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John Engle, Almington Capital Merchant Bankers Profile picture
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19 Nov, 14 tweets, 7 min read
1/ My latest for @gurufocus, 'Tesla: The High Price of S&P 500 Inclusion', just went live.

"A closer review of what Tesla had to do to gain admission to the S&P 500 should give thoughtful investors reason for pause."

$TSLA $TSLAQ
2/ When Tesla reported its 4th consecutive quarterly profit in July, many investors saw index inclusion as inevitable, an expectation that caused the stock to climb over the summer. However, the S&P 500 Committee opted to punt in September.

$TSLA $TSLAQ
3/ Despite the September snub, Tesla's index inclusion hopes were far from dead. Indeed, after reporting a fifth consecutive quarterly profit in October, hopes of S&P 500 inclusion reached new heights. These hopes were vindicated on Nov. 16.

$TSLA $TSLAQ

marketwatch.com/story/tesla-st…
4/ While Tesla has reported five consecutive quarterly profits, it's far from certain whether this is sustainable over the long run. The biggest issue involves regulatory credits, which account for almost all profitability to date.

$TSLA $TSLAQ

fortune.com/2020/09/30/tes…
5/ Reg credit sales were also critical in Q3, accounting for 77% of pre-tax earnings. With the value of credits set to decline precipitously in the coming years, Tesla won't be able to rely on them to plug its financial holes indefinitely.

$TSLA $TSLAQ

seekingalpha.com/article/438164…
6/ Stripping out the impact of credits, we can get a more accurate view of the state of Tesla’s core auto business. Calculated on a 4-quarter rolling basis, automotive revenues less credit sales have been stagnant.

R/T @fly4dat

$TSLA $TSLAQ

7/ Making matters worse, falling ASPs have eaten into Tesla’s margins, erasing most of the benefits of increased unit volume. In fact, rolling 4-quarter auto revenue has declined on a per-share basis.

R/T @TESLAcharts, @fly4dat

$TSLA $TSLAQ

8/ Things look even worse if one considers what Tesla had to do to secure 4 profitable quarters in a row, even after benefiting from credits: slash capex to the bone. From a high of $3.41B in 2017, capex fell to $1.33B in 2019.

$TSLA $TSLAQ
9/ In the first three quarters of 2020, Tesla spent just $2.01B on capex. While it's promised a capex surge in 2021, Tesla has a lot of ground to make up, as its ever more overstretched service infrastructure exemplifies.

R/T @ElectronComm
$TSLA $TSLAQ

10/ Chronic underinvestment and short-term strategic thinking are already weighing on Tesla, as the latest @ConsumerReports reliability ranking highlighted today. Reversing that trend is likely to prove expensive.

$TSLA $TSLAQ

11/ Tesla’s imminent S&P 500 inclusion is undeniably a positive catalyst for the stock. With trillions of dollars invested in index funds, rebalancing will force substantial net index buying over the next month.

$TSLA $TSLAQ
12/ Tesla’s share price is already up more than 20% since the inclusion announcement. With index fund buying likely to soak up as much as 13% of the float, according to Evercore analyst Chris McNally, Tesla is likely to be buoyed higher.

$TSLA $TSLAQ
marketwatch.com/story/heres-ho…
13/ Despite the short-term catalyst, however, it is important to keep in mind what Tesla had to do to secure index inclusion, and what that may cost it in the future.

$TSLA $TSLAQ
14/ Ultimately, Tesla's decision to throttle back growth investment in order to show an ephemeral profit may have lasting consequences for its growth trajectory – and its ability to meet the market’s wildly optimistic expectations.

$TSLA $TSLAQ

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More from @AlmingtonCap

John Engle, Almington Capital Merchant Bankers Profile picture
20 Nov
1/ Just cooked up so fresh FUD for the $BA.D Boys (cc: @PlugInFUD)

In Q3, revenue from Boeing's Defense, Space & Security segment came in at $6.8B, down 2% from the same period in 2019. Earnings from segment operations fared even worse, falling 17% year-over-year to $628M. $BA
2/ During the first 9 months of 2020, Boeing's defense segment brought in revenues of $19.5B, down a fairly modest 3% yoy. The bottom line took a far more substantial hit, however, falling 60% yoy to $1.0B.

$BA $BA.D
3.1/ Pegasus Program Proves Problematic

The KC-46 Pegasus, a next-gen @usairforce tanker, was meant to be an easy win for Boeing. But long development delays have weighed on the program, causing growing frustration among the top brass.

$BA $BA.D
Read 9 tweets
John Engle, Almington Capital Merchant Bankers Profile picture
5 May
Elon Musk's "genius engineer" mystique would not be possible if it weren't for the uncritical reporting of fawning "science & technology" journalists. Let's discuss how this works using the example below. $TSLA $TSLAQ

cc: @TESLAcharts for your list of aiders & abettors.

1/
Elon has argued publicly that a single giant solar plant in Utah could power the entire United States. For example, he made this claim in a December 2015 speech at the Sorbonne. $TSLA $TSLAQ

2/
 ecowatch.com/2015/12/04/elo…
This idea is laughable to anyone with high school-level of physics knowledge. It's a matter of wire resistance, which will is a limiting factor on power transmission, regardless of where the power is sourced (coal, solar, dreams, etc.) $TSLA $TSLAQ

3/
 phet.colorado.edu/sims/html/resi…
Read 12 tweets
John Engle, Almington Capital Merchant Bankers Profile picture
30 Oct 19
1) The slight rebound in solar deployments in Q3 does not appear to represent a meaningful reversal of the multi-year downtrend. Investors banking on Tesla being “more than just a car company” should think again. $TSLA $TSLAQ

seekingalpha.com/article/429989…
2) Tesla’s solar deployments have been in near-freefall since 2016. Deployments declined from their all-time high of 253 megawatts in Q4 2015 to a low of 29 megawatts in Q2 2019 (thanks to @TESLAcharts for his ever-excellent visualizations) $TSLA $TSLAQ
3) Even with the 48% Q3 upswing, deployments were still less than 17% of the all-time high and barely more than half of the quarterly average set in 2018. Tesla has fallen to third place among solar installers (and is falling further behind). $TSLA $TSLAQ

marketwatch.com/story/tesla-sl…
Read 12 tweets
John Engle, Almington Capital Merchant Bankers Profile picture
16 Oct 19
1) Thread on 3Q19 earnings: The $TSLA long thesis assumes that it will not only soon become profitable (necessarily ignoring all material evidence showing this is false), but also that it is somehow immune to auto market cyclicality. We call BS. $TSLAQ

finance.yahoo.com/news/tesla-not…
2) Auto manufacturing is a cyclical industry. That's just a fact. Yet, even when producing at full capacity in a robust consumer market, $TSLA has proven only fleetingly profitable – and even then it took a host of one-off gimmicks to do it in 2H18. $TSLAQ
3) 2H18 profit came thanks to a lot of financial engineering, a focus on high-ASP variants, stiffing suppliers, etc. They could only do that once. As we opined at the time, 3Q18 was as good as it would ever get for Tesla. $TSLA $TSLAQ
finance.yahoo.com/news/teslas-3r…
Read 17 tweets
John Engle, Almington Capital Merchant Bankers Profile picture
6 May 19
1/ Thread on our recent note on the @WeWork IPO:

TL;DR - VC has bid WeWork's valuation to ridiculous levels, but public markets won't be nearly so generous. Its bloated valuation will soon be on the butcher’s block. This short will be fun.

Full note: gurufocus.com/news/870303
2/@WeWork's cash burn is insane, getting worse every year. A $1.9B net loss in 2018 set a new embarrassing record.

And the losses are not likely to end soon, if ever. Bernstein analysts estimate it will need $19.7B in financing through 2026.

wsj.com/articles/wewor…
3/ The premise underpinning @WeWork's business model is that it can "make it up on volume". The Silicon Valley notion that physical businesses can scale just like software startups has proven contagious. But it is nothing but a fantasy.
cnbc.com/2019/04/29/the…
Read 8 tweets
John Engle, Almington Capital Merchant Bankers Profile picture
17 Apr 19
1/ Thread on Starlink, @SpaceX's proposed satellite constellation. This is the program that's eventually supposed to pay all the bills and fund its Mars mission. Yet, according to Gwynne Shotwell, it might not happen at all. $TSLA $TSLAQ

Our full article:
seekingalpha.com/article/425491…
2/ While it costs nothing to dream about a future manned Mars mission, actually undertaking one will. According to the National Research Council, a manned Mars mission would carry a hefty $220 billion price-tag. $TSLA $TSLAQ #SpaceX
nap.edu/resource/18801…
3/ SpaceX remains unprofitable & it knows that launching satellites for government & commercial customers can neither provide the cash necessary to fund its ambition of space exploration, nor justify its eye-watering $30 billion valuation. $TSLA $TSLAQ
seekingalpha.com/article/422188…
Read 9 tweets

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