Published on February 1st, 2019 | by Maarten Vinkhuyzen
February 1st, 2019 by Maarten Vinkhuyzen
WARNING: This article is centered around faux distortions of positive Tesla news, like you might see from Seeking Alpha or Wall Street analysts. The point is to add context and perspective (after the faux distortions) to the kinds of reactions you might see on larger media sites like CNBC and Business Insider.
Lost shorts: The Tesla Q4 shareholder letter and following conference call were the usual collection of stories painting a rosy situation of a very troubled company.
(Or they were an informative account to shareholders of Tesla’s whereabouts over the past quarter and year and its expectations and plans for the next year, to the best knowledge of the management — just like the law proscribes and the SEC monitors.)
Lost shorts: The following problems are the first that caught our eyes. After an in-depth analysis of a number of other worrisome and suspect developments, more detailed articles of the impact of these risks will follow.
(Here’s some basic content-free FUD. We’ll have in-depth and exclusive content-free FUD soon.)
Lost shorts: We have heard multiple times that producing 7,000 Model 3s per week was no problem and expanding the lines to 10,000 per week needed just a little capex. In a bout of unusual honesty, Tesla now admits that it will take to the end of this year to reach a sustainable 7,000/week. Is this admission because of federal investigations into misleading announcements in the past? Or is it because combined Chinese, European, and domestic demand is not big enough to sustain that level of production?
(No mention that Shanghai is starting production at least a year ahead of schedule and will bring the global figure up to 10,000/week, that Trump tariffs may limit Model 3 demand in China until the Shanghai Gigafactory is online, and that Tesla’s current focus is cutting costs in order to get the $35,000 Model 3 out the door.)
Lost shorts: With the low price of Tesla shares, Tesla is forced to pay the whole $920 million convertible due in March in cash. It is too late to pump the share price to the level needed ($360) to pay this debt in shares. This is a huge assault on Tesla’s dire cash position that they can ill afford. Especially in this quarter, that is likely to see losses again.
(When the stock price was above the conversion price, Tesla limited the conversion to 50/50 stock/cash. Tesla is far more concerned about dilution than its very healthy cash position. Tesla has no problem paying off the debt in cash and may well prefer that.)
Lost shorts: Due to tanking demand in the USA and not enough demand in Europe and China, expect a loss in this quarter (Q1 2019). And ignore that we claimed Tesla would show a loss in Q3 2018 and Q4 2018. The official reason when Tesla does indeed show a loss in Q1 will be that a large number of cars will be “in transit” at the end of this quarter, shipping to other continents. It is also a perfect way to masque a large unsold inventory — out of the sight of those obnoxious spies who expose unsold inventory on large parking lots around the US.
(With nearly a month of production in transit, revenue will be delayed, but costs on the books. If this quarter is breakeven, Tesla is a very healthy company. Elon Musk is slightly optimistic Tesla will show a profit in Q1. Elon also said Tesla would show profits in the 3rd and 4th quarters of 2018, and these same critics didn’t treat that as serious and acted like Musk was crazy or a fraud for providing such forecasts … but Tesla did indeed show profits in the 3rd and 4th quarters of 2018.)
Lost shorts: In January 2015 we were told that the second US Tesla car factory might be closer to the East Coast. Four years later Tesla has not succeeded to lure any East Coast state into giving billions in subsidies to this losing proposition. Now Elon says they will likely build the Model Y in Sparks, Nevada, at Gigafactory 1. We have not seen any indication that Tesla can raise the money needed for the Model Y after the near-death experience of the Model 3. Nevada should be glad that this Fata Morgana will likely never come to fruition.
(With current and forecasted profits, Tesla does not need any outside financing for the Model Y. Due to much greater production efficiencies than expected in the Gigafactory, there appears to be room there to produce the Model Y and save on capex.)
Lost shorts: The promise that stationary energy storage systems would triple every year for the next three years did not survive very long. It is now scaled down to a still too optimistic doubling in 2019.
(There are not enough cells for storage products, so Tesla’s storage products are currently using cells from external suppliers, which is not a good solution for Tesla. Demand is sharply rising, but planning and budget allocation takes more time than we, simple people, often realize. As an example, look at the simple southern US fence that should be paid by USA’s neighbor — Trump is now having fits about it since there is no money budgeted for it and the neighbor won’t contribute a dime.)
Lost shorts: The size of the SolarCity debacle is becoming more clear. Another report on tanking sales.
(Profits and margins are rising, what is the problem? Wasn’t Wall Street’s previous problem that SolarCity was borrowing too much money (to grow quickly)?)
Lost shorts: Anybody remember those solar roof singles? They started installing them sometime ago, but not for real. They need more testing and development, they are “just around the corner” or “far behind the horizon,” depending on who you are listening to. All these alternative energy adventures are just distractions from a wannabe carmaker that doesn’t know how to make a quality product at an affordable price.
(Testing a product with an expected lifespan over 30 years is taking longer than anticipated. You simply can’t speed up some aspects of the testing. The biggest problem is that the orders are still coming in because people expect they will be as awesome as Tesla’s other products.)
Lost shorts: What many of us have been predicting for some time is now silently confirmed. The Models S & X are at the end of their lives. They are old and stale. There is no other explanation for the admission that there will not be an upgrade to the newer 2170 battery format.
(The Model S is still far ahead at the top of its class in sales, customer satisfaction, and resale value, and the Model X continues to perform competitively, especially considering its price, as well. Using a better battery may have some marginal benefits, but that doesn’t make doing so a good business decision since there are also costs associated with redesigning a large part of the car and parts of the production lines to use the better battery. Also, if those batteries are limited in supply, it is sensible to keep using completely adequate batteries that have served the products and their customers well for years. If it ain’t broke, don’t fix it. Don’t make the perfect the enemy of the good.)
At the end of the conference call came the last shocker. Deepak Ahuja is leaving the sinking ship, following the example of many senior managers before him. Is it because he knows that even his financial wizardry can’t keep this sham afloat, or does he have a plea deal with federal prosecutors? Time will tell.
(Every two-bit accountant can tell that the financials of Tesla have never looked better. Smearing the man who came back from retirement when Tesla needed him is beyond contempt.)
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