TSLA - Tesla Motors

[boilermaker75]

I think Tesla is un-investible long or short.  I don't understand the morbid fascination with trying to justify a long position here.  The last CFO didn't make it one month.  Just in time to make sure his name was not on the audited financials.  Management turnover is insane for any company.  Competition is still coming.  Legacy auto makers can afford to subsidize a money-losing EV with higher margin trucks and SUVs.  It is not a level playing field.

 

Why is Jim Chanos wrong?  I'm not saying he can't be wrong.  I disagreed with him on LNG.  His short thesis was comical (he still counts it as a winning short, btw).  I was happy to go long after an interview with him saying that export facilities would corrode faster in the salt water environment than what was accounted for in the standard depreciation of PPE.

 

I'm sure Enron's 10Q looked pristine, too, right before everything blew up. 

 

I'm not saying this is a 0, but I think there are better places to spend one's time.

 

Enron's cash flows did not look great. I seem to recall most quarters they had negative cash flows.

[peterHK]

Any investment where you're arguing over whether $100mn+/- in net income in a quarter stops the risk of a liquidity crunch isn't a good long for sure.

 

My problem with Tesla is that it's run without room for error. What happens when rates go up another 200bps, you see more defaults on auto loans and lenders start to tighten financing, consumers are squeezed and we see auto sales start to drop? Tesla is STILL an automaker: high fixed cost, negative working capital. When growth unwinds, it becomes very very ugly, and the company has zero in the way of buffer to survive a possible drop in sales, let alone a probable drop in sales.

 

This is not a business to be long at the tail end of a cycle, or in any sort of environment with economic stress and one of the better long-term reasons to be short is that this is a  house of straws that is at very great risk of toppling over in any trouble. I love being short that when times get ugly, because sometimes they turn into donuts. Against other tech longs like GOOGL/MSFT/AAPL that have huge excess cash and more durable business models (I'd say MSFT is the most durable, the other two are more cyclical so are perhaps better TSLA hedges), a short of a company like Tesla can add a lot of value.

[Grant]

My problem with Tesla is that it's run without room for error.

 

This seems to be Musk's "style", perhaps because he had enjoyed success during massive bull markets (the first being the dot-com bubble, then the post-financial-crises bull run).

 

However I'd also say his incentives may not be aligned with the company's and shareholder's. He owns Tesla on margin, and it's possible (especially given his recent behavior) banks may not let him pledge any more shares against his loan. By my estimations, without pledging more shares he risks a margin call around $210. A serious correction could ruin him.

 

Then there's the convertible debt with a minimum conversion price of $251. Musk's incentives may be to swing for the fences and keep the stock price high, damn the consequences.

[Liberty]

This seems to be Musk's "style", perhaps because he had enjoyed success during massive bull markets (the first being the dot-com bubble, then the post-financial-crises bull run).

 

Actually, he sold Paypal to eBay in 2002 and he went through hell at both Tesla and SpaceX during the GFC and because of early rocket failures when he was all in. It's not like he's just ridden a bull market up and has never seen problems.

 

His behavior, I think, is better explained by the fact that on top of having gigantic risk tolerance, he's mission-driven, and he thinks that time is of the essence to try to move things forward and deal with large problems (clean energy, making humanity multi-planetary). So he could've milked the Model S for a while before moving on to a new model and a while longer before building the gigafactory (if at all) and so on, and that would've been a lot less risky and probably profitable a LOT sooner. But if you're goal is to make a dent in the transportation sector's reliance on oil, you need a high-volume EV and you need to show to buyers and competitors that it can be done so their speed in their plans.

[Grant]

Musk was replaced by Peter Thiel at x.com in September of 2000. He did do some pre-financial crises fundraising for Tesla, but the vast majority of it in dollar terms has been recent.

 

I don't think there's a connection between his mission here, as none of his missions are highly time-sensitive. There's no "tipping point" in climate science orthodoxy, though I'm unsure what theories he believes in.

 

Automotive engineers have never thought a high-volume BEV couldn't be done in volume; the limitation has always been battery cost and mass. What Musk did was show the ICEV manufacturers how much demand there could be for BEVs, despite the high costs and other disadvantages of not-so-great Li-ion technology. I think the Model S was the big revelation here.

[ERICOPOLY]

 

It's also a lower-priced car compared to the LR RWD it replaced - the model they've sold the most of.

 

The dual-motor was more popular once it was introduced.  They've sold more LR RWD because it was a long time before the dual-motor was an option.

 

[Spekulatius]

I don't understand the morbid fascination with trying to justify a long position here.

 

I haven't seen anyone here with a long position, nor trying to justify one.

 

I was just about to post the same.  I see people trying to justify short positions and others saying that a short position is risky for one reason or the other.  It seems simply not being short or thinking that there is a possible future (however unlikely) where Tesla succeeds, is so unthinkable here that it is worthy of a knee jerk reaction.

 

If I were short TSLA before the quarterly report, I would consider my investment thesis to be broken. If I consider a thesis broken, I will exit the position (one of my few iron rules) not create a new thesis. just my opinion, I have no dog in this fight.

[A Dhandho Investor]

If I were short TSLA before the quarterly report, I would consider my investment thesis to be broken. If I consider a thesis broken, I will exit the position (one of my few iron rules) not create a new thesis. just my opinion, I have no dog in this fight.

 

I would say it depends on what premises your short thesis is built on. For instance, everybody was well aware that Tesla was going to juice the Q3 (report) as much as possible. Q4 will be the real deal.

[A Dhandho Investor]

SHDL, I agree there were no red flags. Might we call the lack of disclosure regarding supplier rebates a yellow flag? The $TSLAQers are saying the language regarding a a single "entity" comprising 10% or more of accounts receivable is strange, and might represent supplier rebates.

 

Apparently, a Tesla spokesperson told the LA Times that the 10% of accounts receivable is related to "one of its partner banks for loans issued to US customers and almost all of this receivable was cleared in the first few days of Q4"

 

Still sounds fishy to me.

[Dynamic]

https://www.recode.net/2018/11/2/18049504/elon-musk-tesla-spacex-kara-swisher-interview-recode-decode

 

Podcast interview with Kara Swisher. I haven't listened yet, so don't know if it's good.

 

I did give it a listen yesterday and found it quite informative.

 

One very interesting point that Elon Musk made was how difficult it is to manufacture hardware as compared to software. You need to order parts from numerous suppliers, 3-6 months in advance with a road map for your production ramp that they all buy into at least 9-12 months into the future. If one out of all those parts doesn't arrive, you cannot ship the product and you're left with a ton of expensive inventory that cannot be sold that you'll soon have to pay for meaning you lose sales revenue and must pay supplier costs. Fortunately, they have a huge waiting list for the products to ensure there's ample demand for what they can produce, so it's then a case of convincing all your suppliers that the production ramp you're aiming for is achievable and that they will meet the volumes required for that ramp. He explained why Tesla and Ford only just made it through the last recession without going bankrupt in this sort of way.

 

I know a number of electronics type OEMs including one I worked for, were trying to introduce on-site supplier-owned inventory, still owned by the supplier until used. Part of it was lean manufacture and just-on-time delivery and part of it was cash flow and working capital management by keeping parts inventory off the OEM's balance sheet until it was work in progress. I have no idea if any of this approach is taken by the Toyotas of this world in respect of their parts suppliers.

 

Also of note, is that he again pointed out that Tesla's mission is less about making the best return on investment than it is about bringing forward the mass adoption of EVs by 5, 10, 20 years, which could have an enormous impact on the eventual level of Human Induced Climate Change above pre-industrial levels compared to if Tesla weren't there to drag the auto industry kicking and screaming into the 21st century. Not only will swapping ICEV to BEV help to achieve that, but also creating an enormous increase in per-vehicle utilization through autonomous driving and mobility as a service can do that by further reducing the total number of vehicles needed by society, using each of them for more of the time.

 

Now, clearly being continually unprofitable and value-destroying is not going to achieve that, but taking on something very difficult and capital intensive and bringing about 60% of the world's BEV cell production capacity in house (into the joint venture with Panasonic, that is) and making continual improvements to models rather than operating the industry's usual cosmetic refresh cycle, all these approaches are ways that Tesla is attempting to achieve its mission. The shareholder return is secondary. The relentless quarterly focus is somewhat counterproductive. The incentives for smart people to try to spread negative publicity about Tesla is definitely counterproductive, be they funded by short-sellers, simply sensationalist news outlets seeking clicks rather than reporting truth, or be they funded by vested interests committed to fossil fuels. Only short sellers would vanish if Tesla were private.

 

He also talked about Boring Company and their planned party in early December for the Hawthorn tunnel and about SpaceX and Blue Origin and his admiration for Jeff Bezos etc.

 

I feel even more strongly that this is not worth the risk to short, though I have an extremely high bar against shorting anyway because I've heard too many cautionary tales.

 

And while Tesla might do very well, and I hope it does, it's nowhere near the quality and margin of safety I'd be looking for in a long investment either, with nowhere near the upside potential that I'd demand given the risks it faces and the other opportunities I have.

 

I will continue to cheer from the sidelines. The most investment I can see myself making relating to Tesla for quite some years, is to buy one of their cars in a year or two, perhaps when Model 3 is available in the UK. I've never bought a new car yet (an e-bike and a very small, relatively efficient second hand petrol car meet our needs right now), but our next car will be an EV, and for an EV with modest running costs, ideally not as wide as a Model S or X and with good safety and driver assistance, I could make an exception and support EV adoption and the industry's improving economies of scale by paying my own money to Tesla. It's certainly the most complete EV option available now, with good range and ample truly rapid charging throughout western Europe for those longer trips. I really look forward to reliable 100kW+ chargers that accept all major payment cards being widely available and being supported as standard by all cars, but something tells me that will take a few years more.

[Liberty]

Musk was replaced by Peter Thiel at x.com in September of 2000. He did do some pre-financial crises fundraising for Tesla, but the vast majority of it in dollar terms has been recent.

 

I don't think there's a connection between his mission here, as none of his missions are highly time-sensitive. There's no "tipping point" in climate science orthodoxy, though I'm unsure what theories he believes in.

 

Automotive engineers have never thought a high-volume BEV couldn't be done in volume; the limitation has always been battery cost and mass. What Musk did was show the ICEV manufacturers how much demand there could be for BEVs, despite the high costs and other disadvantages of not-so-great Li-ion technology. I think the Model S was the big revelation here.

 

He was still the company's largest shareholder and involved in it after the merger with X

 

The point is that running a massive chemical experiment with our atmosphere is very risky, and the higher we bring the GHG concentration above recent levels, the more risk there is. It's a non-linear system, and if we start melting permafrost and releasing lots of methane or mess up agriculture on a large scale, it won't be pretty and things could possibly accelerate in the wrong direction. You don't play russian roulette with your only planet. Speeding things up when it comes to getting off oil for transportation can make a huge difference, especially considering how much inertia there is in the system.

 

Nobody ever said it couldn't be done. It's about the pacing and how fast it gets to be done. Without Steve Jobs there would eventually have been touch-screen cellphones, but he made it happen faster and better than it otherwise would've happened, and forced the rest of the industry to fast-follow and scrap their roadmaps that probably had them doing Blackberry-like phones for many more years (look at Android phones before the iPhone). Tesla has done the same thing for BEVs, even Bob Lutz clearly said that the only reason he was able to convince the GM board to back the Volt was because of Tesla. Before Tesla, they were actually going backwards by recalling and destroying the EV1.

[Dalal.Holdings]

Tesla Short David Einhorn Says Last Quarter Was ‘As Good As It Gets’

 

https://www.bloomberg.com/news/articles/2018-11-06/tesla-short-einhorn-says-last-quarter-was-as-good-as-it-gets

 

::)

 

One wonders what his overall returns are on the short and whether it was truly worth the opportunity costs of borrowing shares/paying option premiums over the >1 year that he's been short and has nothing to show for it (except losses). Guess he can keep putting out statements like these and one day hope his thesis works out -- but it seems less and less likely that his returns even in that scenario (if it were to occur, let alone when) would justify being short in the end (in terms of lost opportunity cost). Then again, the Greenlight long portfolio hasn't exactly performed on par with anything to write home about either...

[Spekulatius]

Tesla Short David Einhorn Says Last Quarter Was ‘As Good As It Gets’

 

https://www.bloomberg.com/news/articles/2018-11-06/tesla-short-einhorn-says-last-quarter-was-as-good-as-it-gets

 

::)

 

One wonders what his overall returns are on the short and whether it was truly worth the opportunity costs of borrowing shares/paying option premiums over the >1 year that he's been short and has nothing to show for it (except losses). Guess he can keep putting out statements like these and one day hope his thesis works out -- but it seems less and less likely that his returns even in that scenario (if it were to occur, let alone when) would justify being short in the end (in terms of lost opportunity cost). Then again, the Greenlight long portfolio hasn't exactly performed on par with anything to write home about either...

 

It’s very worrisome to have people manage your money when they can’t admit they are wrong. When you are short a stock, you need to admit very quickly when you are incorrect and that seems to be the case here. Maybe TSLA greased the numbers for last quarter but nobody has found a smoking gun. Excessive valuation alone isn’t a reason to go short, he should have learned that much.

[Gregmal]

Tesla Short David Einhorn Says Last Quarter Was ‘As Good As It Gets’

 

https://www.bloomberg.com/news/articles/2018-11-06/tesla-short-einhorn-says-last-quarter-was-as-good-as-it-gets

 

::)

 

One wonders what his overall returns are on the short and whether it was truly worth the opportunity costs of borrowing shares/paying option premiums over the >1 year that he's been short and has nothing to show for it (except losses). Guess he can keep putting out statements like these and one day hope his thesis works out -- but it seems less and less likely that his returns even in that scenario (if it were to occur, let alone when) would justify being short in the end (in terms of lost opportunity cost). Then again, the Greenlight long portfolio hasn't exactly performed on par with anything to write home about either...

 

It’s very worrisome to have people manage your money when they can’t admit they are wrong. When you are short a stock, you need to admit very quickly when you are incorrect and that seems to be the case here. Maybe TSLA greased the numbers for last quarter but nobody has found a smoking gun. Excessive valuation alone isn’t a reason to go short, he should have learned that much.

 

Yea it isn't really even gimmicks like TSLA, he's short things like Amazon and Netflix too for no reason other than valuation. But what I think is shameless, is that he's now using his Tesla short, which relatively speaking is an immaterial position, to get publicity and attention. I was surprised to see his name maker shorts on Allied and Lehman, for all their glory and fame, were like single digit positions that had, overall, maybe a couple hundred basis point effect on the overall portfolio. They were more or less publicity stunts. At least a guy like Ackman with HLF had a real reason to be vocal.

[Foreign Tuffett]

Boy oh boy does Mr Market work in strange ways. Tesla, an auto OEM that:

 

1) Is severely liquidity constrained

 

2) Is perpetually in "production hell"

 

3) Has experienced excess executive turnover

 

4) Has an erratic CEO that has been sanctioned this year by the SEC for lying about a buyout of the company

 

5) Has all sorts of other red flags

 

Is somehow up YTD in a flattish market.

 

Tesla is heavily shorted right? IMO the fundamentals have, at least in the short term, been left by the wayside as short covering, Elon's hype machine, and other idiosyncratic dynamics drive the price action. 

 

Any thoughts?

[ERICOPOLY]

Why are the shorts covering?  You make it sound so obvious.

[Liberty]

Why are the shorts covering?  You make it sound so obvious.

 

Today it's probably because they're getting margin-called because of other positions blowing up.

 

Over the past few weeks, probably because their main thesis hasn't played out with the latest Q's results.

[rkbabang]

Even if the shorts are correct eventually (something I'm not sure of) shorting a stock like this is like standing in front of a steam roller hoping it runs out of fuel before it runs over you.

 

[Foreign Tuffett]

Why are the shorts covering?  You make it sound so obvious.

 

Today it's probably because they're getting margin-called because of other positions blowing up.

 

Over the past few weeks, probably because their main thesis hasn't played out with the latest Q's results.

 

Exactly

[A Dhandho Investor]

As far as I'am concerned, nothing has really changed fundamentally. When looking into the interest earned in Q3, the average cash balance throughout the quarter was below 1,5 billion, which shows that they definitely engaged in some window dressing activities at the end of the quarter. One theory why they sell most vehicles during the last month of the quarter instead of smoothing deliveries over the quarter is so that they can hold onto the sales tax, registration fees, etc at quarter end.

 

So far in Q4, S & X sales seem to be declining in China and Europe and M3 sales seem to be more or less flattish with Q3, so I am definitely curious why the share price has kept up at these levels. In any case, Tesla has every incentive to keep the share price around / above 360 in order to convert the convertibles and not have to pay them in cash in March.

 

With the risk of repeating myself, I am still convinced that brand equity is declining:

- there are more than 100 lawsuits registered against Tesla (ao lots of 'lemon' lawsuits)

- in addition to the M3 built quality issues noted in the past (panel gaps, paint issues, etc), it appears there are also issues with cold weather (freezing door handles) due to insufficient testing in different weather circumstances (https://electrek.co/2018/11/14/tesla-model-3-cold-weather-flaws/)

- more are more people are complaining regarding waiting lines at Supercharger stations

- more and more complaints regarding service issues

 

The problem is that most early adopters (S & X buyers) were used to getting a special treatment from Tesla, which definitely stopped when Tesla started mass producing the M3. It does not seem a good strategy to pay less attention to your high margin customers when competition is going to increase for these products (e-tron, i-pace, etc).

 

 

[Dalal.Holdings]

Interesting how it seems like you could have gone short just about any stock other than TSLA and done well lately...almost as if entering crowded trades does not have a good risk-reward setup...  ::)

 

Based on the recent quarter's results, the company will likely have the cash to pay the bonds, regardless of the closing stock price when they mature next year.

 

And dozens of lawsuits and dozens of people complaining online? Must surely not be availability bias (after all, the media/social media/internet commenters etc are equally likely to report on customers unhappy with their F150 trucks as they are unhappy Tesla customers...). Clearly looking at customer complaints and lawsuit counts against a highly polarizing, sensationalized topic like Tesla/Musk must give you an objective picture of the company and its product...

 

Your definition of brand equity is definitely not my definition of the concept.

[Investmentacct]

Why are the shorts covering?  You make it sound so obvious.

 

Irony: California breeze started to reach other parts of nation.

[SHDL]

I sold my puts promptly after the 10-Q came out, and I imagine people like me have contributed to the recent price action.  For me this was a purely quantitative bet on a short term liquidity crunch, so closing my position was a no brainer given the updated numbers. 

 

Given the circumstances, I think this is now one of those stocks that will continue to trade based purely on people’s expectations about the company’s eventual profitability and nothing else.  And if so, the stock price will remain elevated — and may even keep going up — as long as there are enough bulls around.  It’s true that we will eventually know whether the bulls are right or not, but (a) we may have to wait a VERY long time before we do, and (b) the company may have transformed itself into an entirely different beast by then.  That IMO is enough to make this an extremely difficult short. 

[Liberty]

https://electrek.co/2018/12/06/tesla-battery-report/

 

Neoen, the owner of the giant Tesla battery system in South Australia, released a new report for the first full year of operation and revealed that the energy storage system saved about $40 million over the last 12 months.

 

Tesla’s 100MW/129MWh Powerpack project in South Australia provide the same grid services as peaker plants, but cheaper, quicker, and with zero-emissions, through its battery system. [...]

 

They contracted Aurecon to evaluate the impact of the project and they estimate that the “battery allows annual savings in the wholesale market approaching $40 million by increased competition and removal of 35 MW local FCAS constraint.”

 

It is particularly impressive when you consider that the massive Tesla Powerpack system cost only $66 million, according to another report from Neoen.

 

$40m saved in a year for a project that cost $66m. That's some pretty good ROI!

 

And li-ion battery prices keep fallling... Guess we'll see a lot more of these, starting with places where there are large swings in power costs between peak and off-peak and where power costs the most, and over time to other places down the curve...

[Leverage Capabilities]

Tesla is Said to Plan Using Stock-Cash Mix to Pay March Debt

 

https://www.bloomberg.com/news/articles/2018-12-06/tesla-is-said-to-plan-using-stock-cash-mix-to-pay-off-march-debt?srnd=premium