This is a brief missive detailing my short thesis on Tesla Motors inc., focusing on a new risk to the upstart auto maker's dream to break into the high volume, mainstream car market, and a path to profitability.
First a brief review of my existing short thesis on this stock. All of these points have been extensively debated, I will only summarize them:
1. Lower oil prices diminish the widespread appeal of plug in vehicles.
2. Competition. BMW, Audi, GM, and others are launching multiple new hybrid and plug in vehicles. This is not academic -- Tesla earns (over 200 million in 2014!) substantial dollars selling excess EV credits to automakers not producing enough qualified vehicles in California. Competition levels the field -- and reduces the value of these excess credits.
3. Political change threatens existing and new tax credits for electric vehicles. It's no secret republicans are no friend of the democrat led push into alternative energy solutions.
4. Delays on model 3 and model X. Well discussed, giving competition more time.
5. Opaque accounting practices. Bulls will defend this -- but less than full transparency is ALWAYS a red flag on any company. A company that desires to be the leader -- MUST be that in its disclosure too.
And now.. and perhaps most important for the bull thesis on Tesla: Falling prices -- fast -- for used electric cars:
Tesla has essentially guaranteed a floor for used values for their Model S -- creating a future massive liability on their balance sheet if actual used values don't hold the guarantee they have provided.
Details on the program:
www.autonews.com/article/20141006/RETAIL...
www.bloomberg.com/news/articles/2013-09-...
Used car prices falling:
www.wsj.com/articles/resale-prices-tumbl...
This development may not affect the model S very much. But remember TSLA is not priced at todays valuation based on the Model S, a limited appeal super car. Its all about the model X and even more about the Model 3 -- the high volume mainstream offering.
If comparable used cars from other makers are collapsing in price, how does this affect pricing of new cars? How does Tesla offer their lease buyback guarantee in this environment -- on the 3 or even on the X?
Last question. Model S buyers are risk taking first adopters. Tesla, per their last quarterly report, is burning cash -- fast. Will risk adverse middle America -- take a huge risk on Tesla able to honor warranty claims and being in business in 5 or 10 years - in the numbers required for Tesla to achieve profitability?
TSLA is currently holding just above key support in the 200-202 area. A violation of this support brings 185 into play.
Short Tsla
