Tesla Will Soon Report A Terrible Q2: Shortseller

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Stanphyl Capital letter to investors for the month ended June 30, 2022, discussing their short thesis for Tesla Inc (NASDAQ:TSLA).

• 1. Tesla's Gigantic Money Furnaces Losing Billions Of Dollars
• 2. A Terrible Q2
• 3. Tesla Is Netflix
• 4. An Energy Company
• 5. So Here Is Tesla's Competition In Cars...
• 6. And In China, Where Tesla's EV Market Share Is Stuck At 10% And Not Growing…
• 7. Here's Tesla's Competition In Autonomous Driving; The Independents All Have Deals With Major OEMs…
• 8. Here's Where Tesla's Competition Will Get Its Battery Cells...
• 9. Here's Tesla's Competition In Charging Networks...

In an interview released in June but conducted in late-May with a local Tesla fan club, Elon Musk called Tesla Inc (NASDAQ:TSLA)'s new German and Texas factories“gigantic money furnaces losing billions of dollars.” Yet in the quarterly conference call just five weeks prior to that he implied things were going great at those factories…

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Q1 2022 hedge fund letters, conferences and more

Jim Chanos has a new short target in his sights. Earlier this week, the hedge fund manager disclosed that he is betting against 'legacy' data centers that face growing competition from the trio of technology giants, which have previously been their biggest customers. The fund manager, who is best known for his winning bet against Read More

So, as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus '21. I think, we actually have a reasonable shot at a 60% increase over last year. So, let's see. Obviously, we ramped production, as you will know, with Giga Berlin and Giga Texas in the past few months. So, with two fantastic factories with great teams, and they are ramping rapidly. Now, with new factories, the initial ramp always looks small, but it grows exponentially. So, I have very high confidence in the teams of both factories. And we expect to ramp those initially slowly, but like I said, growing exponentially with them achieving high volume by the end of this year.

…and then proceeded to almost immediately dump billions of dollars in TSLA stock. Back when this country had an SEC that prioritized“corporate fraud” over nonsensical crap such as“climate change disclosures” it might have taken a look at this, but under Trump and now Biden the SEC has become one of the most useless agencies in Washington, which is quite an accomplishment considering its competition!

We also learned in June that Tesla only fulfilled its obligation to report a series of serious Autopilot accidents to the NHTSA after the NHTSA had already learned about them.

Elon Musk remains the most vile person ever to head a large-cap U.S. public company, and we remain short Tesla, the biggest bubble-stock in modern market history, because:

• It has a flat-to-sliding share of the world's EV market and a share of the overall auto market that's only around 1.5%, yet a market cap greater than the next 9 largest automakers (by market cap) combined despite selling fewer than 3% of the cars they do.
• It has no“moat” of any kind; i.e., nothing meaningfully proprietary in terms of its electric car technology (which has now been equaled or surpassed by numerous competitors ), while existing automakers—unlike Tesla­—have a decades-long“experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably. Meanwhile, its previously proprietary Superchargers are being opened to everyone.
• Excluding working capital benefits and sunsetting emission credit sales Tesla generates only minimal free cash flow.
• Growth in sequential unit demand for Tesla's cars is at a crawl relative to expectations.
• Elon Musk is a pathological liar.

Tesla will soon report a terrible Q2 (even before accounting for a roughly $500 million Bitcoin write-down), with deliveries down substantially from Q1, which itself showed no growth over Q4. However, Q2's decrease was due to a monthlong COVID-related closing of Tesla's Shanghai factory, and thus it might be a while yet before we can get a“clean” demand picture for the company. Regardless, Tesla has objectively lost its“product edge,” with many competing cars now offering comparable or better real-world range , better interiors, similar or faster charging speeds and much better quality. (Tesla ranks second-to-last in Consumer Reports' reliability survey while British consumer organization Which? found it to be one of the least reliable cars in existence.) Thus, due to competitors' temporary production constraints, waiting times are now longer for many of Tesla's direct EV competitors than they are for a Tesla. (Here's one example , and here's another .)

In fact, Tesla is now the second, third or fourth choice for many EV buyers, and only maintains its volume lead though a short-lived edge in production capacity that will disappear over the next 12 to 36 months as competitors rapidly increase the ability to produce their superior EVs. In fact, Tesla's poorly-built Model Y faces current (or imminent) competition from the much better made (and often just better) electric Hyundai Ioniq 5 , Kia EV6 , Ford Mustang Mach E , Cadillac Lyriq , Nissan Ariya , Audi Q4 e-tron , BMW iX3 , Mercedes EQB , Volvo XC40 Recharge and Polestar 3 . And Tesla's Model 3 now has terrific direct“sedan competition” from Volvo's beautiful Polestar 2 , the great new BMW i4 , the upcoming Hyundai Ioniq 6 and Volkswagen Aero , and multiple local competitors in China—here, from Snowbull Capital's @TaylorOgan , is just one example of that Chinese competition:

And in the high-end electric car segment worldwide the Porsche Taycan (the base model of which is now considerably less expensive than Tesla's Model S) outsells the Model S, while the spectacular new Mercedes EQS , Audi e-Tron GT and Lucid Air make it look like a fast Yugo, and the extremely well reviewed new BMW iX and Mercedes EQS SUV do the same to the Model X.

The worst thing that can possibly happen to“the Tesla story” will be when its German and Texas plants are fully operational and the subsequent excess capacity stares the world right in the face, thereby ending its myth of“unlimited demand” (especially at current, drastically-raised prices, where the cheapest Model 3 now starts at $47,000 and the cheapest Model Y begins at $66,000); in fact, look for margin-destroying price cuts by late this year or early 2023.

Indeed, for years I've said“Tesla is Blackberry” —the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions; now I can provide a much more recent analogy: Tesla is Netflix . For years Netflix had an absurd valuation based on its pioneering position in streaming media, but once it proved that such a market existed myriad competitors swarmed all over it, and in April the stock collapsed when we learned that not only is Netflix no longer in“hypergrowth” mode but for the first time since 2011 (when it transitioned from physical DVDs) it actually lost subscribers. I believe Musk knows that Tesla is“the next Netflix” (hence his recent“Twitter buying distraction”), with VW, Hyundai/Kia, Ford, GM, BMW, Mercedes, BYD & other Chinese competitors and, in a few years, Toyota & Honda, being the Disney, HBO Max, Amazon Prime, Peacock, Hulu, Paramount +, etc., of the electric car market, stealing Tesla's share and eventually pounding its stock price down 95% or so from today's, into the valuation of“just another car company.”

Meanwhile, in June the NHTSA announced that its investigation of Tesla's deadly Autopilot has expanded into“an engineering analysis,” the last required step before (finally!) demanding a full recall. The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of“full self-driving.” And, of course, there will be a massive“valuation reappraisal” for Tesla's stock as the world wakes up to the fact that Tesla's so-called“autonomy technology” is just trailing-edge garbage.

Also in June the NHTSA released some raw data about driver assistance system crashes, and over 70% of them involved Teslas. (For all Tesla deaths cited in the media—which is likely only a small fraction of those that have occurred—see TeslaDeaths.com .) Also interesting is that—unlike for other systems—in the vast majority of cases the Autopilot Teslas hit something rather than“were hit,” as was the case for more advanced systems (Level 4). And Tesla has sold this trashy software for over five years now:

…and still promotes it on its website via a completely fraudulent video !

Meanwhile, the“record” profits that accompanied Q1's nearly flat delivery number were obtained via myriad one-time items, including $679 million of emission credit sales that will disappear over the next year or two as every automaker ramps up its EV sales, a mysterious $502 million reduction in SG&A expense (of which only $140 million was due to reduced stock comp) despite opening new factories in Germany and Texas (what is Tesla capitalizing instead of expensing???) and a combination of FIFO accounting and multiple sticker price increases that allowed Tesla to expense rapidly rising raw materials costs at older, lower prices while selling cars built from those materials at new, considerably higher prices. And, as cited here previously, Tesla practices consistently fraudulent warranty accounting . Adjusting for these factors, Tesla had GAAP earnings for the quarter that were at least $1/share lower than the posted $2.86, and annualizing that realistic $1.86/share to $7.44 means that at June's closing price Tesla (on a no-growth quarter) had a PE ratio of around 90 vs. an industry-wide figure in the mid-single digits.

Meanwhile, excluding growth in net payables and $993 million in sunsetting emission credit sales, Tesla's free cash for Q1 2022 and Q4 2021 combined was just $950 million, which annualizes to only around $1.9 billion*. A 15x multiple on this (roughly a 100% premium to BMW's multiple) would make TSLA stock worth only around $28/share!

*And I'm not even backing out Tesla's massively dilutive stock comp

And for those of you who think that Tesla is“really an energy company,” in Q1“Tesla Energy” had revenue of just $616 million (down 10.5% sequentially) and cost of revenue of $688 million, meaning it had a negative gross margin. So if Tesla is“really an energy company,” it's even more screwed than if it's just a car company!

Meanwhile, many Tesla bulls sincerely believe that ten years from now the company will be twice the size of Volkswagen or Toyota, thereby selling around 20 million cars a year (up from the current run-rate of around 1.3 million); in fact in March Musk himself even raised this as a possibility . To illustrate how utterly absurd this is, going from 1.3 million cars a year today to 20 million in ten years means that in addition to one million cars a year of eventual production from the new German and Texas factories, Tesla would have to add 35 more brand new 500,000 car/year factories with sold out production; i.e., a new factory nearly every single quarter for ten years!

Another favorite hype story from Tesla bulls has been“the China market,” but Tesla's Q1 2022 domestic China sales sequentially declined by approximately 8000 units vs. Q4 2021, and it had only around 1.9% of the overall Chinese passenger vehicle market and has flatlined at only around 10% of the BEV market. In other words,“Tesla China” is no longer“a growth story”:

Another favorite Tesla hype story has been built around so-called“proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn't make them, it buys them from Panasonic , CATL and LG , and it's the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market some time in 2024 (as is now expected ), even if Tesla makes some of its own, other manufacturers will gladly sell them to anyone .

And oh, the joke of a“pickup truck” Tesla previewed in 2019 (and still hasn't shown in production-ready form) won't be much of“growth engine” either, as it will enter a dogfight of a market ; in fact, Ford's terrific 2022 all-electric F-150 Lightning now has over 200,000 retail reservations (plus many more fleet reservations), GM has introduced its fantastic 2023 electric Silverado which already has nearly 200,000 reservations and Rivian's pick-up has gotten excellent early reviews .

Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called“Autopilot” system, which Consumer Reports has completely eviscerated ; God only knows how many more people this monstrosity unleashed on public roads will kill despite the NTSB condemning it. Elsewhere in safety, the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up , and now Tesla has been hit by a class-action lawsuit in the U.S. for the same defect. Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems , and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen . In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate.

(note: these links are regularly updated)

• Porsche Taycan
• Porsche Taycan Cross Turismo
• Porsche Macan Electric SUV Officially Coming in 2023
• Volkswagen ID.3
• Volkswagen ID.4 Electric SUV
• Volkswagen unveils ID.6 SUV EV in China
• Volkswagen ID.Buzz Electric Van
• Volkswagen unveils the ID. AERO sedan with 385 miles of range
• New sketch of 2025 Volkswagen ID.1 unveiled
• VW's Cupra Born
• Volkswagen unveils $7.1B commitment to boost product line-up, R&D, mfg in N. America
• Audi e-tron
• Audi e-tron Sportback
• Audi E-tron GT
• Audi Q4 e-tron
• Audi Q6 e-tron confirmed for 2022 launch
• 2022 Audi A6 e-tron set to take on Tesla
• Audi will expand EV lineup with electric A6 wagon
• Audi TT to be axed in 2023 for 'emotional', electric replacement
• Hyundai Ioniq 5
• Hyundai Ioniq 6 Will Be a Slick-Looking EV Sedan
• Hyundai Kona Electric
• Genesis reveals their first EV on the E-GMP platform, the electric GV60 crossover
• Genesis Electrified GV70 Revealed With 483 Horsepower And AWD
• Kia Niro Electric: 239-mile range & $39,000 before subsidies
• Kia EV6: Charging towards the future
• Kia EV9 to land in US in 2023 with 300-miles range, $50,000 price
• Kia EV4 on course to grow electric SUV range
• Jaguar's All-Electric i-Pace
• Jaguar to become all-electric brand; Land Rover to Get 6 electric models
• Daimler will invest more than $47B in EVs and be all-electric ready by 2030
• Mercedes EQS: the first electric vehicle in the luxury class
• 2023 Mercedes EQS SUV Is a Seven-Seat EV Flagship with up to 536 HP
• 2023 Mercedes EQE Electric Sedan
• Mercedes EQE SUV to rival BMW iX and Tesla Model X
• Mercedes EQC electric SUV available now in Europe & China
• Mercedes-Benz Launches the EQV, its First Fully-Electric Passenger Van
• Mercedes-Benz EQB Makes Its European Debut, US Sales Confirmed
• Mercedes-Benz unveils EQA electric SUV with 265 miles of range and ~$46,000 price
• Ford Mustang Mach-E Available Now
• Ford F-150 Lightning electric pick-up available 2022
• Ford set to launch 'mini Mustang Mach-E' electric SUV in 2023
• Ford to launch 7 EVs in Europe in big electric push
• Ford unveils Lincoln Star electric SUV concept as it readies to add four new EVs by 2026
• Polestar 2 sedan
• Polestar 3 SUV With 372-Mile Range Coming Late 2022
• Volvo XC40 Recharge
• Volvo C40 Recharge
• Chevrolet Bolt sedan, 259-mile range starting at $31,000
• Chevrolet Bolt EUV electric crossover
• Cadillac All-Electric Lyriq Available Spring 2022
• GMC 2022 ALL-ELECTRIC SUPERTRUCK HUMMER EV
• GM's 2023 electric Silverado pickup truck
• GMC to launch electric Hummer SUV in 2023
• 2023 Chevrolet Blazer EV primed to take on Tesla Model Y
• GM Launches BrightDrop to Electrify the Delivery of Goods and Services
• GM & Honda Will Codevelop Affordable EVs Targeting Most Popular Vehicle Segments
• Honda pours $40 billion into electrification, targets 2 million EV production by 2030
• Honda and Sony finalize 50-50 joint venture to build EVs in 2025
• BMW leads off EV offensive with iX3
• BMW expands EV offerings with iX tech flagship and i4 sedan
• BMW i7 EV, with 600 hp, will be most powerful variant of new 7 Series flagship
• BMW iX1 Revealed With 313 HP, 272 Miles WLTP Range
• Renault-Nissan alliance plows $26B into EV blitz- will jointly launch 35 new EVs
• Nissan vows to hop back on EV podium with Ariya
• Nissan LEAF e+ with 226-mile range is available now
• Nissan Unveils $18 Billion Electric-Vehicle Strategy
• Renault upgrades Zoe electric car as competition intensifies
• Renault Dacia Spring Electric SUV
• Renault to boost low-volume Alpine brand with 3 EVs
• Renault's electric Megane will debut new digital cockpit
• Stellantis promises 'heart-of-the-market SUV' from new, 8-vehicle EV platform
• Chrysler to go all-EV by 2028
• Alfa Romeo's First Electric Car Will Arrive in 2024
• Peugeot e-208
• PEUGEOT E-2008: THE ELECTRIC AND VERSATILE SUV
• Peugeot 308 will get full-electric version
• Subaru shows off its first electric vehicle, the Solterra SUV
• Citroen compact EV challenges VW ID3 on price
• Rivian R1T Is the Most Remarkable Pickup We've Ever Driven
• Maserati going fully electric by 2030 -all vehicles will offer a BEV version by 2025
• Mini Cooper SE Electric
• Toyota's Electric bZ4X Goes On Sale in Spring 2022
• Toyota will have lineup of 30 full EVs by 2030; Lexus will be all-electric brand
• Honda and Sony to build, sell EVs by 2025
• Opel sees electric Corsa as key EV entry
• 2021 Vauxhall Mokka revealed as EV with sharp looks, massive changes
• Skoda Enyaq iV electric SUV offers range of power, battery sizes
• Electric Skoda Enyaq coupe to muscle-in on Tesla Model 3
• Skoda plans small EV, cheaper variants to take on French, Korean rivals
• Nio to launch in five more European countries after Norway
• BYD will launch electric SUV in Europe
• The Lucid Air Achieves an Estimated EPA Range of 517 Miles on a Single Charge
• Bentley will start output of first full EV in 2025
• All-electric Rolls-Royce Spectre to launch in 2023 – firm to be EV-only by 2030
• Aston Martin will build electric vehicles in UK from 2025
• Meet the Canoo, a Subscription-Only EV Pod Coming in 2021
• Two new electric cars from Mahindra in India; Global Tesla rival e-car soon
• Former Saab factory gets new life building solar-powered Sono Sion electric cars
• Foxconn aims for 10% of electric car platform market by 2025

• BYD is #1 in Chinese EVs, selling FAR more than Tesla
• Volkswagen to boost Chinese EV capacity to 1m by 2023
• Audi-FAW's $3.3 billion electric vehicle venture
• Nio
• Xpeng Motors
• Hozon/Neta
• Li Auto
• GAC Aion
• Leap Motors
• GM launches Ultium EV production platform in China
• Ford Mustang Mach-E Rolls Off Assembly Line in China
• Cheaper than Tesla: Honda takes aim at China's middle class
• BMW i3 Debuts As All-Electric 3 Series Only For China
• Hongqi
• Geely
• Zeekr Premium EVs by Geely
• Baidu and Geely put nearly $400 million more into their electric car venture
• Mercedes-Benz Said To Build EV In China From 2024
• BAIC
• Hyundai, BAIC Motor to inject $942 mn in China JV for EVs
• Toyota partners with BYD to build affordable $30,000 electric car
• Lexus RZ 450e Steers For China
• Dongfeng
• SAIC
• Renault launches sales of first EV in China
• Nissan expects 40% of sales in China to be electrified by 2026
• Changan forms subsidiary Avatar Technology to develop smart EVs with Huawei, CATL
• WM Motors/Weimar
• Chery
• Seres
• Enovate
• Singulato
• JAC Motors
• Iconiq Motors
• Aiways
• Skyworth Auto
• Youxia
• Human Horizons
• Xiaomi announces plans for four electric vehicle models

• Waymo ranked top & Tesla last in Guidehouse leaderboard on automated driving systems
• Tesla has a self-driving strategy other companies abandoned years ago
• Waymo operates robotaxis NOW
• GM's Cruise operates robotaxis NOW
• Argo AI (owned by Ford & VW) Begins Driverless Vehicle Operations in Miami & Austin
• Mobileye operates driverless test fleets in Europe and the U.S.
• Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving
• Ford's hands-free“Blue Cruise”
• Mercedes Launches SAE Level 3 Drive Pilot System
• Honda Legend Sedan with Level 3 Autonomy Now Available in Japan
• Hyundai + Motional Bringing IONIQ 5 robotaxis to the streets from 2023
• Amazon's Zoox will test its autonomous vehicles on Seattle's rainy streets
• Baidu Apollo's autonomous driving service is now inclusive to all the megacities in China
• Alibaba-backed AutoX unveils first driverless RoboTaxi production line in China
• Pony.ai approved for public driverless robotaxi service in Beijing

• Panasonic (making deals with multiple automakers)
• LG
• Samsung
• SK Innovation
• Toshiba
• CATL
• BYD
• Northvolt
• Volkswagen to Build Six Electric-Vehicle Battery Factories in Europe
• GM's Ultium
• GM to develop lithium-metal batteries with SolidEnergy Systems
• Ford, SK Innovation announce EV battery joint venture
• BMW & Ford Invest in Solid Power to Secure All Solid-State Batteries for Future Electric Vehicles
• Stellantis affirms commitment to build battery factory in Italy with Mercedes, TotalEnergies
• Stellantis and Samsung SDI to Invest Over $2.5B in Battery Production Plant in United States
• Stellantis and LG to Invest Over $5 Billion CAD in Joint Venture for Li-Ion Battery Plant in Canada
• Stellantis and Factorial Energy to Jointly Develop Solid-State Batteries for Electric Vehicles
• Mercedes-Benz to build 8 battery factories in push to become electric-only automaker
• Mercedes-Benz and Sila achieve breakthrough with high silicon automotive battery
• Toyota to build plant in N.C. capable of making up to 1.2M batteries a year
• Toyota Outlines Solid-State Battery Tech, $13.6 Billion Investment
• Nissan Announces Proprietary Solid-State Batteries
• Daimler joins Stellantis as partner in European battery cell venture ACC
• Renault signs EV battery deals with Envision, Verkor for French plants
• Nissan to build $1.4bn EV battery plant in UK with Chinese partner
• UK companies AMTE Power and Britishvolt plan $4.9 billion investment in battery plants
• Foxconn breaks ground on first EV battery plant
• Freyr
• Verkor
• Farasis
• Microvast
• Akasol
• Cenat
• Wanxiang
• Eve Energy
• Svolt
• Romeo Power
• ProLogium
• Hyundai Motor developing solid-state EV batteries
• Morrow

• Infrastructure Bill: $7.5 billion Towards Nationwide Network of 500,000 EV Chargers
• Electrify America
• EVgo
• Chargepoint
• Ionity Europe
• Shell
• 51 U.S. electric companies commit to build nationwide EV fast charging network by end of 2023
• GM to Expand Access to EV Charging with More than 40,000 Charging Stations
  Volkswagen powers up the grid to take on Tesla
• Circle K begins North American EV fast charger rollout, plans 200-site network by 2024
• Porsche to build out its own network of EV charging stations
• Petro-Canada Coast-to-Coast Canadian Charging Network
• Volta
• E.On
• BP
• Volkswagen and BP partner to deploy up to 8,000 EV chargers across EU/UK
• Smatric
• Allego
• Podpoint
• Instavolt
• Fastned
• Total
• Nio Battery Swap Stations
• BMW to Build 360,000 Charging Points in China to Juice Electric Car Sales
• Evie

And here's Tesla's competition in storage batteries…

• Panasonic
• Samsung
• LG Energy Solutions
• CATL
• BYD
• AES + Siemens (Fluence)
• GE
• Hitachi ABB
• Toshiba
• Saft
• Johnson Contols
• EnerSys
• SOLARWATT
• Sonnen
• Generac
• Kokam
• Eaton
• Tesvolt
• Leclanche
• Lockheed Martin
• Honeywell
• EOS Energy Storage
• ESS
• Electriq Power
• Redflow
• Primus Power
• Simpliphi Power
• Invinity
• Murata
• Bollore
• Adara
• Blue Planet
• Aggreko
• Orison
• Powin Energy
• Nidec
• Powervault
• Kore Power
• Shanghai Electric
• LithiumWerks
• Natron Energy
• Energy Vault
• Ambri
• Voltstorage
• Cadenza Innovation
• Morrow
• Gridtential
• Villara
• Elestor
• SolarEdge
• Q-Cells
• Huawei
• Toyota
• ADS-TEC
• Form Energy
• Enphase
• Sumitomo Electric
• Stryten Energy
• Freyr
• Growatt
• Polarium

Thanks,

Mark Spiegel

Updated on Jul 1, 2022, 10:56 am

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