Tesla Fremont Expansion: I Think Trip Is Wrong

| About: Tesla, Inc. (TSLA)
This article is now exclusive for PRO subscribers.


Seeking Alpha Editor Clark Schultz Published a "News Post" on Tuesday Titled "Can Fremont Deliver 1M per year for Tesla?".

The article referenced Global Equities Research's Trip Chowdhry, who had noted major expansion work occurring at the Tesla site.

I believe the work Mr. Chowdhry saw is not for the Fremont factory but instead is mainly, if not entirely, for an adjacent Lennar Development.

As a follower of Tesla Motors (NASDAQ:TSLA), I was surprised to see Seeking Alpha's news post on September 27, titled "Can Fremont Deliver 1 M Cars Per Year?," referring to Tesla's automobile manufacturing plant in Fremont, California.

In it, SA news editor Clark Schultz referenced Global Equities analyst Trip Chowdhry's recent visit to the location in which he had noted substantial construction activity. The specific line from the news post that caught my attention was: "The investment firm says work on the expansion of the manufacturing site is running at full tilt and estimates it will double the total square footage of the plant."

The SA post linked back to a Barron's.com article in which Trip was quoted as saying in a research note:

"We drove around the periphery of the new construction that is happening adjacent to the current Tesla Factory Location. It seems to us that the new construction area is almost the same size as the existing Tesla's Fremont Factory."

This struck me as quite odd since there have been no reports that Tesla was planning to expand the physical size of the plant materially, even though it is well known that a large amount of capital expenditures are planned for the interior in preparation for the production of the model 3. It was also interesting that the construction was described as "adjacent" rather than that the building itself was being expanded, either upward or outward.

A commenter under the SA News Post then stated the construction work was actually for a housing and office development and linked to the following San Jose Mercury News article from March 17, 2015, stating that Lennar Corporation (NYSE:LEN) was planning to build a large housing and office development next to the Tesla factory.

I then decided to take a chance at calling Mr. Chowdhry to see if this could have been the construction he was seeing. Surprisingly, he actually answered the phone, but understandably was not willing to talk to me as an individual investor regarding Tesla. However, he did say that since I mentioned Lennar, that the Lennar development was not adjacent to the Tesla property but over by "Warm Springs," referring to the under construction BART station known as Warm Springs/South Fremont. Both the new station and the Tesla plant are in an 880-acre area known as the Warm Springs Innovation District, for which there are ambitious redevelopment plans.

Lennar is developing approximately 110 acres of the site, an area that in fact extends from near the BART station to the Tesla factory property. The City of Fremont has the entire development plan on its website including a document for "Area 4," the section which Lennar is developing, the link for which is below. An excellent map of the project is contained on p.6 which shows the outline of the Tesla factory, the Lennar project area (which actually wraps around a corner of the Tesla site), and the BART station. There are also concentric circles on the map showing distances from the station, indicating one edge of the factory is a bit less than 1/2 mile from the station. The blue shaded Lennar property appears moderately smaller than the factory, which is consistent with Mr. Chowdhry's comment regarding the size of the construction area he saw. There are a number of photos and maps in the document which are helpful in understanding the relative position of these two properties.

There are a number of other photos, descriptions and drawings of interest in the document. One item, in particular, caught my eye. There is a road, named Kato Rd., which provides one access route to the Tesla property. As part of the Lennar development process, the document indicates that a "quitclaim deed" was being provided to Lennar for a section of this roadway and access to the Tesla factory was being reconfigured, as described on pages 7 & 8. This evidences just how closely the properties are linked. As a result, it is entirely possible that some of the construction work Mr. Chowdhry observed was actually on Tesla property, or what had been Tesla property until recently. I also viewed aerial photographs of the property using Zillow.com. Close up views show the property lines and there does not appear to be sufficient space on the property to support the size construction project Mr. Chowdhry has described.

As a final verification step, I called the City of Fremont and the person I spoke to confirmed that grading has begun on the Lennar property. As a result, I am convinced that this is what Mr. Chowdhry observed, not an expansion of Tesla's Fremont factory.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a modest short position, mainly through OTM calls.