With Tesla's "Next-Gen" compact EV on the back burner, its aging Models 3 & Y will drag down earnings with increasing needs for price cuts. Cash could run out.
I might repeat repeat myself... but as always, Brad, this is so spot on. During the years when the Tesla cult lectured the industry for doing it all wrong... f.e.
- Gigafactory instead of small, flexible fabs that could easily react to market dynamics
- Short model lifecycles instead of a steady and aging platform (killer argument: but it gets updated all the time via OTA)
- No LIDAR and sensor/camera array to get to the next level of ADAS/autonomous driving
- Vertical integration instead of a much more resilient global supply-chain
I could go on for a while but besides the insane decisions to build a commercial vehicle, a new roadster and the Cybertruck, those Gigafactories could be the final nail in the coffin. If Tesla can't utilize them enough, they bleed money.
2024 will be worse than I thought. 2025 could be an absolute disaster and if Tesla can't present anything mind-blowingly new until 2026 to rake in an insane amount of pre-orders, this is a catastrophe in the making.
Thanks so much, Sascha! And it's all Musk's fault: he royally screwed the company up by focusing on his vanity projects (FSD, Cybertruck, etc) instead of thinking about product pipelines and new model momentum.
All the automotive engineers I speak with immediately agree that, without new models, there's no way Tesla will survive. Unless Musk does a huge equity raise very soon, people will realize this and sell the stock down.
Which makes this next earnings call on 4/23 so high-stakes: all Musk needs to do is say, "Model 2 is on schedule + we're doing Robotaxi". The stock would go parabolic. Interesting times.
Assuming that this analysis is mostly or even half true, it is very strange that the board/co is trying to push through the $50+ billion comp plan for Musk at this pt in time. Hope they have ample D&O insurance.
Great point, but if he knows the ship is sinking, why not try and get your bonus back and then sell on your way out? Or maybe he really feels that $TSLA can rise above all-time highs of $414 on his half-baked Full Self-Driving technology. Hard to tell.
FSD is clearly a Level 2 driver-assist product (one of the worst on the market) & Tesla would have to assume 100% of the legal liabilities if they wanted to declare Level 4 autonomy. So, it's hard to see how FSD or Robotaxi become viable products that replace the car business.
Given the losses that I'm seeing in 2025/26, there won't be a company left to fiddle around with Musk's AI fantasies.
I recall that Musk did that only for a brief period in 2020 (6 months?). But there's been no news about where the Board members get their D&O insurance now, which is strange. Musk originally paid for them because they couldn't find an insurer willing to write their policies or they'd charge insanely high rates. This must only be worse now.
This is an excellent report on $TSLA. I think a bigger risk than bankruptcy in the near term (next 3 years) is a continued drop in the stock price as the company trades more like a car company and less like a tech company. With a market cap of nearly half a trillion dollars, stockholders could still see losses of hundreds of billions of dollars before $TSLA trades at an auto multiple. To avoid that it would have to keep convincing people it is a tech company deserving a tech multiple meaning due to its automatic driving technology.
* Tesla raised prices on April 1st and today cut prices to below where they were before.
* Musk tweets that Tesla is going "balls to the walls" on autonomy on April 16th.
* Today: Tesla cuts the purchase price of FSD by 1/3 to $8,000.
It's as if he's trying to burn the house down before Apr-23rd earnings results. Or he's trying to get the stock down before that to squeeze the shorts.
Very interesting read. It gives an understanding how fast a negative development could accelerate. I did not realize that $100B would be needed to right the ship. I can't imagine that such a sum could be raised. It would crash the stock price imo. Musk would hate to raise, but he should try.
Thanks so much for reading the report. Note that $100bn is a rough estimate I made based on the assumption that Tesla burns around $20bn/year in cash & (b) needs 4 years to roll out one new product and conduct a full model change on either the Model 3 or Y.
It would crash the stock but that's why it's better to do it now rather than later. And I think he only has one shot at financing, as the shock of "Tesla needing cash" would surely crater the stock and make it very hard to do a drip-feed type of financing schedule over multiple offerings.
Thanks for reading my report. Regarding Tesla's cash runway, I've got them burning $15bn this year, so the 2024 ending cash balance should be around $14bn. FCF should be negative $20bn in 2025 and -$26bn in 2026, so they'll need to do something substantial in terms of financing between now and then.
Gut feel only….I immediately thought his 8/8 reveal tweet was a huge red flag. It just seemed desperate given other news on the company, industry and economy. It’s obvious he thrives on those who view him as some sort of deity, and I don’t think he wants to give that up. It’s intoxicating. I’ve never owned TSLA , and I’ve never shorted an individual stock either outright or via options, so my opinions are as a spectator only of this bizarre spectacle.
Musk tweeted the "Robotaxi unveil 8/8" pump the day $TSLA was getting crushed in the market due to the Reuters scoop on Tesla not going forward with the $25K "Model 2" compact EV. Some speculate that Tesla's engineers probably had no warning and are panicking now as there may not even be a usable prototype.
Reportedly $TSLA cut prices on its vehicles in several markets over the weekend due to weakening demand & rising inventories. With no new products on the horizon (despite promises) to excite consumers the company is under serious competitive pressure. Not helpful for what is still a very expensive stock. The best thing $TSLA may have going for it now is nothing to do with the company itself but the systemic liquidity inflating all financial asset prices. The fundamental story is unattractive.
I agree that much of the excessive valuation of $TSLA has to do with the market allowing it to trade at such multiples despite the horrible fundamentals. Let's see how things go on Tuesday's earnings call. I'm sure Musk will try to pump the stock, but fortunately, his pumps have stopped working like they did before. If he truly does declare that Tesla is going "balls to the wall" in autonomy, the stock will crater.
Very well done and informative post! I wonder if their "weak product pipeline" is from a catch-22 they've constructed for themselves through implementing a very high degree of automation at their plants which was perhaps necessary to keep costs down but has greatly limited their ability to differentiate?
Thanks for reading and the kind words. The weak product pipeline is 100% due to Musk's miscalculating full model changes and new model-launch schedules. He probably thought Tesla was so "special" that the Models 3 & Y didn't need full makeovers since they would continue to grow their sales.
Production efficiency via automation is a plant engineering subject not a product planning question.
Ah, I see. I don't know much about it, I only wondered that because some years ago I read some case studies about British Leyland in the 1980s and they had got in a jam were they did massive investement in automation but chose a design that didn't sell well but then the automation they did wouldn;t allow for differentation in order to rejig product.
The best writing on Tesla stock bar none. Thank you for tremendous insights over many months and never losing focus or discipline.
I've been short a LONG TIME and it seems it's finally the beginning of the end -- if not for Tesla, at least for the delusion it's not a badly managed car company -- which should deflate the stock.
Of course, this is MUSK so god only knows what halucinations he might spout on Monday and maybe it'll be enough to keep the fanboys on board for a while longer.
Thanks so much, Joseph & well done on staying short TSLA through the ups and downs. Just as I write, Chinese media are reporting that Tesla has cut output in Shanghai by 30%. This is the second report I've seen out of China this week with the production cut said to be "30%". Things are getting "real".
Elon is going to learn some new things in China. I'm sure the CCP flatters and praises him when times are good. But when times are bad, those are the worst guys in the world to be partners with. Xi Jinping has had so many people killed and "disappeared" during his reign, he's not going to think twice before screwing over Elon if doing so benefits the regime.
Wow...a real 'tour de force' of the TeZla situation. Well done.
Question: S&P generally frowns on having losers in their index. What could cause the index committee to sayonara to TeZla? Is such a decision based solely on financial statements OR is politics involved?
I'm old enough to remember previous GM management absolutely refusing to consider manufacturing hybrids. How's that working out fellas?
Toyota's pursuit of the fuel cell vehicle is going to be really cool to watch.
I'm not familiar with the S&P rules but I recall both going in & out are based on formulas having to do with market cap, # of shareholders (?), etc. No politics involved.
Ford is rolling out hybrids but GM sort of missed the boat, which is too bad given that hybrids are eating up EV market share now. Toyota owns 65% of the global hybrid market. It's my favorite long hedge against being short the big pig $TSLA.
Great piece Brad. As a NorCal resident, I continue to see Teslas all around, but (to your point) they are beginning to look dated and less appealing. And despite the argument that the constant OTA updates make your car “new” on a regular basis, it’s the stuff we see with our eyes that also entices you to buy and Tesla’s designs are old now. I feel the investment (both time and money) in the Cybertruck was a colossal mistake and really just a bull market Elon vanity project. Those funds and energy also probably led to the cheapening up of the 3 and Y — no parking sensors, deleted turn stalks. The CT money should have been deployed into a complete Y overhaul given its importance and/or a more mainstream pickup. More features, range enhancements, etc would keep people interested and create more reasons to go full EV and at least partially counter the trend towards hybrids first we are seeing. Full disclosure, while I still like Tesla as a great American company and want them to succeed, I’ll be buying an Accord hybrid first while I see how a supposedly upcoming refreshed Model Y plays out and how the new Rivian R2 compares.
Thank you for your kind words, Hans. You really understand cars. And, FYI, I used to live in Marin County when every 3rd or 4th car around us was a Tesla.
I too want Tesla to succeed. I watched so many videos of employees who got laid off last week that it was too heart-wrenching to keep watching. I simply think that Musk needs to go. He may have been instrumental in getting Tesla off the ground towards disrupting the auto industry, but he needs to exit stage left now.
If a guy like Carlos Ghosn took Musk's place, I might consider going long $TSLA at the right price.
I might repeat repeat myself... but as always, Brad, this is so spot on. During the years when the Tesla cult lectured the industry for doing it all wrong... f.e.
- Gigafactory instead of small, flexible fabs that could easily react to market dynamics
- Short model lifecycles instead of a steady and aging platform (killer argument: but it gets updated all the time via OTA)
- No LIDAR and sensor/camera array to get to the next level of ADAS/autonomous driving
- Vertical integration instead of a much more resilient global supply-chain
I could go on for a while but besides the insane decisions to build a commercial vehicle, a new roadster and the Cybertruck, those Gigafactories could be the final nail in the coffin. If Tesla can't utilize them enough, they bleed money.
2024 will be worse than I thought. 2025 could be an absolute disaster and if Tesla can't present anything mind-blowingly new until 2026 to rake in an insane amount of pre-orders, this is a catastrophe in the making.
Thanks so much, Sascha! And it's all Musk's fault: he royally screwed the company up by focusing on his vanity projects (FSD, Cybertruck, etc) instead of thinking about product pipelines and new model momentum.
All the automotive engineers I speak with immediately agree that, without new models, there's no way Tesla will survive. Unless Musk does a huge equity raise very soon, people will realize this and sell the stock down.
Which makes this next earnings call on 4/23 so high-stakes: all Musk needs to do is say, "Model 2 is on schedule + we're doing Robotaxi". The stock would go parabolic. Interesting times.
This would be quite a stunt if he'll come up with a statement regarding the Model 2. I wonder if anyone's brave enough to ask him about it.
Assuming that this analysis is mostly or even half true, it is very strange that the board/co is trying to push through the $50+ billion comp plan for Musk at this pt in time. Hope they have ample D&O insurance.
Great point, but if he knows the ship is sinking, why not try and get your bonus back and then sell on your way out? Or maybe he really feels that $TSLA can rise above all-time highs of $414 on his half-baked Full Self-Driving technology. Hard to tell.
FSD is clearly a Level 2 driver-assist product (one of the worst on the market) & Tesla would have to assume 100% of the legal liabilities if they wanted to declare Level 4 autonomy. So, it's hard to see how FSD or Robotaxi become viable products that replace the car business.
Given the losses that I'm seeing in 2025/26, there won't be a company left to fiddle around with Musk's AI fantasies.
Probably more detail than you care for, but Professor Lipton makes some salient points regarding our boy's resubmitted compensation plan.
https://lawprofessors.typepad.com/business_law/2024/04/tesla-and-waste.html
I believe Musk provides 'personal coverage' to the directors alleged to be 'the equivalent' of D&O insurance'.
https://www.insurancejournal.com/news/national/2020/05/01/567042.htm
I recall that Musk did that only for a brief period in 2020 (6 months?). But there's been no news about where the Board members get their D&O insurance now, which is strange. Musk originally paid for them because they couldn't find an insurer willing to write their policies or they'd charge insanely high rates. This must only be worse now.
Unlike the TeZla fan boys, insurance companies aren't in the business of being stupid.
This is an excellent report on $TSLA. I think a bigger risk than bankruptcy in the near term (next 3 years) is a continued drop in the stock price as the company trades more like a car company and less like a tech company. With a market cap of nearly half a trillion dollars, stockholders could still see losses of hundreds of billions of dollars before $TSLA trades at an auto multiple. To avoid that it would have to keep convincing people it is a tech company deserving a tech multiple meaning due to its automatic driving technology.
Musk is swinging for the fences.
* Tesla raised prices on April 1st and today cut prices to below where they were before.
* Musk tweets that Tesla is going "balls to the walls" on autonomy on April 16th.
* Today: Tesla cuts the purchase price of FSD by 1/3 to $8,000.
It's as if he's trying to burn the house down before Apr-23rd earnings results. Or he's trying to get the stock down before that to squeeze the shorts.
And, thanks so much for reading my report.
Very interesting read. It gives an understanding how fast a negative development could accelerate. I did not realize that $100B would be needed to right the ship. I can't imagine that such a sum could be raised. It would crash the stock price imo. Musk would hate to raise, but he should try.
Again, thanks for your work!
Thanks so much for reading the report. Note that $100bn is a rough estimate I made based on the assumption that Tesla burns around $20bn/year in cash & (b) needs 4 years to roll out one new product and conduct a full model change on either the Model 3 or Y.
It would crash the stock but that's why it's better to do it now rather than later. And I think he only has one shot at financing, as the shock of "Tesla needing cash" would surely crater the stock and make it very hard to do a drip-feed type of financing schedule over multiple offerings.
Yes, I understand, thank you.
Great report! I agree and think Tesla is still incedibly overvalued as a carmaker. This is why I truly believe Elon could try to exit the EV business. Pls see my writeup on the topic: https://hightechinvesting.substack.com/p/is-tesla-getting-out-of-the-electric
Nice article. Assuming they don't take your advice and raise immediately, how much runway does Tesla have in your model before cash gets tight?
Thanks for reading my report. Regarding Tesla's cash runway, I've got them burning $15bn this year, so the 2024 ending cash balance should be around $14bn. FCF should be negative $20bn in 2025 and -$26bn in 2026, so they'll need to do something substantial in terms of financing between now and then.
Amazing. Thanks very much for your insights.
Gut feel only….I immediately thought his 8/8 reveal tweet was a huge red flag. It just seemed desperate given other news on the company, industry and economy. It’s obvious he thrives on those who view him as some sort of deity, and I don’t think he wants to give that up. It’s intoxicating. I’ve never owned TSLA , and I’ve never shorted an individual stock either outright or via options, so my opinions are as a spectator only of this bizarre spectacle.
Musk tweeted the "Robotaxi unveil 8/8" pump the day $TSLA was getting crushed in the market due to the Reuters scoop on Tesla not going forward with the $25K "Model 2" compact EV. Some speculate that Tesla's engineers probably had no warning and are panicking now as there may not even be a usable prototype.
I view your last sentence as a distinct possibility. He certainly is impulsive. Absolutely no one could deny that.
Reportedly $TSLA cut prices on its vehicles in several markets over the weekend due to weakening demand & rising inventories. With no new products on the horizon (despite promises) to excite consumers the company is under serious competitive pressure. Not helpful for what is still a very expensive stock. The best thing $TSLA may have going for it now is nothing to do with the company itself but the systemic liquidity inflating all financial asset prices. The fundamental story is unattractive.
I agree that much of the excessive valuation of $TSLA has to do with the market allowing it to trade at such multiples despite the horrible fundamentals. Let's see how things go on Tuesday's earnings call. I'm sure Musk will try to pump the stock, but fortunately, his pumps have stopped working like they did before. If he truly does declare that Tesla is going "balls to the wall" in autonomy, the stock will crater.
Very well done and informative post! I wonder if their "weak product pipeline" is from a catch-22 they've constructed for themselves through implementing a very high degree of automation at their plants which was perhaps necessary to keep costs down but has greatly limited their ability to differentiate?
Thanks for reading and the kind words. The weak product pipeline is 100% due to Musk's miscalculating full model changes and new model-launch schedules. He probably thought Tesla was so "special" that the Models 3 & Y didn't need full makeovers since they would continue to grow their sales.
Production efficiency via automation is a plant engineering subject not a product planning question.
Ah, I see. I don't know much about it, I only wondered that because some years ago I read some case studies about British Leyland in the 1980s and they had got in a jam were they did massive investement in automation but chose a design that didn't sell well but then the automation they did wouldn;t allow for differentation in order to rejig product.
I hope your having a nice weekend.
---Mike
Interesting. Didn't know that. Thanks so much and you have a great weekend too!
$TSLAQ 🙃🙃🙃 Yay! Rooting for it.
The best writing on Tesla stock bar none. Thank you for tremendous insights over many months and never losing focus or discipline.
I've been short a LONG TIME and it seems it's finally the beginning of the end -- if not for Tesla, at least for the delusion it's not a badly managed car company -- which should deflate the stock.
Of course, this is MUSK so god only knows what halucinations he might spout on Monday and maybe it'll be enough to keep the fanboys on board for a while longer.
Thanks so much, Joseph & well done on staying short TSLA through the ups and downs. Just as I write, Chinese media are reporting that Tesla has cut output in Shanghai by 30%. This is the second report I've seen out of China this week with the production cut said to be "30%". Things are getting "real".
Elon is going to learn some new things in China. I'm sure the CCP flatters and praises him when times are good. But when times are bad, those are the worst guys in the world to be partners with. Xi Jinping has had so many people killed and "disappeared" during his reign, he's not going to think twice before screwing over Elon if doing so benefits the regime.
100%! That's why Musk regularly pumps China both on Twitter and in some interviews he gives.
$TSLA also benefits from inclusion in a large number of ETFs that feed money into the stock indiscriminately.
Wow...a real 'tour de force' of the TeZla situation. Well done.
Question: S&P generally frowns on having losers in their index. What could cause the index committee to sayonara to TeZla? Is such a decision based solely on financial statements OR is politics involved?
I'm old enough to remember previous GM management absolutely refusing to consider manufacturing hybrids. How's that working out fellas?
Toyota's pursuit of the fuel cell vehicle is going to be really cool to watch.
I'm not familiar with the S&P rules but I recall both going in & out are based on formulas having to do with market cap, # of shareholders (?), etc. No politics involved.
Ford is rolling out hybrids but GM sort of missed the boat, which is too bad given that hybrids are eating up EV market share now. Toyota owns 65% of the global hybrid market. It's my favorite long hedge against being short the big pig $TSLA.
Hey...let's not disrespect the swine.
I have the Honda hybrid. I got the Honda hybrid because the hybrid battery is lithium ion.
I believe Toyota uses nickel metal hydride. Not sure if that was a good decision or not, but it was the one I made.
Great piece Brad. As a NorCal resident, I continue to see Teslas all around, but (to your point) they are beginning to look dated and less appealing. And despite the argument that the constant OTA updates make your car “new” on a regular basis, it’s the stuff we see with our eyes that also entices you to buy and Tesla’s designs are old now. I feel the investment (both time and money) in the Cybertruck was a colossal mistake and really just a bull market Elon vanity project. Those funds and energy also probably led to the cheapening up of the 3 and Y — no parking sensors, deleted turn stalks. The CT money should have been deployed into a complete Y overhaul given its importance and/or a more mainstream pickup. More features, range enhancements, etc would keep people interested and create more reasons to go full EV and at least partially counter the trend towards hybrids first we are seeing. Full disclosure, while I still like Tesla as a great American company and want them to succeed, I’ll be buying an Accord hybrid first while I see how a supposedly upcoming refreshed Model Y plays out and how the new Rivian R2 compares.
Thank you for your kind words, Hans. You really understand cars. And, FYI, I used to live in Marin County when every 3rd or 4th car around us was a Tesla.
I too want Tesla to succeed. I watched so many videos of employees who got laid off last week that it was too heart-wrenching to keep watching. I simply think that Musk needs to go. He may have been instrumental in getting Tesla off the ground towards disrupting the auto industry, but he needs to exit stage left now.
If a guy like Carlos Ghosn took Musk's place, I might consider going long $TSLA at the right price.
Heard Tesla is rescinding all offers in its Shanghai HQ
They're rescinding all job offers they recently gave?
Cutting jobs is bullish my Fren
HA HA HA 1200.00 soon
You're also on ketamine?