In this post, I highlight and talk about some recent articles and evidence from around the web regarding Tesla. The first from the FT, sheds light on how some ICEs vehicles can be less a lot less pollutant than people think, the second is from an email I received regarding a future Tesla owner’s visit to a showroom and the third is regarding the short sellers and their argument against Tesla. A big issue in my opinion which is not highlighted enough is product quality. When you spend the amount of money that Tesla demands then you have high expectations of the product. This has not been realized by many Tesla owners. One of which made a video which is shown further down in the article.
Not As Green As You Thought
The FT ran an article called “Electric cars’ green image blackens beneath the bonnet” which shed some much need truth an information about electrical vehicles. Regulators that promote EVs focus on reducing tailpipe emissions, however, they completely ignore the total carbon emissions throughout its entire lifecycle.
To capture electric cars’ full environmental impact, regulators need to embrace lifecycle analysis that takes into account car production, including the sourcing of rare earth metals that are part of the battery, plus the electricity that powers it and the recycling of its components. Such studies have become popular among researchers who favour direct comparisons with petrol and diesel cars.
When taking lifecycle analysis into account, the tables turn. For example, the Mitsubishi Mirage with an internal combustion engine that runs on petrol is greener than a Tesla!
(Source: FT article)
Showroom Experience
Fund manager Whitney Tilson has a cousin who put down a deposit for a Model 3. His cousin visited the Tesla showroom with his 8 year old. He shared his experience with Whitney who shared it with friends.
We went to the Tesla showroom today so that we could more formally see the Model 3 (we saw my friend’s a few weeks ago – he has been an employee there for a decade). They had no Model 3’s in the showroom. They said “We ship them to customers – there are none left for us. Maybe we will get one for the showroom by the end of the year.” I tried to ‘configure’ my Model 3 online with them, but it was a waste of time – they would not allow me to change the details “until things got closer to the ship date.” They tried to tell me that I might receive my car as soon as Jan 1 – I scoffed, but they tried their best to toe the line. Even my son said: “There is no way that we will get our Tesla in the beginning of January – everybody knows that!” For all of their vaunted talk about their showrooms, it was a waste of time. They showed me nothing new. There was nothing special or compelling about the experience. They had a big poster about the Powerwall so I asked if I could see it – same result “No, we don’t have any. We ship them to customers as soon as we get them.” So it was a SHOWroom but the two main products were not available for show. Kinda pathetic.
The Short Argument
At the Reuters Global Investment 2018 Outlook Summit Jim Chanos said that he added to his short position in Tesla throughout 2017. He first disclosed his short position in May 2016. He expects that the Elon Musk will step down as CEO by 2020 and turn his focus to his other ventures. With Tesla up by around 44% this year, I’m not a big fan of his add-ons. Of course, at the end of the day, it depends on the size of the position relative to the rest of your portfolio. Personally, I believe that adding on weakness is a safer approach (if I can use the word ‘safe’ and short in the same sentence…). Tesla’s market cap is $51 billion versus $61 billion at General Motors. Of course, General Motors produces over 60x as many cars as Tesla and unlike Tesla is profitable.
In an article, the Los Angeles Times asked 4 short sellers the reasons behind their trade. These four (below) gave seven reasons.
- Mark Spiegel of Stanphyl Capital Management.
- David Rocker, formerly of Rocker Partners.
- Mark Yusko, founder and CIO at Morgan Creek Capital Management.
- Anton Wahlman, former stock analyst who now writes about the auto industry (he said he currently holds no position on Tesla)
- Negative Cash Flows: If you can’t make money selling a luxury car then it will be difficult to do so with a mass production car. Wahlman: “You can cut the price of a car in half, but you can’t cut the cost in half.” Over time, Telsa’s FCF has just gotten worse.
- Competition: EVs are a small portion of the market. Tesla’s market share is less than 0.3%. Much larger, better-capitalized manufacturers are coming to market with EVs of their own which are subsidized by profits from ICE vehicles. Anton Wahlman listed 100 long-range EVs that will be coming to market from now until 2022 in an article on Seeking Alpha.
- Tesla’s vanishing tax credits: The federal tax credit of $7,500 is limited to 200,000 vehicles per manufacturer. Once hit, the tax credits are reduced and then phased out. Tesla is the closest to the 200,000 mark. Competitors who haven’t reached that mark will have an advantage. The Tesla Model 3 people who put down the $1k refundable deposit could be asking for that refund once they don’t get the tax credit.
- Lack of patents: Telsa made many of its patents available so as to help grow the EV industry. This helps its competitors who have their own patents. There is also a class-action lawsuit against the company regarding its Autopilot feature. Note that the National Transportation Safety Board concluded that Tesla’s Autopilot had “played a major role” in the death of Joshua Brown. The board’s chairman, Robert Sumwalt poised an important question “Why did Tesla allow the vehicle to be operating in Autopilot mode on roads that it was not intended to be operated in Autopilot mode?”.
- Distractions from his day job: Musk is involved in way too many projects (Tesla, SpaceX, SolarCity, artificial intelligence, tunnel digging, etc). According to Rocker these announcements have the effect of boosting Tesla’s stock: “It’s ‘Let’s get the acolytes excited. Implant in the brain! Let’s buy Tesla stock!’”
- Execution risk: Musk has consistently missed deadlines and goals with quality problems appearing along the way. I’ve inserted below a video by one Tesla owner who goes over the problems he’s had. I find it amusing that he states that before he bought the car he heard of people having problems but that Tesla was good about getting them fixed… (if that isn’t a red flag about quality, I don’t know what is…)
- Investor fatigue: Tesla regularly raises capital as it has never had a profitable year. At some point investors will get tired of it.
