This take getting popular on Twitter, so reposting it on the blog for greater prominence.
Congrats. Sounds like a good swing trade in light of the fact that the trend is your friend.
I am getting in on the great bear raid against Tesla, which I’ve been agnostic on (mostly ignoring it) other than being skeptical. Did a lot of research over the weekend, and the findings were quite disturbing. Musk will be lucky to avoid a prison sentence.
Tesla is going to zero, barring something like Musk getting a large commitment from Crown Prince Mohammed bin Salman.
There are no shares available to short, but puts suit me just fine. JP Morgan Chase will be coming out with Tesla credit default swaps as well. That said actually selling the swaps could be a problem.
On a different note, Tesla is going to zero. The company has a number of severe problems:
• Tesla is burning through one billion per quarter and is likely to run out of cash this year
• It is the only company of its size (in the market) offering high yield debt and stock offerings to accredited investors (which do not require SEC disclosure)
• Crown Prince Mohammed bin Salman reportedly refused to meet with Elon Musk when he was in Saudi Arabia
• Elon Musk has violated federal securities, labor, and OSHA laws
• Musk and many other current and former executives have signed false documents and thus committed perjury
• The Model 3 is a disaster and was panned by Consumer Reports, Car and Driver, and Edmund’s
• The self-dealing merger with Solar City would likely not have been approved by shareholders without Musk’s vaporware demonstration of solar roof tiles that do not exist (securities fraud)
• Half of Tesla’s output is exported, leaving it very vulnerable to trade retaliation
• Quality problems continue to be severe, and Tesla has now resorted to partnering with local body shops for post-production fixes
• Extreme shortage of spare parts means Teslas can be out of service for months
• Tesla takes months to refund customer deposits
• Numerous accounting problems, leading to 86 questions from the SEC for the last fiscal year, compared to zero for Ford Motor
• Tesla “autopilot” units keep crashing
• Highest accident and fatality statistics in its vehicle class (new luxury vehicles)
• Model S wheels and suspensions keep cracking
• Difficulty of exiting vehicle in the absence of electrical power (no mechanical door handles) led to children literally being burned alive
• A flood of competition is inbound, including the 600 horsepower Porsche Misson-E going into production at Zuffenhausen next year
• Tesla’s zero emission credits are set to expire, just as other automakers start harvesting them
Every freely available share is now short–not joking. You can’t even short the stock anymore generally, though puts are of course available.
Musk himself is likely to be personally wiped out as well, as he has borrowed against 40% of his shares. He’ll face a very ugly margin call when the stock starts sliding. Additionally, he’s likely to personally face both civil and criminal liability.
Reply to Critics
I bought some Tesla shares as the company as dipping a few weeks ago.
Hedge your long position with some puts. Only reason I am not short is that there are no shares available to short. I did buy puts however.
Congrats for putting your money where your mouth is. By next year this time you may be featured on @Bagholderquotes :).
The criticism of lack of profitability is sound & fair, but I also think most of the overheated commentary has been irrational and overtly emotional.
This has been true. Most Tesla criticism up until now has come from two camps:
1. Gearheads with gasoline flowing in their veins who hate EVs. I belong to this group (my daily driver has a 450 horsepower V-8 and I hate fuel economy and EVs), though I avoided getting irrational about Tesla.
2. The Zero Hedge doomerist crowd.
There have, however, been two major exceptions. Jim Chanos and Bob Lutz.
Jim Chanos is a legendary short seller who nailed Enron and Valeant (though he lost some credibility by betting on a China crash that never happened). Chanos states that the only times he’s seen so many executive departures before are Enron and Valeant.
Bob Lutz likely needs no introduction to you. And while Lutz is a car guy (invented the Dodge Viper), he says the greatest achievement of his career was the Chevy Volt and that EVs are inevitable. Furthermore he highly praised the Model S. Lutz has bluntly called Tesla a personality cult that’s going bankrupt.
I expect Tesla to gradually improve net profitability as time goes on. Musk has prioritised volume expansion over profits and I think it is fair to say that he underestimated how tough it would be.
Tesla can’t improve its net profitability because it has no profitability to begin with, even if we accept Tesla’s fictitious gross margins and channel stuffing (e.g. “selling” batteries to The Boring Company).
Musk has indeed prioritized volume production, and his failure is due to his arrogance. This arrogance is typical of Silicon Valley as a class. They assume they know better than any other industry, failing to realize their success is due to monopoly and lack of regulation (welcome to the auto industry boys!).
Musk deliberately recruited executives with no experience in the automotive industry, and he attempted to fully automate production (e.g. his infamous alien dreadnought remark). If Musk weren’t so arrogant, he would’ve learn that Roger Smith attempted this in the ’80s and went so far as to buy FANUC. It was a complete disaster. Sandy Munro describes robots as blind one-armed idiots, and notes that not only can they not do everything but one must design the product itself for robotic production.
This arrogance is directly culpable for Tesla’s huge capital costs, as essentially Tesla bought far more capital equipment than it can actually use or is required in automaking. Musk said he was going to build half a million cars this year. He’ll be lucky to hit 200,000.
Even aside from Tesla’s financial woes, regulatory violations, massive civil liability, and outright criminality a massive flood of competition is inbound.
The Jaguar I-Pace electric SUV is on sale right now in Europe, and arrives in North America next month: https://www.jaguarusa.com/all-models/i-pace/index.html?abkid=407_224254&gclid=Cj0KCQjwuYTYBRDsARIsAJnrUXAjcErB3eAzUm3aDwws14fB5_Gi4_-V1yMDCdK81o3JVzfIfP3nvKoaAvGuEALw_wcB&m
The Porsche Mission-E goes into production next year at Zuffenhausen: https://www.porsche.com/microsite/mission-e/international.aspx
The Chevy Bolt is available now, unlike the fictitious $35,000 Model 3: http://www.chevrolet.com/electric/bolt-ev-electric-car
Volkswagen is currently converting twenty assembly plants to EV production, Daimler is investing twenty billion euros in it by 2022, and GM is putting over 20 all electric vehicles into production over the next five years.
Then there’s the fact that the Model 3 turns out to be something of a dog. Consumer Reports, which called the Model S the best car it has ever evaluated, noted that the Model 3 has a greater average stopping distance than the Ford F-150.
What’s the story for Tesla surviving? A company that appears to be under SEC investigation somehow raises $20 billion in the next few years, achieves mass production, eliminates its severe quality problems, doesn’t get sued by all the people it killed, and beats the competition handily?
Then there’s the fact that Musk appears to be personally melting down. Feuding with Warren Buffet, attacking the press Trump-style, and dating someone named “Grimes” who is an “anti-imperialist” singer (?!).
I highly encourage you to check out Fintwitter on this (the only Twitter that can compete with Frogtwitter). No one does scuttlebutt like bears.
I don’t see the supercharger network as a major competitive edge at all. People interested in long-distance driving don’t buy EVs. I can “recharge” any of my vehicles in one minute.
And the rest of the industry is not standing still on this. The German automakers and Ford Europe are partnering with Shell to create their own network in Europe. Many other efforts underway in America and Asia as well. These efforts involve automakers, oil companies, power utilities, and in some cases governments. An ocean of capital is available for this.
EVs will not completely take over unless the government forces it, but I agree they will comprise a large percentage of new auto sales in the next decade. Maybe even a majority.
The thing is that these EVs will not come from Tesla, unless Tesla survives as a brand of a global OEM (I see GM and Ford as likely candidates for acquiring Tesla).
Remember the auto industry is the most brutally competitive industry on the planet.
A media ratings website is something Trump should’ve done.
In Musk’s case it is ridiculous because the media has been polishing his knob non-stop until his disastrous performance on the last earnings call.
He’s also angry that the press is reporting on the alarming work conditions at Tesla’s Fremont assembly plant, including some poor schmuck who suffered an arc flash explosion that melted all his skin because Tesla refused to de-energize the high voltage equipment he was working on (a violation of NFPA 70, OSHA, and CalOSHA).
Financial journalism is mostly solid as Peter Brimelow will be happy to tell you.
You’ll be happy to know that Teslemmings are accusing the Wall Street Journal reporter Charley Grant of being a RUSSIAN TROLL.
Effects on SpaceX
My knowledge only dates to last weekend really. Got tired of hearing about Musk and decided to do some scuttlebutt.
Space X is a private company, so I’m unaware of its financials or ownership structure. I suspect it is not profitable as it raised capital as recently as last year, but in principal there is nothing wrong with its business model. Its technical and commercial achievements are impressive. Unlike the situation with Tesla, Musk actually recruited experienced aerospace executives and engineers for Space X instead of Snapchat retreads (not joking–some dipshit from Snapchat is now running the Autopilot program).
The collapse of Tesla will do two things to Space X:
1 – Musk has borrowed against 40% of his Tesla shares, likely to finance his other businesses and fund his lavish lifestyle (Bel Air and London mansions, Gulfstream G650, etc.). This means he’ll face a crushing margin call, possibly forcing him to sell his shares in Space X.
2 – It will destroy his halo, which is source of his success. This is why Musk committed securities fraud in order to have Tesla acquire Solar City, which was rapidly headed for bankruptcy. With his reputation in tatters, it will call into question his leadership of Space X. Certainly ideas like going to Mars with other people’s money will be out.
There is also a real possibility that Musk will face felony prosecution, in which case he certainly won’t be running Space X.
A lot of the Tesla bears assume there’s something wrong with Space X as well, but I don’t think this is warranted. One guy who is documenting all the Model S suspension failures has invented a half-cocked conspiracy theory that Space X’s achievements are fictitious. It’s pretty common for short sellers to get emotional during a great bear raid, which is part of the fun.
Some resources for you all on Tesla’s impending collapse, starting with FinTwitter:
Mark Spiegel, Managing Partner of Stanphyl capital and Tesla bear
Elon Bachman, great source for product flaws
Montana Skeptic, and see his Seeking Alpha articles as well
Elon Musk himself, useful because of his ongoing meltdown
Model 3 Reviews
Scathing Edmund’s long-term test: https://www.edmunds.com/tesla/model-3/2017/long-term-road-test/2017-tesla-model-3-monthly-update-for-april-2018.html
Consumer Reports “not recommended”: https://www.consumerreports.org/cars/tesla/model-3/2018/road-test?pagestop
Sandy Munro’s teardown: http://www.autoline.tv/journal/?p=54950