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1/ A short review for newbies: the 2018 $tsla narrative was a rapid ramp to 500K Mod3s per year and explosive profit growth that would pay off the waiting suppliers and build out more capacity on the way to driving ICE cars out of the market.
2/ $tsla accounting categorized enough costs of production into capex and overhead (goodwill repairs, lemons kept as “loaners” or inventory and stored in numerous dusty lots) to make profit *margins* on cars sold look healthy, above 20%.
3/ High margins made it look like ramping production would explode future profits and enable expansion and debt repayment using the flood of cash. Thus “we don’t need to raise.” This allowed sell-side analysts to build models justifying +$300 $tsla stock price.
4/ This was a long-shot strategy that depended on another part of the narrative, infinite demand and production to order, with no inventory and $tsla cars requiring less service than ICE cars. Reality did not cooperate.
5/ When the “alien dreadnought,” “machine that makes the machine” automated lines for the Mod3 failed to work as envisioned by genius Elon Musk, good management would have stopped and regrouped based on reality testing. Not $tsla - the company was near BK...
6/ Admitting failure would have meant $tsla filing Ch11 right then and there, which an honest mgmt would have accepted. Already in deep on fraud (see $scty solar roof tiles and bailout), Musk would have been destroyed financially. All his ventures needed help....
7/ Ch11 for $tsla would take his net worth from $40 billion (on paper) to (we don’t know, possibly a single billion.) Cross-holdings in his ventures would hurt them all and trash the image required to keep raising new cash (which all require to live, since they all lose money.)
8/ Meanwhile, the solar and battery legs of the $tsla renewable energy tripod (off-grid living in your fabulous new house with solar roof tiles, Powerwall backup, and Model3s in the garage!) were coming apart. The growth engine at $scty was subsidized leases...
9/ The leases obligated: customers to pay for 20 years, and $scty to service systems. By securitizing the leases $tsla collected cash and could default on the service obligation, with little recourse for retail customers. This “get cash, skip town on delivery of goods” strategy..
10/ Has been a feature of every Muskian scheme. Advance payment comes in, delivery of product or service mysteriously delayed. The narrative (Save the Earth! Landing rockets!) has tended to make Musk and $tsla Too Big To Regulate.
11/ The 2019 narrative has changed (without most outside $tslaq noticing): The cars aren’t selling well after the initial busrt of pent-up demand. The revenues aren’t covering expenses again. Suppliers, landlords, workers getting the shaft to keep enough cash to struggle on.
12/ One desperate, expensive raise (at an effective rate of 8.5%) down, more to come. Most of the plates are wobbling, the solar plate has crashed, the tidal wave of lawsuits looms, analysts and fund managers are edging away.
13/ By pivoting to the “1 million robotaxes by 2020” narrative, Musk has abandoned the 2018 narrative entirely. The Uber and Lyft IPOs were supposed to rub off on $tsla so it could go on as a public unicorn losing billions to build the future.
14/ But Uber and Lyft are struggling. The $tsla FSD software doesn’t and will never exist. The autonomous demo day was a shambles, and we now know the software team was “restructured” (presumably they tried to tell him he couldn’t force FSD to work on a one-year schedule.)
15/ So the end is near *again*. This time there are no credible pivots left (Mr. Fusion has been suggested as the next product.) $tsla sinks slowly, in part because it is so high-profile and has a deep options market. But sink it will. /end
PS The desperate move to a tent production line for Mod3s to meet already-delayed production goals had the unfortunate effect of producing many more lemons than would be typical, so that the rate of repairs and warranty costs for Mod3s will be much *higher* than other EVs...
These delayed costs and damage to the $tsla image have wrecked the brand, with consumer confidence plummeting as disillusioned consumers tell friends. The positives (drive experience, exclusivity, “cool”) were overwhelmed. Sensing danger, consumers not in the cult backed away.
The imminent arrival of much better built EVs with more usable UIs and reliability will offer a much safer choice for those who want an EV (or are incented to buy one.)
LinkedIn dept: if anyone managing a multibillion-dollar hedge fund needs a writer to help produce their investment letters or reports, feel free to send proposals to jebkinnison@gmail.com. I won’t write anything I don’t believe, of course. I don’t need the money.
