10 Facts/Headscratchers from the Ongoing TSLA Saga

So plenty has happened since my last post on Tesla, and to the untrained eye it seems like only good news coming from the Tesla hype-mobile. Well, despite my own thoughts on these things, this post is going to contain no more color than I’ve already given in the past two sentences (and the title, for that matter). For all my followers, the unadulterated timeline of what we’ve seen over the past few weeks, and I will leave you to think on it as you please. [This will, to the best of my ability, be in chronological order]

  • Last week on Tuesday, Tesla CEO Elon Musk announces via Twitter that a very significant and important announcement regarding Tesla Motors will be coming out on Thursday, 3/28 (the penultimate day of Q1 2013) in which he says he will “put my money where my mouth is in a [very] major way.” TSLA stock jumps 4% within minutes of the tweet.
  • The next day, Musk tweets again that the announcement will be moved to Tuesday of the following week (4/2) in order to not be a distraction to Tesla’s quarter end.
  • Completely unrelated to the aforementioned tweets, Musk posts a blog on Tesla’s website just after midnight on April 1 announcing that Tesla has achieved profitability for Q1 and exceeded its company-supplied guidance of 4,500 Model S deliveries, clocking in at “over 4,750 Model S sales,” and revises guidance to achieve both non-GAAP and GAAP profit for the first quarter. In the same note, Tesla announces that it has decided not to put the 40kW-hr Model S into production due to “lack of demand,” citing that only 4% of orders were for this particular model. Further, all Model S cars will be equipped with the supercharger hardware (usually only available on the 85kW-hr or as a $2,000+ upgrade on the 60kW-hr) already installed. People who did not pay for it will have it disabled through a software governor, but can upgrade at any time if they pay. The stock surges about 16% to an all-time high in the $43-44 range.
  • On Tuesday, 4/2 at 2:00pm PST, Tesla makes its much-awaited major announcement: they have reached an agreement with Wells Fargo and US Bank to provide financing for the Model S, with a guaranteed buyback agreement in which Tesla will repurchase the Model S from the customer after 36 months (if they so choose) with residual value pegged to that of the Mercedes S Class. Tesla announces on a conference call that the financing will be in the area of $500/month for qualified lessees.
  • In order to even get remotely close to a $500/month lease payment, according to Tesla’s lease calculator, one must live in California and receive a full $13,000 EV tax credit, have a superior credit rating, be able to deduct the Model S as a business expense, value their time at a minimum of $100/hr and take advantage of EV access to the carpool lane on the highway to save several hours worth of time doing so. Also, the lessee will need to save at least 2-3 hours a month (at a rate of $100/hr minimum, again) by not having to waste time pumping gas. Tesla does not account for the fact that charging a Model S typically takes at minimum 1 hour and filling up a tank of gas takes around 10% as long. For what it’s worth, most estimates so far have the monthly rate pegged at about $1200/month, not including the 10% down payment required to begin the “blease.”
  • Not mentioned on the conference call or in the press release but present at the bottom of a page on Tesla’s website pertaining to the leasing program, the “blease” financing is only available in 8 states: CA, CO, IL, FL, NJ, NY, OR and WA. Coincidentally, these are all higher-income states and all have generous EV kickbacks for owners, as well as emissions credits for anyone who sells a car in their jurisdiction. That would mean Tesla gets their all-important emissions credits on leases as well.
  • After the announcement of the lease, the stock promptly tanks 8%, closing on 4/3 in the $41-42 range on heavy volume.
  • It is revealed that Tesla sales representatives sent out letters in mid-late March to reservation holders urging them to “confirm and send in their payments to allow Tesla to reach a “huge company milestone,” which was Q1 profitability.
  • Elon Musk denies any knowledge of the email, instead saying that some of his sales staff got “a bit overzealous” and sent the emails off on their own. He reiterates that no recognition of deliveries are actually made until the car is officially in the hands of the customer after the delivery process. Language used in all SEC filings by Tesla do not explicitly require the physical delivery of the car for revenue recognition, however.
  • In the conference call, along with several interviews given recently, Musk has promised that several more “major announcements” are coming up in the next few weeks: one dealing with superchargers, another with Tesla’s service arm, and the last one being “another mystery announcement that is already right under every Model S owner’s nose.”

So there you have it, your 10 interesting facts about Tesla to keep you up to speed on what’s been going on. To get back to my pointed and opinionated ways for a moment, we have used these bogus hype-machine opportunities to almost double our position, making Tesla our 2nd largest portfolio position and 3x as large as the next biggest holding in our short book.

Is Elon Musk for real? Is he just a cheerleader CEO with enough money from previous exploits to make waves in the market when he needs to? Does it even matter? Your answers to these questions will dictate how you see Tesla from an investment standpoint. However, a few things can’t be denied by anyone: Tesla has a lot of work today before they have officially proven themselves. Getting to 4,750 Q1 deliveries was a stretch for the business in one aspect or another, or in all aspects. Tesla misrepresented their financing product in many material aspects. Also, let’s not forget about Detroit Electric company, a new Tesla-lite firm that is marketing a $135,000 luxury EV that may compete with the higher-end Model S configurations. While they could easily flop due to Tesla’s great name recognition, we can’t deny that if anything it can only have a negative impact on TSLA.

Bottom line for me, and hopefully for many others, is that normal, legitimate companies do not act this way. Executive officers do not spend this level of time on spin, publicity, and media access; they are too busy running their companies [properly]. There are far too many questions left to be answered to justify this ~$5B market cap. Keep in mind, that makes it more than 10% the value of Ford Motor Company, who sold almost 70,000 Ford F-Series cars in March alone, at much better margin than Tesla has ever been capable of up to this point. It’s simply going to take a lot of optimism and faith in Tesla and its management for someone to buy this stock. I don’t think any intelligent investor would have those characteristics after spending even 30 minutes looking into the company.

Happy Hunting everyone, and expect another post relatively soon on a few new ideas. I apologize for being a bit slow on the posts lately – just finished the moving process to a new city. It can take a lot out of you spending that much time at Bed Bath & Beyond… (am I hinting at that store being on my radar?…)

Comments (15)

Apr 11, 2013

Quality digging.

Apr 12, 2013

I have been following tesla for a while although i currently have no positions. Elon musk at the helm is great from both a product stand point and a publicly traded standpoint. He understands the importance of keeping the share price up and slowly trickling out positive information does just that. I understand that the valuation is bonkers, but just like amazon or netflix you are buying in on FUTURE potential. Telsa is doing big things and i don't think i would bet against mr. musk in the long run

Apr 12, 2013

i'm pretty sure you have watched this before, but bloomberg did a special on him

http://www.bloomberg.com/video/73460184-elon-musk-...

Apr 12, 2013
WhiteHat:

To get back to my pointed and opinionated ways for a moment, we have used these bogus hype-machine opportunities to almost double our position, making Tesla our 2nd largest portfolio position and 3x as large as the next biggest holding in our short book.

How much have you lost so far?

''You can fool some of the people all of the time, and those are the ones you need to concentrate on.'' -- President George W. Bush
0.5 bb

Apr 12, 2013

Great analysis. Your explanation has made me seriously want to bet against this company.

Ordinarily, I won't short "hype" companies. 3D printing stocks, web 2.0 companies, some organic food manufacturers, etc. all fall into the "hype" bucket. While TSLA and a 3D printer company might both trade at absurd multiples, TSLA doesn't solve a problem or supply a new service.

I have hated "green" cars since they first started appearing in my home state of CA. If you were truly concerned with carbon, you would drive a used Geo Metro. The carbon footprint of a new car is fairly substantial relative to the marginal carbon savings. This is not a solution to global warming; it's a lifestyle brand.

If we expand the universe of competitors to all "green" cars, TSLA is competing with every company that offers a hybrid. And those companies have established brands - you can buy a Ford Fusion Hybrid and know what you are getting.

Their direct competitors also do not need new infrastructure. The Model-S really isn't meant to charge on a normal outlet. You need a supercharger to get it done in any reasonable length of time. This creates "friction" for the user - you need to know where the stations are and plan your trips around them. It's a hassle.

99% of the time, the Model-S's battery will be sufficient for daily use. But every buyer must wonder "what if I need to drive to [flyover state] to see my relatives?". This isn't a question you can afford buyers asking when so many alternatives exist. I'm sure a Prius will assuage your carbon guilt just as effectively as a TSLA.

So what is the addressable market? Environmentally-conscious individuals who have not bought a hybrid yet, or are looking to upgrade. And these people must be able to afford a 60k+ car. We can safely say this is a very small portion of the population.

The people who are willing to drop 60k+ on an electric vehicle have probably already pre-ordered. These are the true believers. I think new orders may flatline or maybe show slight growth as production actually starts, then decline.

TSLA bulls might point out the following:

(a) Other companies start producing EVs, and TSLA transitions to a parts company. This seems unlikely. EVs would cannibalize existing hybrid sales. It also runs contrary to every move TSLA has made thus far.

(b) You start seeing a dramatic reduction in per unit costs. This would need to happen quickly; TSLA cannot afford to move down the S-curve at the same rate as solar panels.

In short, excellent work WH. I think, barring some massive government intervention, TSLA will plunge once its momentum is broken. 1 quarter of sequential declines would likely be sufficient for a large pullback.

    • 1
Apr 12, 2013

And I just have a hard time taking anyone who uses Twitter for public disclosures seriously. I know the SEC now allows it, but still...

Apr 12, 2013

Epic long Tesla. Thanks for putting my kids through college WhiteHat!

I wonder, when you lose all of your money on this trade are you going to come back on the forum and admit you were wrong?

Apr 12, 2013

Monday I will post why I love Tesla, SolarCity, and Salesforce.com.

Apr 13, 2013
evilbyaccident:

Monday I will post why I love Tesla, SolarCity, and Salesforce.com.

please pm me the link

WSO's COO (Chief Operating Orangutan) | My Linkedin

Apr 12, 2013

I think Tesla certainly is walking the tightrope and will be doing so for sometime, but the long term potential is that they become the next Ford / GM / Toyota. Whatever you think of Musk the guy is a genius (smarter than me and yes smarter than you too, Whitehat) and the Model S is in many ways an engineering marvel. I don't find the stock a great buy given some of the issues you point out (and I'm concerned that the lease program is in part a response to weaker than anticiptaed near term demand) and the home run potential of the company hinges 100% on the Gen III car that can sell at real mass market volumes, and that won't hit the market for years even at TSLA's prediction. Still, Tesla has hit a good number of the milestones they need to hit (ramped production like they said, in any case) to prove that they can execute.

Everybody in the hedgie world loves to short promotional CEOs, but the fact is sometimes those guys win (think Jobs / Bezos / Reed Hastings (at least for now) / Mark Benioff and a host of other guys from smaller companies that touted their company like it was the 2nd coming). And Tesla has eccentricities as a company in part because they are still a giant, prolifically cash burning high risk startup that is still far away from achieving major profitability...but that comes with the territory in an incredibly capital intensive industry where no meaningful innovation has occurred in decades.

If I was investing for ten years and not managing my fund to monthlies / quarterlies, however, I would absolutely buy Tesla stock as a small holding for my portfolio. Your upside is literally 10x or more if they execute on Gen III and manage to walk the tightrope with Model S subisidzing R&D for the next 1 - 2 years. Being short as a trade could work, but I would not hold on too long. And what you said about nobody intelligent ever wanting to invest in this company is clearly off base, there are a lot of smart shareholders who have done a lot of work and probably are well aware of the negative points you bring up....arrogance can be fatal in investing so keep that in mind.

And by the way whoever mentioned 3D printing is spot - on....hype bubble for sure. Avi Reichental is the kind of promotional CEO I can get short all day in size!

    • 1
Apr 12, 2013

RE: 3D printing. I agree it is hype (is any company trading at 30x+ forward earnings not hype?), but it is not shortable hype. It is a fundamentally new technology, and investors will give it more leeway.

I am not sure TSLA investors will be so patient. They want the Model S to be prove the economic viability of the company, which I doubt it will. While TSLA can be a functional company, it's growth should be well short of the market expectations.

As secretariat said, Munsk is very smart, and TSLA's engineering is excellent. But I don't think that will be enough. Look at the Chevrolet Volt: amazing technology, terrible sales.

Apr 14, 2013

No electric infrastructure. Tesla is a definite short.

May 14, 2013

lol congrats

May 14, 2013

Been a long since 25.96, and loaded up again in the low 30's.

First of all, the technology is new and much better than anything else on the market. The battery packaging system alone has proven to be superior to those that it's "competitors" like GM or Fisker (A123) have attempted to make.

West Coast Rainmaker: The only use for "green" cars isn't carbon reduction. As other companies (like Musk's SolarCity) develop sustainable energy, we can shift away from gas and oil. Also the use-cases for electric cars, like pickup trucks (which Tesla has said they will make) and the incredible amount of torque you can generate in an EV, vary drastically.

In regards to infrastructure, many startups are working to address a low-cost home solution. Also, if you have a washer/dryer, you have a plug that can charge your Tesla.

Battery life: This is improving much faster than capacity in the solar world, and I'm confident that by the time the mass-market car is completed, range will be greater than 350 miles (say in 3 years) which should be plenty for most, especially since you get FREE charging on the supercharger network. This is all assuming very conservative technological innovation in the field.

In regards to the addressable market, the Roadster and the Model S were proof of concept cars. After the Model X, which will move to address the market of those moms or families who buy higher end cadillac SUVs/Cayennes/MLs etc., the next model will be a more affordable product with mass market appeal.

This seems like typical Wall St thinking where someone who is shaking up how to interact with their fans (because yes, Tesla has fans) as well as the financial world, means that something is horribly wrong. Elon Musk is smarter than any of us (as others have said) and I think it's naive to assume he isn't orchestrating and building this company with a real vision in mind, much like he did with Paypal.

In regards to 3D printing, I think you guys are underestimating it's scale and use. This is going to revolutionize a lot of manufacturing and business models, so beware.

This was a bit scatterbrained of a post, but I'm at work and just had to refute so much of this bullshit.

Apr 12, 2013
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