Despite selling fewer than 500,000 cars at a loss to their nearly 40 million customers, Tesla Inc. (TSLA) remains the largest stock market bubble in modern history, with a fully diluted market cap of approximately $429 billion, which is nearly 90 percent of Toyota, VW, GM, Daimler, BMW, and Ford combined. This is because Tesla’s current market valuation is around 90% of that of Toyota, VW, GM, Daimler, and BMW. Tesla, Inc. is still on our shortlist. The major evidence supporting our Tesla short thesis is summarized below:
Unlike Tesla, current automakers have an “experience moat” that has been built up over decades, allowing them to know how to mass-produce, distribute, and repair high-quality vehicles profitably and consistently. They can also mitigate the financial impact of electric car losses by reinvesting earnings generated by conventional vehicles. Tesla, on the other hand, lacks any type of “moat.” This implies that the company has nothing fundamentally new in terms of electric car technology.
Tesla is likely to experience a financial loss in 2020 if the earnings from the sale of emission credits are not included in the calculation, as it has in each of its prior 17 years of business.
Tesla will only be able to maintain unit demand for its automobiles if its prices continue to fall
Because Elon Musk is a serial liar, the terms of his settlement with the Securities and Exchange Commission (SEC) require him to admit to securities fraud.
Third-Quarter Results for Tesla
When Tesla announced its third-quarter results in October, it would have reported only $77 million in pre-tax income attributable to continuing operations if it hadn’t received $397 million in pure-profit emission credit sales (an income stream that will soon begin to shrink, then likely disappear after next year when other automakers have enough EVs of their own) and a $43 million one-time D&O insurance payment to compensate the company for its directors’ compl
Despite Tesla’s lengthy history of repairing motors, battery packs, and suspensions under warranty as their cars age (sometimes falsely disguised as “customer goodwill repairs”), the company’s third-quarter warranty provision was just $175 million for 129,579 non-leased cars or $1350 per car. This is due to Tesla’s automobiles’ poor level of construction quality. If Tesla’s warranty provision had been set at a more reasonable $3,000 per vehicle, the company would have lost $214 million in gross margin during the third quarter. As a result, the company’s pre-tax earnings would have been $137 million lower. In actuality, Tesla’s most misleading accounting approach is probably warranty provisioning.
To be fair to Tesla, the business did experience a $338 million one-time compensation charge during the third quarter as a result of Elon Musk’s exorbitant pay package. As a result, we’ll refer to Tesla’s third quarter as “honest and normalized pre-tax GAAP income.” This totals $201 million, which equates to -$137 million plus $338 million.
After making the necessary adjustments for a typical tax rate of 28 percent, we get at a predicted GAAP income of 145 million dollars, which works out to a rate of $0.53 per share on an annual basis. This amount was derived after making the necessary adjustments for a typical tax rate of 28%. As a consequence, at the end of October at $388 per share, Tesla has a normalized GAAP run-rate PE ratio of 732, whereas the rest of the car sector has a PE ratio of around 10x. This is even though Tesla deliveries in Europe have decreased from the previous year (in the context of an electric vehicle industry that has grown by about 100% over the same period!). as well as a decrease in income in the United States compared to the same time two years ago:
A History of Tesla’s Rapid Expansion in China
Is there anything more we should be aware of with Tesla’s “China growth narrative”? Despite substantial price cuts, improved manufacturing capacity, and a fast-increasing general market for electric vehicles, Tesla has been unable to raise the number of electric vehicles it sells each month in China since May. Tesla vehicle sales in China during the last five months are broken out as follows:
- May: 11,565
- In June, there were 14,976 people, and in July, there were 11,456 people.
- 11 329 on September 11 811 in August
Where precisely will the expansion be built???
Despite boasting a manufacturing capability of over 60,000 vehicles, Tesla only sold around 34,000 automobiles in China during the third quarter (by comparison, General Motors sold 771,000 vehicles and Ford sold 164,000!). Because China has so much excess capacity, it is also exporting to Europe, where Tesla is seeing negative growth. During September, only 11,329 Tesla automobiles were sold to Chinese buyers.
The competitive landscape for electric vehicles in China is expected to become more intense as a result of rapid growth in sales from domestic brands and large commitments from multinational OEMs. This will happen since China is the world’s largest market for electric vehicles.
Europe is the world’s most competitive EV market, and in addition to Tesla’s year-over-year Q3 sales loss, the company’s European EV market share has fallen from more than 30% to an estimated 9%. And, for those who feel Tesla is “years ahead of the competition,” Europe is the world’s most competitive electric vehicle (EV) market. Furthermore, Europe is the world’s most competitive electric vehicle (EV) market (and in 2021 will be much lower). A Twitter user with the handle “fly4dat” shared the image.
In the morrow, there will be nothing left over from the little gains
Due to Tesla’s continued price decreases, the company delivered 139,000 automobiles during the third quarter. This amount was nothing near the corporation’s self-professed new quarterly manufacturing capability of 210,000 automobiles. Indeed, if we consider Q2 to be the “COVID quarter” and Q3 to be the “make-up quarter,” then averaging the two to 115,000 each means that, despite massive price cuts, Tesla has barely grown from the 112,000 cars delivered in Q4 2019, and as it is forced to continue cutting prices, its slim profits, along with its emission credit revenue, will vanish. Furthermore, because it is forced to keep reducing prices, its minimal revenues will evaporate as well.
Nothing is more amusing than watching a massive stock promotion of a company try to maintain the illusion of “supply constrained” by continuing to add capacity (expanding its Chinese factory while breaking ground on new factories in Texas and Germany) to desperately try to maintain an image of “limitless demand” while slashing prices to utilize far less than its existing capacity. Nothing beats witnessing a major stock promotion of a company striving to keep the illusion.
This is the most entertaining possibility in this case. Tesla’s “plan” is clear: keep decreasing prices to move as much volume as possible while maintaining a razor-thin profit margin. But what exactly are we seeking to accomplish here? Tesla’s volume will fall if it does not continue to cut its prices. Tesla is no longer a “growth story,” but rather a stock promotion in which fools will almost certainly lose money.
Tesla’s newest “hope,” the Model Y, is of poor quality and competes with far better-built electric vehicles. Among the electric vehicles offered are the Audi Q4 e-Tron and Q4 e-Tron Sportback, the BMW iX3, the Mercedes EQB, the Volvo XC40 Recharge, the Volkswagen ID.4, the Ford Mustang Mach E, and the Nissan Ariya, as well as the all-electric Hyundai Kona and Kia Niro. Meanwhile, Volvo’s stunning new Polestar 2 and Volkswagen’s premium ID.3 provide good “sedan competition” for Tesla’s Model 3. Both of these vehicles are manufactured by Volvo (in Europe). In addition, the BMW i4 will not be available to the general public until 2021.
Cyberktruck is not a “growth engine.”
Furthermore, Tesla’s joke of a “pickup truck,” disclosed last year, will not be much of a “growth engine,” as it would enter a field that is already quite competitive with other corporations.
In the worldwide luxury market, the Audi eTron currently outsells both of Tesla’s electric automobiles. This is true in all countries (the Model S and the Model X).
Tesla does not have any exclusive battery technology; instead, the business purchases batteries from third companies. Even though the performance of all batteries is now so comparable that the average customer can’t discern the difference, Tesla isn’t even getting the best batteries on the Chinese market. Even though the performance of all batteries has become so identical that the average customer cannot tell them apart.
Meanwhile, Tesla’s initial quality rates are dead last among the 31 manufacturers analyzed by J.D. Power, and the most recent What Car? poll produces similar results, with Tesla ranking #29 out of 31 brands. J.D. Power’s findings are consistent with those of What Carfindings, which place Tesla in the same position.
Concerning safety, Tesla has faced at least one well-documented class action lawsuit over quick acceleration, and the company knowingly marketed vehicles that were a fire danger for years. Furthermore, at least one class action lawsuit has been filed on the subject of unexpected acceleration. And, of course, it continues to market and promote its highly deadly so-called “Autopilot” system, which Consumer Reports has utterly destroyed; God only knows how many more people this monstrosity released on public roads will murder, despite the NTSB’s condemnation of it as harmful.
In actuality, Teslas have been involved in much more fatal events than other new luxury vehicles with similar prices; for a list of those that have come to public attention, go here. To put it another way, Tesla is one of the most awful enterprises on the globe when it comes to the safety of its consumers and the well-being of uninvolved third parties. Meanwhile, the number of lawsuits filed against the firm for a variety of reasons is increasing. Among these instances is one in which Musk is accused of fraud in connection with his purchase of SolarCity. (Reading his deposition can make you chuckle if you want to do something funny!)
Finally, of all the firms I’ve worked for in the past, Tesla has lost the most executive-level employees; the list of people who have departed the company is lengthy. People are quitting Tesla because Elon Musk is either an honest criminal or the most unpleasant boss in the history of the planet to work for. In any event, customers aren’t abandoning Tesla because the company is doing well (or both).