“It’s pretty amazing that we live in an age when a CEO of two public companies can give a talk about colonizing Mars and shareholders don’t see that as a warning signal” – Dave Pell (Editor of NextDraft)
TSLA Is A Zero – Mark Spiegel, Robin Hood Conference (11/28/16)
- Presentation is called “Tesla is a zero” but actually think because of debt, equity is worth less than zero
- 3 broad reasons: 1) current financials are horrible even with no direct long-range EV competition yet massive competition ahead; 2) no meaningful proprietary technology and its hard assets are worth less than its $6 billion of debt (including SolarCity); 3) “bet on Elon” is a bet on someone who can’t be trusted and has a long track record of making misleading statements
- Longs are “all about the future” so quick look at the current financials: Q3 GAAP loss excluding one-time ZEV credit sales of $117M; GAAP loss per car sold or leased ex-ZEV sales was $4,710; estimate that Q4 FCF will be around minus $1.5B; these numbers are before SolarCity which itself has nearly $2B/yr of negative FCF
- Over the next few years, massive number of long-range electric cars will be on the market often at prices subsidized by profits from conventional vehicles (option Tesla doesn’t have), so pricing pressure will be intense
- Chevy Bolt (available now): $30,000 cheaper than the least expensive Tesla
- Production and investments confirmed by: Audi Q6, Audi A9, Mercedes, Porsche Mission E, Porsche Cayenne Coupe, VW, Jaguar SUV, Land Rover, BMW, Nissan, Ford (13 EV’s), Volvo, Hyundai, Honda, Mazda, Mitsubishi, Toyota, Aston Martin, Bentley Mulsanne, Maserati Alfieri, Renault, Peugeot, Subaru, Skoda, Borgward, and many other start-ups
- What about batteries? What about “Gigafactory”?
- TSLA’s battery cells are made by Panasonic (Panasonic will sell its cells to anyone); cell-making is fully automated and beyond a certain point, limited economies of scale; Panasonic’s investment in Gigafactory is really a capital lease of its equipment to TSLA
- Competition: LG Chem, Panasonic, Samsung, BYD, SK Innovation, ACCUMOTIVE, VW, BMW, Ford, Toyota, Bosch, Sony, Dyson, Rimac, Kreisel
- What about battery storage?
- Battery storage is at least as competitive as electric cars
- Competition: Panasonic, Samsung, LG Chem, GE, BYD, AES, Mitsubishi, NEC, Hitachi, ABB, Saft, Enersys, Blue Energy, E.ON, ESS, SOLARWATT, Mercedes, Schneider Electric, sonnen, Kokam, Sharp, Eaton, TESVOLT, Aquion Energy, Kreisel, Leclanche, Lockheed Martin, GreenCharge, Imergy, Exergonix, Stem, Alevo, Eos, UET, Belectric, Sunverge, Fluidic Energy, Primus Power, SimpliPhi, redT, ZCell
- What about autonomous driving?
- 2017 Audi A8 to feature autonomous tech; Mercedes developing; Volvo planning (jointly with Uber); BMW developing with Intel; GM developing (with Lyft); Ford developing; Nissan debuted; Toyota developing; Jaguar to start UK tests; Hyundai debuted fully autonomous cars; Acura developing; Google; Delphi-Mobileye developing self-drive; Bosch developing; Apple developing
- What about 120kw SuperChargers?
- BMW, Daimler, Ford, and VW with Audi & Porsche plan joint venture for ultra-fast, high-power charging along major highways in Europe; White House announces new EV corridors; BMW and VW new US fast-charging network; VW pays $2B to fund clean cars infrastructure; Switzerland getting 150kW chargers at 100 sites; Fastned readies for 150kW and 300kW charging
- What about the “$35,000 mass-market” Model 3?
- Q3 TSLA gross profit (excluding ZEV sales) for non-leased cars averaged $25,200/car at an ASP of $105,900 – it costs TSLA almost $81,000 to build each car it sold
- No higher volume per-car savings in engineering or R&D costs because they are expensed (not part of COGS)
- Estimate that base Model 3 will cost TSLA at least in the high $40,000s to build – either sell them at loss starting $35,000 or price them into a much smaller market segment (neither choice validates the hype)
- After Tweeting Model 3 reservation numbers leading into May’s stock offering and featuring it in the prospectus, Musk now refuses to update it; when asked on Q3 conference call, he said it was “not a figure of merit”
- Track record of misses and questionable morality:
- In 2011, said Model S starting at $49,900 will arrive next summer (2012)…
- February 2012: Musk said “TSLA does not need to ever raise another funding round” (5 financings since then)
- In November 2014, Musk said that TSLA essentially sold every car they had and there is nothing to sell. According to Consumer Reports in November 2014, source inside TSLA told them there is 2,300 Model S remaining that the company is selling at a discount
- In February 2016, Musk said “we do not discount our cars for anyone, including me” but since July 2015, TSLA has run a $1,000 per car discount referral program open to anyone
- Talked merger with SolarCity CEO before sale of stock?; exaggerated safety claims; unloading stocks contrary to his public messaging; conflicts of interest – SpaceX, SolarCity?
Mark Spiegel is a Managing Member of Stanphyl Capital Partners, a hedge fund based out of New York. According to Fortune, Stanphyl Capital manages about $9 million as of 2016 and was launched in 2011.