Tesla Weekly (10/4): When It Rains, It Pours
A slew of bad news this week sent Tesla's stock down ahead of its "Robotaxi Day"
This week’s round-up covers the following topics:
Negative newsflow the day after weaker-than-expected Q3 delivery numbers pushed Tesla down further yesterday.
Tesla trading thoughts this week—I shorted moar.
Tesla cuts US prices of the Models 3 and Y.
Tesla sent out a notice to Cybertruck reservation holders that they can now accept delivery of the cheaper, $79,990 variant. This seems like a quest for volume sales at the detriment of profits in Q4.
What kind of “tricks” to expect from Musk next Thursday on Robotaxi Day.
Weekly auto stock gainers and decliners—Chinese EV stocks win for the fourth week in a row.
Thursday (10/3): Tesla Bad News Day
Many Tesla bulls thought the stock would go above $300 ahead of the October 10th Robotaxi event but Wednesday’s weaker-than-expected Q3 delivery results (reported pre-market open) sent the stock down by 6.7% in two days versus a flat Nasdaq 100.
Yesterday saw a seemingly systematic dumping of bad news that was kept suppressed until after Wednesday’s Q3 delivery numbers:
Total recall of every Cybertruck sold since last November, but to be fixed via over-the-air (OTA) updates (news came out yesterday at 5:58 AM EST). Apparently, the OTA updates were already beamed out to owners on September 18th but weren’t announced by the US regulatory authority (NHTSA) until yesterday. If the OTA fix was made in mid-September when the stock was $227 (12% lower than $258 before weak Q3 delivery numbers were announced on Wednesday), why didn’t Tesla and NHTSA announce it then?
Tesla’s Chief Information Officer (CIO) quits just days before the highly anticipated robotaxi event (news came out yesterday at 12:27 PM EST). Nagesh Saldi, the outgoing CIO, had been overseeing Tesla’s massive data center build-out in Austin and Buffalo, NY for their “AI” competency. The fact that an important executive like this quits days before the robotaxi event is pretty shameful, given the high stakes. Only Musk would allow something this embarrassing to happen, which very likely means that he rage-fired his CIO over something. Since last August, six senior executives have left Tesla, leaving it now with only 2 executives aside from Musk.
Tesla plans to issue $783 million of debt next week (news came out yesterday at 1:59 PM EST), which begs the question of whether Tesla’s Q2-end cash balance of $30.7 billion is real or not. It does amount to a staggering 46% of equity (Toyota’s automotive cash is only 20% of equity and their credit rating is 5 to 6 ranks above Tesla’s, which is one notch above “junk”). Tesla’s interest income as a percentage of quarter-end cash has always been lower than the prevailing interest rates (see details about why Tesla’s quarter-end cash balances are inflated in this report). And because Tesla has the highest vertical integration in the auto industry (they’re the only carmaker that makes their own interiors), Tesla has higher working capital needs than its rivals. This is why Tesla already tapped the US debt markets to the tune of $3.9 billion in 2023 and another $3.9 billion in the 1H of 2024. Ford is the only other big US rival to have issued such debt in the 1H of 2024 and its credit rating is “junk”.
Tesla Trading Thoughts
A great Wall Street Journal article out this morning on why Tesla will face an uphill battle against Uber and Waymo in starting its own robotaxi service (free link here). This bolsters my confidence ahead of next Thursday’s robotaxi event that it will be a huge “sell-the-news” opportunity if it’s still up.
Despite an epic call-buying spree last week (before the weak Q3 delivery numbers came out on Wednesday), call trading volumes this week were up by another 9.2% while put volumes were up by 5.9%. The reason Tesla has the lowest short interest among the Magnificent 7 is because it’s highly manipulated by options trading among the Vested Interests. But this is so blatant that it’s bound to collapse after next Thursday’s robotaxi event (in my opinion). The put/call ratio of 1.05x on August 5th—when Tesla was at a near-term low of $199—dropped to a low of 0.53x on Wednesday before a mild recovery to 0.55x yesterday.
Added to my short position by 31% this week. While my trading rule is to short TSLA when its RSI is over 70 and cover as it approaches 30, I increased my Tesla short position by 31% this week as the RSI was closer to 70 and Q3 deliveries were weak. I’m still only half-loaded ahead of Q3 earnings, before which I plan to add another 25% on Robotaxi Day and the rest on or before October 23rd earnings results.
Tesla Cuts US Prices & Adds Incentives 3 Days Into Q4
Tesla cut the Model 3 and Y prices in the US by an average of $2,300 (5.5%) and discontinued their cheapest Model 3 variant due to not being able to receive US credits on its battery packs after the US removed incentives from any Chinese battery materials (LFP) used in US local production.
More low-interest-rate-loan programs were added this week in many countries, which indicates that Tesla may be having a hard time selling its cars even in markets where it hasn’t been on sale for long.
Tesla contacted reservation holders of the cheaper Cybertruck variant yesterday night, telling them they should accept delivery of the $79,990 trim. As previously mentioned, this coincides with Panasonic’s announcement last month of being ready to start mass production of the 4680 battery cells that Tesla struggled to produce in-house.
MUSK CHOOSES VOLUMES OVER PROFITABILITY FOR Q4: Aside from a brief uptick in Q4 2023, Tesla’s Automotive gross margin (ex-credits & leases) has fallen each quarter since Q1 2022 due to price cuts. Given the big price cuts and low-interest-rate incentives Tesla is offering right out of the door this quarter, there’s little hope that Q4 margins can improve.
Expect Desperate Pumps on Robotaxi Day
Having witnessed all kinds of Tesla events used to pump the stock up since 2016, I have no doubt that Robotaxi Day next Thursday will involve many lies in order to keep retail investors hopeful. This is why:
Solar Tile Day (November 2016): Musk used the Hollywood set of Desperate Housewives (a popular US drama series back then) to show off solar tiles that looked like normal roof tiles but couldn’t harness the sun’s energy. It helped get 85% of Tesla’s supine investors to vote in favor of Musk’s plan to have Tesla, a carmaker, buy out SolarCity, a defunct solar panel installer run by himself and his cousins for $2.1 billion (78% of equity in Q3 2016).
Autonomy Day (April 2019): This is where Musk got himself and Tesla in trouble with the US Department of Justice (DOJ) by stating that Tesla would have 1 million robotaxis on the road in 2020 which would, in turn, cause every Tesla car to appreciate in value given his projected $30,000/year in robotaxi revenues for any Tesla owner. In Q4 2022, Tesla disclosed in its 10-K filing that the DOJ was investigating them over FSD, and in Q1 2023, the same line in the 10-K added that the DOJ had subpoenaed Tesla for data (which means that Musk had refused to turn over that data after the DOJ requested it, leaving them no choice but to subpoena what they needed).
CyberTruck Launch (November 2023): While not illegal, Musk narrated the video on a big screen in front of investors last November showing a Cybertruck drag racing a Porsche 911 on a quarter-mile track. When the Cybertruck crossed the finish line ahead of the 911, the camera showed that the Cybertruck had been towing another 911 the whole time. But this was immediately proved to be a lie, as Tesla’s video—which is still on its website with 3.6 million views—showed the Cybertruck winning the “quarter-mile” race after only an “eighth” of a mile (stunning evidence in this video from 2:08 to 3:30 here). Musk is now more desperate than last November as is clear from his escalating insanity on Twitter these days ahead of the US presidential election.
Tesla May Show Several Mock-Up Models To Excite Its Fanbase: Tesla fans have been enduring a period that Musk explains as Tesla being “in between two growth waves”. It was clear that Musk announced Robotaxi Day in a fit of rage after a Reuters scoop saying that Tesla scrapped its $25,000 Model 2 EV launch. This led to a sell-off that day, causing Tesla’s stock to drop as well (details in this report from last week here). Given Musk’s increasingly unhinged tendencies—Be prepared for many sleights of hand at next Thursday’s Robotaxi Day: He’s already spewing out proclamations about FSD going from 150 miles (240 Km) before interventions to 10,000 miles “soon” (see Figure 1). Waymo recently filed documents showing that it drove over 17,000 miles (27,200 Km) before interventions and reached 100,000 paid robotaxi rides per week in September.
Figure 1: Musk Already Lying About FSD Before Robotaxi Day
Source: Twitter.
Weekly Auto Stock Gainers & Decliners
Chinese EV stocks gained the most this week for the fourth time in a row due to China’s stimulus package. BYD now is the best-performing auto stock in the Big Leagues while Rivian is the worst-performer after cutting its production forecasts by 16% today on component shortages.
It’s astounding that only 3 auto stocks in our universe gained this week, while all others dropped. China and Europe have been weak for several months, but the US appears to be seeing weaker demand as well recently: Q3 light vehicle sales dropped by 2.9% QoQ versus only a 0.9% decline in Q2. Moreover, average incentives/unit in the US continue to rise back to pre-pandemic levels.
Figure 2: Weekly Auto Stock Price Action (Ranked by Gainers vs Decliners)
Many people reached out to me this week in frustration over the fact that Tesla didn’t fall that much despite its weak delivery report on Wednesday and a big drop in profits. My view is that this can only be explained by the US stock market being high on non-stop quantitative easing:
Take a look at Carvana (CVNA)—a nearly defunct used-car dealer that is also under DOJ and SEC investigations for fraud and trades at a 2025 EV/sales multiple of 2.7x versus the average automaker’s multiple of 0.9x (see Figure 3 below).
The weakest car markets in the world are China and Europe, which have already caused four European carmakers to revise down their 2H 2024 profits by 20% on average. Given that Tesla has large exposures to both markets, it will be a miracle if Tesla doesn’t have a weaker-than-expected 2H of 2024.
Tesla has 52% of its capacity in China and Europe: Tesla’s plant in Germany is operating below 50% of capacity. It also has Chinese operations that made up 71% of global pre-tax profits in 2023 slowly declining due to tariffs on Chinese imports to Europe. Local sales of Tesla cars in China have close to zero profit margins due to the intense price war there. This makes it difficult for Tesla to generate profits from China as its export markets gradually close due to tariffs against Chinese-made imports.
Diablo IV's new expansion launches in the US on October 7th, 4 pm PDT.
So for Robotaxi Day, I'm expecting an Elon full of coke or ketamine, and very little sleep.
I still cant get over the 6.9 energy deployment figure. Its baffling to me because they have signed several big contracts this year and their financials would lead you to believe they had a backlog of contracts to work through. Its very very confusing to me. They also claim they have the capacity to do 10 per quarter. What gives?
We saw what happened with Twitter's value with Musk being the only decisionmaker. Dunno why bulls arent running for the hills seeing the same thing slowly happen to Tesla.
Hoping for a gap down Monday. Tesla was buoyed by the broader market. Hopefully bulls get trapped over the weekend. Some of them are already calling for another rally into Robotaxi day. Good friggin luck guys