event for themselves, as no serious industry player is going to touch it. Tesla's production facilities are in a ridiculously high cost jurisdiction, and likely to be seen as a liability instead of an asset. The Supercharger network isn't worth a fraction of Tesla's valuation, and is now coming under assault from competitors building non-proprietary networks. And no serious industry player can possibly justify the "strategic value" of Tesla's IP (such that it might be) at these valuations either.


At this point Tesla has to perform as I see no other imminent way out from the expectations Musk has created.

[Mega]

Re: Is Tesla TOAST ?

https://www.reuters.com/article/chry...21254920091107

It made no sense till "They" killed Diesels...............