TSLA - Tesla Motors

[pedro.nz]

Each stockholder of record on August 17, 2022 will receive a dividend of two additional shares of common stock for each then-held share, to be distributed after close of trading on August 24, 2022. Trading will begin on a stock split-adjusted basis on August 25, 2022.

[Walter]

In the very large market of California Tesla had a market share of about 11% in the first half of the year. Toyota had about 17% of the market, Ford was third most popular. In dollar terms, it's highly likely Tesla was number one.

[Dassets]

So I am still active in this stock running a short strategy. I will say mid Sept was tough but my research based around monthly sales data and other factors made me hold firm. My view atm is that the result will probably be a miss based the effects of the finished goods inventory and changes to its manufacturing approach. The Twitter thing is no surprise. The docs filed to the SEC back in April?? were straight forward. So my view is the share price likely weak until the result but I don't want to be short much after(at least until a short induced rally). Why? I think that the banks that are funding the Twitter debt are selling stock now in anticipation of Elon selling after the result(he can't sell prior). He is lucky if that is what is happening because naked selling after the result will see the price achieved circa 180. This way he will get say 205 to 210. The banks make the money to cover the debt loss. A short squeeze happens and price goes up. Anyway that is my working theory. Then back to reality. Tesla is not getting the marketshare it needs outside California and other parts of the US. As I predicted some time ago the rollout of other EVs this year is affecting it. The product is expensive relative and looks dated. While some tech is good it is not so relevant to most buyers. Cybertruck? Well just look at it. Straight off Logans Run. Robot/cat girl just embarrassing. Power wall has had major grid issues, look at Australia. No product priced where average consumer buys and no plans for development. Bold prediction. All but gone within 7 years. Interested in proper debate but no 'It has gone up x since 2017 etc" arguments

[Ferg]

Bold prediction. All but gone within 7 years. Interested in proper debate but no 'It has gone up x since 2017 etc" arguments

A bold prediction indeed which has spurred me into replying. Cathie Wood disagrees on the basis of all the other technology....apparently. I haven't looked at it that closely but I'm aware it has or had an eye watering PE ratio.

What do you see as being the trigger for failure? Or is there no such trigger but instead a slow painful death where historic market share is unsustainable? Or some other issue such as governance etc?

https://cathiewoodstocks.com/

[Dassets]

A bold prediction indeed which has spurred me into replying. Cathie Wood disagrees on the basis of all the other technology....apparently. I haven't looked at it that closely but I'm aware it has or had an eye watering PE ratio.

What do you see as being the trigger for failure? Or is there no such trigger but instead a slow painful death where historic market share is unsustainable? Or some other issue such as governance etc?

https://cathiewoodstocks.com/

Cathie Wood's Flagship Fund, ARKK, has been great for Cathy. That fund has a net assets of US$7.57B. 5 years ago its net assets were circa $1.4B. Cathy and the other shareholders of the management company makes money from fees. The fees, which also do pay costs say from the trustee etc, mostly go to the manager. Fees have gone from US$10.5m(based on the Sept 18 AUM) to US$57.8M. Since Sept 2017 the NASDAQ has gone up 61.6%, while ARKK has risen 3.2%. Sure it has been a while ride.

At the core of my doubt about Tesla is about the competitive environment and its response to that or at least its apparent business plan. BTW I have made these comments for 18 months or so, initially saying that the launch of other EVs this year and onwards as part of the competitor response was going to negatively affect Tesla in a number of ways.

Now what I said was a pretty standard observation that a junior analyst could make. Tesla's response has been basically nothing. No new models, no development of cars in the price range most cars are sold because that is what people can afford. Its aspirations to sell 20M cars in 2030 is laughable.

Its sales inside of the US and especially California are good. In other markets it is struggling. More tellingly it struggles when other BEVs are in those markets or when other BEVs are launched the take-up by consumers is a lot better.

When I look at its long term ambitions I do wonder what the effect of subsidies being withdrawn will be. But there are more pressing issues. Deferrals of tax or some incentive related to new plant builds are coming to an end. Minimum USD$300m for tax on China kicks in 2024. Texas who knows? To get to 20M of production it needs to build 10-12 plants at a cost of $50-60B and fund working capital requirements of $X. No way can it get that sort of capital.

My concerns aren't limited to the above. Elon, directors and executives have been selling gigantic amounts of stock that they basically got for free. The Chair has become a billionaire through options. She has sold for cash maybe $400M worth the last 18 months or so. The smartest executives have set up blind trusts that keep on selling monthly option exercises. That way price sensitive information and black out periods before results can be sold through.

But my main issue is the competitor actions in reality. So the trigger is just grinding, promises not met, average results and then a rush at near the end using cash to quickly develop a lot of new products(too late)

[Walter]

I also wonder about the demand side of things. Model Y was the best selling car in many markets in September, so sales must be peaking. Electricity prices in Europe have soared, so BEVs must be less attractive there than they were a year ago. China seems to be determined to damage their economy and USA has it's own issues.
Elon seems to generate hate, much of it self inflicted. That must have some effect on demand.
Possible increasing revenue sources are from new vehicles, the energy division, computing, insurance software and next years USA Government incentives.
At current prices the PE this year may well be around 50. If growth continues that does not appear to out of line with the market.

[Ferg]

Thanks for sharing Dassets and Walter. I agree with what you are saying and IMO the eye watering PE ratio is not sustainable. And/or the future earnings are too optimistic. Not only are the demand side issues, but with capex and working capital constraints, there will be supply side issues to achieve those sorts of (as you say) laughable targets.

I would also add governance to their list of issues. Elon Musk has been a bit of a loose cannon and it's only a question of time (if not already) there is a major FUBAR with far-reaching consequences. Plus if you look at the names of the Tesla models and their sequence of release, you get:
S3XY
pretty juvenile although Elon is a bit of a "meme lord" so I suppose it is to be expected .... hence my concern around governance.

[Walter]

Tesla have plenty of cash and almost no debt. In three years Tesla built a factory from scratch in Shanghai capable of producing a million cars a year. They are currently building factories in Berlin and Texas. The PE should be less than Auckland Airport this year, not expensive for a company that has been growing at over 50% a year. The question both Dassets and I have is will the growth continue? He says no and short sells, I say probably and am drip feeding in. It's going to be a rocky year.

[Dassets]

Not really Walter when you pick the balance sheet apart. 19b or sk in cash, but 2b of that is customer deposits, it has 11b of payables or so. Then it has chewed up around $1B in cash because of the initial build up of inventory. And that is because of a permanent change in production approach away from location batch manufacturing. As Tesla grows production nd geographic spread, inventories will grow further. GM has 12% of turnover in finished goods on average. . It is permanent because cars take time to move from Berlin to Madrid or Shanghai to where ever etc. The inventory issue means earnings downgrades because analysts are moving from assuming no inventory to xx. It was easy when Teslas California plant conveniently located in its biggest market could make the cars late in the quarter and deliver nearby. It has just changed.

Ps I follow and pay for production numbers and actual sales. A guy I get some of the numbers from is saying he thinks Shanghai is making 10000 cars a week or 50% of production not selling in China like they thought. So Tesla is trying to shift them offshore. LHD though so Europe bound I guess. Problem is sales are not going that well in Europe. Some markets showed Model Y records but really that was just shipments turning up and orders gathered over the year satisfied.

So to go to cash, it's working capital requirements going through the roof. I expect a bond issue soon around 6.5% just in time to fund cybertruck operations. Doesn't that remind you of the electric pickup from Logans Run btw?

It is going to grow by less than 40% this year btw. It looks like sales at just over 1.3 m for FY2022 below the downgraded from 1.5m to 1.4 m current company expectation.

[Snoopy]

PS. I follow and pay for production numbers and actual sales. A guy I get some of the numbers from is saying he thinks Shanghai is making 10000 cars a week or 50% of production not selling in China like they thought. So Tesla is trying to shift them offshore. LHD though so Europe bound I guess.

You guess wrongly. The Shanghai plant also builds RHD EVs. NZ sold Tesla model 3 and model Y EVs are now sourced from China. The production sourcing switched away from California over the last twelve months, and there was a small price reduction at the time for the NZ market as a result (although I think this has subsequently been reversed). There were some small cosmetic upgrades at the time too. You can pick the Chinese sourced Teslas by their black door handles, which were chrome coloured on the earlier USA sourced cars.

SNOOPY