UBS downgrades $TSLA to Sell. PT = $197

Joseph Spack of UBS is considered as one of the most knowledgeable auto analysts on the Street (1/2 of his rivals are Tech or Energy analysts).

This report is well-timed. Lots to unpack, so here's a 🧵on the main parts:

1/13 $TSLA's current premium is "unidentifiable" and "too significant".

2/13

$TSLA could suffer in the US in 2023. This survey proves that Musk's clown show at TWTR is ruining $TSLA's brand value.

Chip supply & rival output is⬆️. New EV launches in the US will 2x in 2023 to 36.

This chart is a 6-month leading indicator for $TSLA demand in the US.

1/3 This is how many new EVs will be on sale in the US vs $TSLA & its line-up in 2023.

Aside from Musk repulsing potential buyers w/ his TWTR antics, negative views on $TSLA quality has gone from 4% to 13% in 12 months.

This comes as $TSLA's US capacity is +50% this year.

2/3

@BS__Exposed is a TSLAQ account. His YouTube video on Musk's FSD lies went viral. But his non-TSLA tweets are psychotic AF.

He blocked me (probably bc of my anti-CCP/pro-Ukraine tweets), so I looked through his feed.

He hates everyone except Russia & China, it seems👇

1/9 He hates Germany. I can understand hating Scholtz, but saying "Nazi Germany is back" is a bit much.

@BS__Exposed

2/9

To the morons who think $TSLA should do a share buyback: $TSLA needs to finance.

73% of 2022 deliveries in China & the EU were made in the last month of the quarter.

Reported cash at Q-end is inflated vs true levels during the first 2 months of the Q.

Short 🧵

1/3 $TSLA discloses foreign cash holdings each quarter.

Assume that 75% of foreign currency is RMB & 15% is EUR (CAD can't be >10%).

Using 3-month rates in each country since Q1 2021 shows reported interest income is *31%* below implied interest income using Q-end Cash.

2/3

1/8 $TSLA Q1 thread

Results were incredibly good, despite delivery growth of only 2% QoQ.

3 main factors:

1) ASPs rose by 1% QoQ while COGS/unit were flat
2) ZEV credits were 2x est at $679m
3) Adj SG&A (ex-R&D) dropped by 14% QoQ

2) is a one-off; 1) & 3) are strange 2/8 Zach said long-term contracts for raw materials allowed them to keep COGS/unit down, but prices are "rising rapidly in Q2" & contract renegotiations are accelerating.

Q2 should see a rise in COGS/unit. See this lithium chart. $TSLA is said to have 3-12 month contracts.

1/ For Q3, I'm estimating $14.2bn in revenues & $1.53 in GAAP EPS for $TSLA.

Consensus is at $13.9bn & $1.25, respectively. I'm seeing a 23% GAAP EPS beat, so if $TSLA doesn't report something close to that, the stock should sell off.

These are my major assumptions: 2/ Key factor is the Model Y: 20% price cuts in China hurt. But Q3 is the 1st time $TSLA exported low-COGS MIC Ys to outside regions for higher prices.

Ys in China were +24% QoQ, while ex-China Ys were +27% QoQ. Clincher: 1/3 of these ex-China Ys were MIC Ys (high margins).

1/ $TSLA June China sales disappoint: 31K in expectations were undershot by 10% with actual China domestic sales of 28K in June.

Q2 total domestic sales -16% vs Q1. Not good for a "growth stock", which is actually a carmaker trading at 387x earnings vs 10x for the sector avg. 2/ Hearing that MIC Model Y output dropped to a trickle in the last half of June.

Would've thought this was due to the chip shortage, but LR delivery time = 1-3 weeks; the new SR = Aug; & the P = "Q3". Seems like weak demand.

MIC M3: plenty of inventory (1-3 weeks).

1/ There's trouble in China for $TSLA that hasn't been priced in.

The CCP is actively promoting a boycott of $TSLA on Chinese social media.

China is over 100% of $TSLA's global profits. This is serious shit, as the CCP won't stop until it draws blood.

It's happened before. 2/ For those who were wearing diapers or braces during the last 2 CCP auto boycotts, let me show you what happens:

2012 island dispute btwn China & Japan: Japanese Big-3 sales drop by 17% over the following 12 months; Toyota drivers have their cars burned. J3 shops set on fire.

1/ Dear $ARKK @wintonARK, I'm a veteran auto analyst & have never seen a carmaker as small as $TSLA grow profits while being "vertically integrated".

Scale & cash lets Toyota outsource R&D to their listed suppliers, who can raise their own funds.

Way better deal than $TSLA.

https://twitter.com/wintonARK/status/1374405386179014661

2/ @wintonARK why use theories like Wright's Law?

Ford had a brief period of "no competition" like Tesla does now after being the 1st to use a mass-production line.

Then came GM & Chrysler. And then VW & Toyota outdid them all.

Tesla is the Ford of the EV world.

@ARKInvest saw net outflows of $2.6bn since Feb-23d, or ~4.6% of NAV.

Note that:

$ARKQ is the worst vs the S&P 500 YTD
$ARKF is the best performer
$ARKW y'day redemptions @ 6.2% of NAV
$ARKK saw 0.2% inflows
$ARKF is +2.5% YTD (best ARK fund)

ARK outflows $718m this week. $ARKK top holding: $TSLA at 9.92% of NAV

@CathieDWood sold $10m of $TSLA yesterday after buying it all the way down over the past several weeks.

She bought yesterday (Far right column):

$58m of $SQ
$38m of $ROKU
$50m of $TDOC

$ARKK's top holding is $TSLA at 9.9% of NAV

1/ UBS issued a "teardown" report on VW's ID.3 & bets VW surpasses $TSLA in BEV sales by 2023.

UBS sees VW at 775K in 2021 BEV sales, slightly more than $TSLA's ~755K target.

If UBS is right, they should have a Sell on $TSLA. VW's success kills $TSLA. Here are some charts: 2/ UBS sees VW & $TSLA as #1 & #2 by 2025, w/ $TM at #3 from close to 0% now.

This is shoddy analysis: UBS knows $TSLA only has 5 models & sees 70 rolled out by @VWGroup.

$TM has disclosed very little re: their BEV plans, but going from 0% mkt share to #3 is death for $TSLA

1/ @CathieDWood is in a dire liquidity trap w/ 18 of her positions worth $9.6bn (19% of NAV).

Japan's Nikko paid ARK to mimic $ARKK & sell it in Japan.

What shows up as Nikko's positions are often held in equal size by Sumitomo Mitsui. This amplifies ARK's exposure by 1.8x 2/ This is a list of ARK's 18 most illiquid holdings, in terms of the # of trading days it would take ARK to exit its position based on avg 30-day volume.

$MTLS is a great example: ARK's stake alone would take 18 days to sell. Add Nikko + Sumitomo & now it's 30 days of volume.

1/ Let me say this: unless the markets fully go back to "risk-on", @ARKInvest may see such huge redemptions that they might gate investors.

Here are 25 toxic stocks held by ARK

-Avg full trading days needed to exit the position: 9
-Avg PBR: 9x
-Avg price vs recent ATHs: -32% 2/ This table of @ARKInvest's most toxic positions is sorted by the highest number of days needed to sell ARK's holdings vs the 30-day avg trading volume.

Rule of thumb is not to be >20% of avg daily volume so as not to impact the price when selling. This means 9 days = 45 days

1/ $TSLA sinks as more bad news on the global auto chip shortage is out & Musk's goal of >755K in 2021 deliveries becomes elusive.

Renault said last Fri the shortage would "peak in Q2".

If $TSLA doesn't hit 2021 consensus of 820K, current nose-bleed valuations won't hold up. 2/ $TSLA wasn't forthcoming about its chip woes on its Jan-27th conf-call. But we've since learned this:

-MIC Model Y orders won't arrive till Q2
-No Models S/X exports till Q3

Both will have a big impact on 1H profits, given only the (price-slashed) Model 3 is selling.

1/ News of $TSLA buying $BTC came out 40 min after some inglorious news from China emerged regarding Tesla quality problems.

*Five* govt agencies warned Tesla's top brass about mounting complaints over quality problems.

Elon likely released the 10-K w/ $BTC news b/c of this. 2/ $TSLA being questioned by 5 CCP agencies is the #2 news trending on China's Weibo now & made it to the nightly news.

I'm told:

1) This will be a big blow to Tesla's brand image
2) 5 agencies issuing warnings at once is unprecedented

More recalls & higher costs to come?

1/ $GS, "the great vampire squid wrapped around the face of humanity," now says $TSLA is worth $740BN, or 3.5x the value of Toyota (whose CEO was never charged for stock manipulation).

"Prostitution is the oldest profession in the world." $GS proves it w/ this $TSLA report. 2/ $GS logic for $TSLA's $740bn fair value:

Tesla's 2040 deliveries = 15m units/yr via 15-20% share of the global EV market.

Fact check:
-No carmaker has 15% share of the global market
-Tesla's China EV mkt share = only 16% YTD
-China had less EV competition than EU in 2020

1/n $TSLA is being muscled out of battery supplies by larger rivals. This could mean losses next year & @elonmusk knows it.

This is why he whined to @karaswisher on her podcast about how coverage of Battery Day was "sad".

Here's how Musk epically failed in supply management. 2/n @VWGroup boasted about having "secured" enough cell supply for 4.5m BEVs through 2023.

If each of its BEVs has a 70kWh pack, that's 315GWh of supply, or 75% of planned capacity at LGC + CATL, the world's 2 largest suppliers.

Aside from VW, 15 other major OEMs are in line.

1) Initial thoughts on 's Battery Day. First of all:

CARMAKERS👏DON'T👏MAKE👏DIVERSIFIED👏CHEMICALS👏

This alone is pause for thought about any goals gave yesterday, e.g. 10GWh of internal cell capacity next year & 100GWh by 2022.

Then there are costs (oh boy!). 2) GF1 cost $4.2bn in initial capex, so 10GWh of extra capacity in 2021 requires $1.2bn (38% on top of consensus) & to reach 100 GWh by 2022, another $6.5bn will be needed (2x 2022 consensus).

No wonder VW & Toyota aren't building their own internal specialty chem ops.

1/n) The depositions in the @tripp_martin lawsuit vs $TSLA highlight a chaotic ramp-up of the Model 3 in 2018 & possible dodgy accounting at $TSLA.

Items that weren't disclosed:
$398m of battery scrappage
$100m of lost materials
$319m of Panasonic cell orders
Total = $817m 2/n) Using $TSLA’s MOS data, @Tripp_Martin calculated $198m of battery scrappage just in 1H of 2018. This doesn’t include cells that were stored badly for repairs. In the Sheridan deposition, $TSLA Finance officers calculated $50m per quarter as of April 2018.

1/6) Chinese media reporting will export the MIC Model 3 to Singapore, Oceania, & the EU. This is a sign of desperation & won't raise 's global output by more than 3%.

's Q3 China sales are only 65% of capacity, which was just raised by 25% to 250K/yr last week. 2/6) Exporting MIC Model 3s to Singapore?! Hahaha! 21 Teslas sold in 2019. 5 so far this year.

Also, Musk--genius diplomat that he is--may get a cool reception there after dissing the Singaporean government on Twitter in 2018.
carbuyer.com.sg/tesla-price-si….

1/8) Lots of soul searching, fear & loathing going on among fanboys after no inclusion into the S&P.

I mean, imagine how stupid this guy must feel right now.
2/8) Gerber's "done" with the S&P. What else will he put his clients' money into?