TSLA - Tesla Motors

[TBW]

Thanks that is very helpful.

 

Low probability they could get enough institutions to agree to those terms to make it worthwhile.  And if they did I think it would be at a much lower price. 

 

I think its file or take-under at this point.  If they didn't raise equity yet this year, this certainly makes it much less likely they will.

[CorpRaider]

Yeah, I think they were really ill advised not to raise yet.  I always thought his goal/plan was to print a good quarter (or two) and then raise.  I think maybe I got that playbook from what he did at paypal or zip2it.  It has been a while since I read the Vance book though.

 

Seems like GOOG or some others would still be there as an option, just like in the financial crisis...at a certain price.  Though, I would speculate Elon would prefer to issue shares, even if the valuation got cut in half, to maintain independence.

 

He doesn't have the cash to participate in a rights issue and maintain strong control?

 

 

[oddballstocks]

The way I look at the raise issue is it's a catch-22.

 

They can raise if they disclose. But whatever it is they're loath to disclose would probably prevent a raise when disclosed.

 

Fundamentally a company isn't viable if they need to continually tap the markets to remain solvent.  They are selling luxury cars and projecting financials as if they were selling Camry's.

 

I think they are going to have issues by the end of the year if not sooner.  Covenants require money to be put aside before converts are paid.  That means they need about $1b sometime in December.  Between the cash losses, the continued cash burn and the debt payments there is $0 left.  They need to obtain a DIP and clean things up now, not in two months when payroll bounces.

 

They are playing Russian roulette with suppliers. There are accounts that Union Pacific is holding onto cars for non-payment. I have heard some first hand rumors from suppliers myself.  These are large companies that were happy to extend credit, but in the last few weeks realized they aren't interested in extending any more.

 

You have a supplier risk, the lawsuits, the DOJ/SEC risk, and cash counting to zero.  Beyond all of that they're trying to sell a really high end car in volume and jam the channels.  If that weren't enough there is a weird intertwining of the CEO and the company, and anyone following Musk can tell he's not well.  Maybe it's the "ambien" abuse, or whatever people want to call it.  Rationally he needs to step down, the problem is he has become the company, so he can't.  Just like the raise, to move forward he needs to leave, but the company can't move forward if he leaves.

 

Beyond all of this the stock trades at an absurd valuation. No bad news will wreck it.  It's really unbelievable.

[rb]

They are playing Russian roulette with suppliers. There are accounts that Union Pacific is holding onto cars for non-payment. I have heard some first hand rumors from suppliers myself.  These are large companies that were happy to extend credit, but in the last few weeks realized they aren't interested in extending any more.

 

You this the delivery hell Musk was talking about?

[rb]

In other news, it looks like Musk got his wish. Pedo guy is suing him.

 

https://www.nytimes.com/2018/09/17/business/elon-musk-sued-pedophilia-accusation.html

[CorpRaider]

He should acquire GIS in a stock swap deal and then divert the cash from the no growth CPG bidness to energy/saving the human race.  Flex that 90+ times forward multiple bro. 

[benhacker]

My 2 cents on the lack of raise.

 

Ben's theory

I think the SEC was/is investigating both the SCTY buyout (they lied to get it closed, IMO) and the reservation # (I do not believe was real, and Tesla's commentary (lack of) and Musk eruption on Q1 call confirm that is an area of "sensitivity" for him).  I think Elon aggressively thought they could work through those two, get them settled or closed, and then hit profitability w/ 2H shipments and then raise.

 

But they aborted their raise early this year and finance departures (coupled with no non-10b5 selling) for something (my speculation is above) and then his behavior cause by stress or reality (your pick) has somehow (amazingly in my mind) brought *more* legal troubles.  Now they are smoked, because they have to disclose it all and it's worse now, but profitability looks *less* likely now as Elon's tantrums to stop the shorts have added deferred maintenance liability (bad cars shipping or sitting in the desert) as well as legal liability.

 

On top of that, cash needs are near term, and Elon is personally leveraged, so no can to kick... I think this latest DOJ news is the end of the charade as suppliers will start changing terms and withdrawing.

 

It is literally, 100%, everything you look for in a short.  And Elon's now moved to lying and obfuscation, he's trying to do things to pump up reservations, but I think it's all just not working as much as it needs too. They can sell maybe 200-250k / year cars, but it doesn't matter.  They aren't investing in new capacity (nor should they), and the valuation is $60B and and they aren't close to cash flow positive.

 

Just super strange situation.

 

By the way, no reason the company can't disclose everything and then do an ATM funding.  stock would be killed, and Elon would hate it, but you  could do Billions before the rubes wake up.  That said, I think Ch 11 is unlikely unless Elon retains control in his current state, but personally I think the larger risk is he is a danger to his own self and that is the more likely swan for the stock.

[oddballstocks]

They are playing Russian roulette with suppliers. There are accounts that Union Pacific is holding onto cars for non-payment. I have heard some first hand rumors from suppliers myself.  These are large companies that were happy to extend credit, but in the last few weeks realized they aren't interested in extending any more.

 

You this the delivery hell Musk was talking about?

 

No delivery hell seems to be about messed up logistics.  These are suppliers for the core product who said "it's ok if you don't pay this month, pay next" and suddenly "x months" (a number I won't disclose) later they've said "this is a real problem, we need to take action."

 

These aren't small companies either. If they stopped supplying Tesla it wouldn't be material, but Tesla would have a very hard time replacing them.

[oddballstocks]

To Ben's point. This is a great short because it doesn't have to go BK to make money.

 

If they raise due to everything detailed above the price will be low.  Somewhere around $230 Elon hits a margin call.  He can continue to pledge more stock until somewhere in the $100s where he hits an SEC hard stop.

 

The problem is raising that low would decimate a lot of people who've levered into this thing over the past few months and could result in a sharp drop below $100.  And coupled with the margin calls it could crater, and still survive due to the raise.

 

Musk knows reflexivity is real and is doing everything to prevent it. But at some point it's going to flip and it'll be like water rushing out when a dam breaks.  The pond might not dry out, but it'll be a lot emptier.

[CorpRaider]

I agree with you Ben they could still raise a shit ton of equity and would just have to deal with the dilution...billions and billions is my guess.  I think he's just being stubborn about it.  Issue rights for a fkload @ $200, take your 1/3 haircut and be done with it, learn your lesson and move on.

 

SEC did say they had something open already when asked about the tweet, if memory serves.  But press reports, if I recall, were that the SEC matter wasn't likely to be too serious.  They probably have to be seen to do something about the tweet, even if they just get a little fine and a consent order about avoiding repetitions of this conduct.

 

 

 

[benhacker]

No delivery hell seems to be about messed up logistics.  These are suppliers for the core product who said "it's ok if you don't pay this month, pay next" and suddenly "x months" (a number I won't disclose) later they've said "this is a real problem, we need to take action."

 

These aren't small companies either. If they stopped supplying Tesla it wouldn't be material, but Tesla would have a very hard time replacing them.

 

For anyone not following this, you do not need Nate's anecdote.  Mechanic liens are piling up in CA especially, and some in NV.  You can search for them.  I think they are stretching DPOs to the limit, and they have clearly very bad controls on their accounting, so they are likely not paying some on time due to cash management and some due to paperwork reasons.

 

Sorry, posting too much here, don't mean to be seen as piling on.  I'll peace out for a bit.  Just fair warning to anyone long.  everything is out there if you just research this... it's a very high risk situation (for longs).

[TBW]

Ben, I am enjoying your posts.  Question, if you know about the liens and the cash troubles why do you think bankruptcy is an unlikely event?

[Ahab]

I am curious if anyone has any thoughts on why Tesla didn't gap down more on the DOJ/SEC news. It seems that the stock is impervious to bad news. Management woes, legal threats, debt maturities, and upcoming electric vehicle competition don't seem to shake Tesla believers.

[havingheart]

Not sure if this was already posted, but here are some unverifiable ancedotes about Tesla and Union Pacific

 

https://www.trainorders.com/discussion/read.php?1,4603290

[Ahab]

https://www.nytimes.com/2018/09/18/business/tesla-elon-musk-justice-department.html

As part of the investigation, the S.E.C. in the past month has sent subpoenas not only to Tesla but also to financial institutions that it hired to explore the going-private transaction, according to people briefed on the subpoenas. Goldman Sachs and Silver Lake, a large investment firm, both received subpoenas demanding materials about their interactions with Tesla, the people said.

And so the plot thickens!

[DTEJD1997]

I am curious if anyone has any thoughts on why Tesla didn't gap down more on the DOJ/SEC news. It seems that the stock is impervious to bad news. Management woes, legal threats, debt maturities, and upcoming electric vehicle competition don't seem to shake Tesla believers.

 

Could this be one of the many signs that we are in a bubble?

 

At the minimum, could this be a sign that we are in the late stages of a bull market?  The very late stages?

[CorpRaider]

I am curious if anyone has any thoughts on why Tesla didn't gap down more on the DOJ/SEC news. It seems that the stock is impervious to bad news. Management woes, legal threats, debt maturities, and upcoming electric vehicle competition don't seem to shake Tesla believers.

 

Speculation: The SEC investigation was already reported on.  It was implied they would be gathering information from those parties.  The reports I saw were that the DOJ inquiry was in the form of voluntary requests for info (as opposed to GJ subpoenas).

[Liberty]

At least they haven't lost their touch when it comes to crash safety:

 

https://electrek.co/2018/09/20/tesla-model-3-5-star-safety-rating-nhtsa/

 

"perfect 5-star safety rating in every category."

[walt373]

My 2 cents on the lack of raise.

 

Ben's theory

I think the SEC was/is investigating both the SCTY buyout (they lied to get it closed, IMO) and the reservation # (I do not believe was real, and Tesla's commentary (lack of) and Musk eruption on Q1 call confirm that is an area of "sensitivity" for him).  I think Elon aggressively thought they could work through those two, get them settled or closed, and then hit profitability w/ 2H shipments and then raise.

 

But they aborted their raise early this year and finance departures (coupled with no non-10b5 selling) for something (my speculation is above) and then his behavior cause by stress or reality (your pick) has somehow (amazingly in my mind) brought *more* legal troubles.  Now they are smoked, because they have to disclose it all and it's worse now, but profitability looks *less* likely now as Elon's tantrums to stop the shorts have added deferred maintenance liability (bad cars shipping or sitting in the desert) as well as legal liability.

 

On top of that, cash needs are near term, and Elon is personally leveraged, so no can to kick... I think this latest DOJ news is the end of the charade as suppliers will start changing terms and withdrawing.

 

It is literally, 100%, everything you look for in a short.  And Elon's now moved to lying and obfuscation, he's trying to do things to pump up reservations, but I think it's all just not working as much as it needs too. They can sell maybe 200-250k / year cars, but it doesn't matter.  They aren't investing in new capacity (nor should they), and the valuation is $60B and and they aren't close to cash flow positive.

 

Just super strange situation.

 

By the way, no reason the company can't disclose everything and then do an ATM funding.  stock would be killed, and Elon would hate it, but you  could do Billions before the rubes wake up.  That said, I think Ch 11 is unlikely unless Elon retains control in his current state, but personally I think the larger risk is he is a danger to his own self and that is the more likely swan for the stock.

 

I like this theory, the puzzle pieces fit nicely. But would the SEC allow the company to go forward with an ATM while it's is being investigated for potential fraud - wouldn't they be allowing the company to defraud more investors? And is a potential raise the only reason you think Ch 11 is unlikely?

 

My guess is that "funding secured" was a Hail Mary, similar to what Musk pulled off with the SolarCity takeover after it became clear the business was in trouble, as well as the near-death experience in 2008 that Musk bluffed his way out of. The hope was that a go-private announcement would spark interest in a takeover and the business could quietly shrink on someone else's watch. Ironically, the massive overvaluation enjoyed by TSLA stock probably had a large role in preventing a deal.

 

So after the Hail Mary failed, what's the plan now? Do they have any out they are working toward? That is what's puzzling to me. The company is still playing games to pretty up end-of-quarter numbers, but to what end? Still trying to get TSLA over $365 for the converts maybe? The fact that they still care about optics, tells me the TSLAQ imminent bankruptcy crowd is still a bit early. But Musk is the type of person who will shoot for the best possible outcome, no matter how unlikely or risky, and the flood of exec departures tells us the risk/reward does not look good.

[Ahab]

On the subject of Q3 numbers, I don't think Musk & Co. would be working this hard to pump deliveries if they didn't feel they had a chance to ride this one out like past close calls with bankruptcy. As a bear, I feel another raise is the greatest threat to my thesis. If Tesla raised say another $5 billion, they could kick the can down the road by at least another year in my estimation (buys them options). A wildcard for the bulls though is if something is keeping Tesla from raising *any* capital, that's where a sudden death spiral scenario comes into play. I don't want to hang my hat on SEC/DOJ investigations, but there's certainly massive downside risk there. Musk is a man who loves playing fast with the rules, will someone punish him for that? This is a company hemorrhaging cash, will people keep giving it to them? Seems to me to be the critical question.

[benhacker]

Thought I would share a personal anecdote that aligns with some things you can read on forums.

 

One of my close friends is a Day 4 reservation holder for the Model 3.  He's not a Musk cult guy, just a tech guy with a good amount of money who likes fast cars, and who's wife wants to be "green" so this is a natural compromise (he has a Corvette now).

 

So he was invited to Configure and did his non-refundable config in mid Aug (AWD model).  His delivery window was Mid Oct to Mid Dec originally.

 

2 weeks after his order, he was given a delivery date of Sept 16, and then a few days later they pushed his date to the 22nd (last Saturday)... a this time they gave him his VIN #.  (I have shared enough with him that he's pretty vigilant about what is happening, and his VIN was after the "factory gated" junk -- good news hopefully).

 

So Friday afternoon rolls around, and he gets a call (like many, if judging from online reports) - "sorry, your car is still "in transit" but your new delivery date is .... *OCT 8th*"

 

so my buddy fires me a quick email noting how shady it is, and his delivery specialist communication has been sporadic up until now, very bad at communicating, different reasons for why the dates, are changing, he's had 3 folks to talk to (they keep cycling or moving people around), etc.  so all of this supports the "chaos" theory of Tesla logistics and delivery, but not really the "fraud" theory.

 

right after the email my buddy calls me and notes "... sh1t, they removed my VIN # from the website... "

 

So at a party I'm chatting with him and another watcher of Tesla trying to piece together WTF they are doing.  I don't get it... my buddy has given them only the $3500, by pulling in his date, they are signaling availability is high, but then why are they screwing with him??

 

So then he drops the missing piece of the puzzle... "What really pisses me off... is that they cancelled me *1 day* before my delivery... they had to know before then.  and those bastards had the gaul to send me the payment request *2 days* before the delivery (ACH takes two days to clear dontcha know!)..."

 

....

 

My buddy didn't pay early, but that's cause he's talking to me.  He *did* however, sell his old car already.

 

so I have to ask myself, what is the one reason a company would *pull in* dates (which signal weak demand vs. supply) only to them push them out again (almost back to the original dates)?  Maybe, If they want to try and trap a few % of the buyers full purchase $$$$ vs. $3500 deposits.

 

And it fits another angle as well --> Mid Oct to Mid Sept happens to be just over a quarter end filing date for banks and the SEC... probably not a coincidence.

 

there are two explanations for this behavior.  I think the latter (that Tesla is unethically trapping cash) is more likely the more I think about it... but the alternative is that they are just incompetent (again, they aren't even doing what Musk said they would be doing nearly a year earlier, so clearly they are incompetent if they can't deliver the # of cars they supposedly are).

 

I have only 2 friends buying Tesla's right now, so this anecdote is 50% of my sample set (albeit small) (other client is buying an X and they are further behind in the process... and I will be curious to see what his experience is)... what you are reading on forums is really happening.  I now see how folks are literally paying car payments without having a car, nor having their old car...

 

This is absolutely terrible.

 

Oh, and FYI, when the VIN # is removed/unassigned from the customer, I believe the car in question can be either resold, or added back to the borrowing base for their credit agreement, so this is genuinely (for a brief period at least) a legal way to double dip.  $60k in customer cash looks like 60 individual future reservations for a Model 3... I would note.  Perhaps a Chief Accountant would want to add a footnote about that in the financials before signing them...

 

Such "chaotic" behavior which is so beneficial to the cash balance of a corporation, are rarely things originated either 1) through random chance or 2) by only low level employees.

 

Ben

[ERICOPOLY]

This is a company hemorrhaging cash, will people keep giving it to them? Seems to me to be the critical question.

 

Is there a model out there showing that the "hemorrhaging cash" at Tesla will stop once they attain a certain scale?  Are they growing at a speed that will take them there?

 

 

Some quotes from a year 2000 article about Amazon:

 

"At the tightly orchestrated Q&A, a lone reporter from TheStreet.com dared to raise the profit question, gently inquiring when shareholders might expect dollars going in to outnumber those rapidly flowing out. Not only did Bezos refuse to answer, he looked genuinely hurt, betrayed that any philistine wouldn't share his conviction that Amazon was destined to sell everything to everyone."

 

"No one's still awed that Amazon's peak market cap eclipsed that of Kmart, Sears, and Barnes & Noble combined, despite the fact that its sales are a fraction of any of those and it's never earned a cent. "

 

https://www.esquire.com/lifestyle/money/a1859/green-crazy-amazon-0101/

 

 

 

[benhacker]

Eric,

 

I do not believe either the history of AMZN and TSLA, nor the future are similar.

 

1) AMZN burnt cash briefly, but then was break even for many years while haters kept hating.  Not true of Tesla... losses are growing as revenues grow.

2) AMZN's business inherently was scalable with fewer fix cost outlays and marketing/reviews/networks that had high operating leverage.  TSLA has fixed cost leverage, but few of their businesses truly have incremental 0 cost margin opportunities.

 

Feel free to read analysts reports on this.. most value Tesla as a business (with quite optimistic assumptions) <$200 / share.  All the valuations that are larger assume entirely new lines of business which are hugely valuable in the future.  Consider which direction their growth capex is going, this is the probably most urgently broken part of the Tesla bull thesis.

 

Tesla doesn't own battery patents.  Doesn't have meaningful IP in autonomous driving, or car manufacturing, or any other area.

 

I do not see what the bulls see here.  This is a firm that is great at viral / carnival style marketing, and great at design.  In all other areas they have shown limited capability, and even less self reflection of their failures (blame car shops for their slow ability to supply parts, blame short sellers, blame the media, blame governments, etc etc).

 

Bulls cases built this way are intensely difficult to falsify... it cannot be done in fact.  Part of the reason Tesla manipulates it's GM% so much is that it is the only thing that can give bulls hope that this business is truly like AMZN - just a little more revenue and profits will explode.  But the mere fact they feel the need to so loudly shout and promote the story is ironically, the most un-Amazon thing about Tesla.

 

it's why all the "he's steve jobs" and "he's Bezos" are clearly wrong.  And ironically, it's why the comparisons to short selling fiascos like Fairfax are also wrong.

 

When you have the truth on your side, you eventually give up screaming into the void about how you've been wronged.  You stick to your knitting and live to rub the critics faces it in softly when you succeed.

 

that Tesla is not choosing the quiet path of Jobs / Bezos / Prem is all you need to know about this story and how it ends given the facts of the business.  Paint the narrative so that when it comes down there is someone to blame other than the person who is truly at fault.

 

all IMO.

[ERICOPOLY]

Ben,

I read an article about "productive narcissism" and it sound like what you wrote:

 

"This is a firm that is great at viral / carnival style marketing, and great at design.  In all other areas they have shown limited capability, and even less self reflection of their failures (blame car shops for their slow ability to supply parts, blame short sellers, blame the media, blame governments, etc etc)."

[benhacker]

Ben,

I read an article about "productive narcissism" and it sound like what you wrote:

 

"This is a firm that is great at viral / carnival style marketing, and great at design.  In all other areas they have shown limited capability, and even less self reflection of their failures (blame car shops for their slow ability to supply parts, blame short sellers, blame the media, blame governments, etc etc)."

 

Probably true.  I think bulls also believe his diagnosis is pretty clear.  Just how productive it is.  Some folks have seemingly endless ability to motivate others, and that is most certainly valuable if channeled properly.