Here we are, seven months later, and Tesla's (NASDAQ:TSLA) financial performance deteriorates at an alarming rate. Bearish macro scenarios, always just around the corner since 2011, refuse to play out and Queen TINA and King FOMO remain enthroned. The much anticipated interest rate assault by central banks is further delayed. And once it arrives, it will do so in rather piecemeal fashion, unlike the infamous macro-scaremongers suspect. No surprise then that the Panglossian valuation of Tesla abides, while journalists and analysts alike continue falling for every new-fangled non-profit idea emerging from Palo Alto.
And then, as long as 1) wealthy consumers in western nations but also China are eager to seek indulgence by way of green-washing and, 2) are in search of a Steve Jobs replacement persona onto which they can project their hopes for a gleaming future and, 3) are disillusioned with the establishment and its leaders, the company will likely succeed to raise cash again. Some say it might already be too big to fail.
The Tesla narrative is based on an illusion, a contradictio in adjecto - the promise that humankind can shop and consume itself into a sustainable future. However, even a million Teslas on the world’s roads will not impact the environment for better or worse. It is a systemic issue. The Financial Times agrees. Sustainability and promoting the purchase of raw-material consuming heavyweight products are mutually exclusive. There is no right life in the wrong, to paraphrase Theodor Adorno.
At the time of writing, the company’s precarious financial position shows that it remains a bottomless pit. Let’s go in.
7. Model 3
(Source: Joe Rohde, not Montana Skeptic, abseiling into the cash incinerator)
For some early-stage investors and traders, Tesla’s stock has been a solid profit generator, despite the recent descent. After former President Obama’s new energy policy speech in 2013, the stock rose sharply on high volume to then traded mostly sideways with a suitably high volatility for put buyers and short sellers to skim the astute contrarian’s share. Likewise, call buyers and dip buyers used the frequent opportunities to extend their position, hoping to sell at a higher price to a “greater fool” in the future.
(Source: NASDAQ TSLA)
And that brings me to the point of it all. Neither self-acclamatory anecdotes of having bought the stock in 2013 nor having sold short in 2017 help the retiree or retail investor’s decision-making - right here, right now.
There are only two plain ways to make money from stocks: 1) buying and holding to then profit from the company’s profit in form of dividends, and 2) buying to sell later to a higher bidder. The question then is: Buy around $300 and hope for enticing regular dividends to emerge soon, or hope to sell in a few years for a good profit after taxes. In any case, no money is made until that sell button is clicked or the dividend announced. With no prospects of profitability for years to come, if ever, current buyers are choosing the second option, hoping to sell to a “greater fool,” a game of musical chairs.
Shareholders were diluted by a substantial 45% since 2013. Share-based compensation and the highly questionable SolarCity takeover – sold on synergies and profit contributions that never materialized – took their toll. It was a takeover primarily engineered to benefit Elon Musk and his cousins Lyndon and Peter Rive, who not only saw their precarious SolarCity stock options conveniently converted to safer Tesla stock options, but also their SolarCity bonds paid back prematurely with full interest. Several executives converted their stock options over time, particularly hard-working board member Kimbal Musk as soon as his options vest.
(Source: Tesla SEC filings)
Concurrent with dilution, institutional investors have been selling Tesla stock since the Model 3 presentation in March 2017. Institutional ownership declined from 73% in 2013 via 67% in 2016 to now 58%. Notable sellers were T. Rowe Price (NASDAQ:TROW) (-49%), Morgan Stanley (NYSE:MS) (-60%) and Goldman Sachs (NYSE:GS) (-24%), among many other international banks and funds. The SEC will publish the quarterly tally of all 13F filings this month and it will be exciting to see if distribution to retail investors continued or if Chinese Tencent Holdings (OTCPK:TCTZF) increased its stake from 5%.
(Source: Tesla SEC filings)
Tesla currently derives 89.4% of its total revenue from the automotive business including leasing and selling CPO cars. One can only wonder why, after 14 years have passed in the company’s history, Ben Kallo of Robert W. Baird & Co. or Adam Jonas of Morgan Stanley continue claiming Tesla being an “energy,” “mobility,” “ride-sharing” or “software company.” If anything, Model 3 sales will skew the balance further toward automotive, with the SolarCity and Powerwall/Powerpack aspects of the business in a precarious state.
For three consecutive quarters, automotive sales and automotive leasing revenue have stalled. While total revenue rose slightly from Q2 to Q3, COGS rose more steeply. If it were not for the inclusion of SolarCity (energy generation and storage) and the increasing sale of CPO cars (services and other), YoY revenue growth would look even worse for a company that was to “disrupt” the automotive sector - whatever that's supposed to mean in concrete terms.
(Source: Tesla SEC filings)
Despite an ASP that held up well (26,137 cars reported as sold in total, with 20,608 cars sold directly and 5,529 cars that consequently must have gone to leasing), the ever soaring operational costs saw the company reporting its largest ever loss in Q3. As in previous quarters, the supposedly formidable cash and profit generators SolarCity (“synergies”) and Powerwall (“off the hook demand”) failed to deliver. It is very doubtful how the latter two product categories, suffering from commoditisation, and exquisite competition, will ever meaningfully contribute to the bottom line.
(Source: Tesla SEC filings)
Although the company has collected an enormous $982,375,000 in governmentally enforced regulatory credit sales from its automotive peers since 2013, that cash never helped turn the tide, simply helping to somewhat lower the growing quarterly losses. Rising competition will eventually see this source of easy money drying up.
(Source: Tesla SEC filings)
The company continues failing to improve its cost structure, engaging in meaningless business efforts, struggling with the SolarCity legacy and a bloated workforce. The more cars it sells the more cash it burns.
(Source: Tesla SEC filings)
While more cars were sold in Q3, Tesla’s cash burn accelerated even more and essential metrics like FCF and OCF worsened considerably. Profitability and dividends remain as elusive as ever, or, in other words, the company generates zero value for shareholders.
(Source: Tesla SEC filings)
Besides ever-growing costs of revenue and deficient cash generation ability, Tesla’s current liability position, cash settlements due within next 12 months, and accounts payable, essentially an IOU from Tesla to its suppliers, paint an equally grim picture.
(Source: Tesla SEC filings)
Since 2013, Tesla incessantly sells equity and debt, despite numerous claims it not being necessary, to finance the battery factory and Model 3 production, only to then use the proceeds to plug its cavernous operational holes. The battery factory that was supposed to be completed last month, powered by PV solar panels and wind turbines, is still far from being finished, while the Model 3 remains mainly a hand-built effort in Tesla’s dysfunctional and undersized Freemont facility.
Contrary to the CEO’s claims, the Model S never financed the Model X and the Model X never financed the Model 3. Consequently, Tesla exists at the mercy of other people’s money and interest expense began to climb more sharply to close in on $500 million per year (enhanced by SolarCity indebtedness, SolarCity interestingly being the behind-the-curtain guarantor for the recent $1.8 billion issue of senior notes). 80% of cash raised this year has already been incinerated. No surprise then that Tesla’s latest 5.30% junk bonds already yield 6.16%. Tesla’s total recourse debt is growing and it will be interesting to see if the company will either sell more stock or issue more junk bonds to finance its insatiable cash burn.
One should remember the beneficiaries from SolarCity bonds, as there were only token takers at the time of issue. From the Q3 10-Q:
“On March 21, 2017, $90.0 million in aggregate principal amount of 4.40% Solar Bonds held by SpaceX matured and were fully repaid by us. On June 10, 2017, $75.0 million in aggregate principal amount of 4.40% Solar Bonds held by SpaceX matured and were fully repaid by us. On April 11, 2017, our Chief Executive Officer, SolarCity’s former Chief Executive Officer and SolarCity’s former Chief Technology Officer exchanged their $100.0 million (collectively) in aggregate principal amount of 6.50% Solar Bonds due in February 2018 for promissory notes in the same amounts and with substantially the same terms. On April 18, 2017, our Chief Executive Officer converted all of his zero-coupon convertible senior notes due in 2020, which had an aggregate principal amount of $10.0 million (see Note 12, Common Stock).”
Honi soit qui mal y pense…
(Source: Tesla SEC filings)
As far as warranty costs are concerned, after 14 years of making cars, Tesla having hired production specialists like Peter Hochholdinger from Audi (OTCPK:AUDVF), one would think the car’s reliability ceasing to be a burden on the company’s finances. At the Q3 earnings conference call, Elon Musk seriously claimed “the reliability for Model S and Model X continues to improve…”. Quite the contrary is true. Inundated service centers and an incessant stream of customer complaints reveal the CEO’s debonair disconnect from reality. Due to questionable build quality, actual warranty costs incurred are increasing and it remains to be seen if current warranty provision levels will be sufficient to cover an aging fleet.
(Source: Tesla SEC filings)
The steep rise in finished goods inventory is remarkable, as Bill Maurer pointed out recently, because the Model 3 is not yet a meaningful contributor, its parts rather attributable to the raw materials and work in progress portions of total inventory. Asked during the Q3 earnings conference call by John Murphy of Bank of America Merrill Lynch how much finished goods inventory can be sold in Q4, Deepak Ahuja tried to avoid the question, instead launching into a CapEx outlook. A supposedly production constrained company that amasses such levels of inventory - despite generating occasional sales peaks via discounting - is obviously demand constrained.
(Source: Tesla SEC filings)
The CFO’s CapEx discussion in the call revealed that previously planned-for spending levels would not be met. Deepak Ahuja suggested that capex related to stores, service centers and charging stations will be cut, which unfortunately coincides with the Model 3 roll-out and an urgent need to build out the service center and charging station network. While the CEO says: “If we were to make those CapEx decisions right now, we'd be making them – we're kind of shooting in the dark,” the CFO says it how it is: “So all those actions will come through in terms of helping us conserve cash.” In other words: Deepak Ahuja hints that the 10,000 or even the 5,000 Model 3 per week production rate, now supposed to happen in Q1 2018 (so much for “volume production” from July 2017), is in jeopardy, to string out the cash balance. Maybe Jason Wheeler saw it coming and left?
That said, the core problem regarding the company’s long-term viability remains straightforward: If one assumes that Tesla is able to make and sell 200,000 Model 3s per year (at Elon Musk’s projected ASP of $42,000) and if one then assumes that Tesla will be able to miraculously achieve a 12% net margin per car (more than Audi does for its A4 series or BMW (OTCPK:BMWYY) for its 3er series), only $5,040 per car or around $1 billion would arrive at the bottom line. One only has to look at the company’s precarious financial situation outlined above - primarily operating costs and debt services - to realize that even in such optimistic case, Tesla cannot remain a going concern without further equity and debt sales. It is indeed a bottomless pit.
Investment forums are brimming with comments comparing Tesla to Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN), trying to re-frame it as a “technology company,” where, as shown just above, it is a niche automaker. Consequently, Tesla must be assessed in comparison to its industry peers - the global market for passenger vehicles in general and plug-in vehicles in particular.
To put an end to hackneyed mythology, devoid of actionable clues, one only needs to benchmark all three companies’ FCF generation ability over time to see that Apple and Amazon are in a different league.
Recently, Tesla suffers from increasing managerial churn. Key employees left or were recycled (Deepak Ahuja) only to leave again (Ricardo Reyes), others are gone so fast after they joined that they can barely update their Linkedin page, while yet others, like high-profile hire Jim Keller, are never heard of again. Is he still there, working?
Core staff and workers that left or were laid off over the last 12 months:
- 2016 - December: 1,541 employees, operations, installations and manufacturing SolarCity
- 2016 - December: 1,506 employees, sales and marketing SolarCity
- 2016 - Mateo Jaramillo, vice president products and programs - energy (8/2009-12/2016)
- 2016 - Sterling Anderson, director of autopilot program (12/2014-12/2016)
- 2017 - Ardes Johnson, director of sales - energy (4/2016-1/2017)
- 2017 - David Nistér, vice president of autopilot vision (4/2015-3/2017)
- 2017 - Satish Jeyachandran, director of hardware engineering (6/2010-3/2017)
- 2017 - Jason Wheeler, CFO (11/2015-4/2017)
- 2017 - Arnnon Geshuri, vice president of human resources (11/2009-5/2017)
- 2017 - Chester Chipperfield, global creative director (5/2016-6/2017)
- 2017 - Chris Lattner, vice president of autopilot software (1/2017-6/2017)
- 2017 - Lyndon Rive, CEO SolarCity (7/2006-6/2017)
- 2017 - Peter Rive, CTO SolarCity (7/2006-6/2017)
- 2017 - Kurt Kelty, director of battery technology (3/2006-8/2017)
- 2017 - Diarmuid O' Connell, vice president of business development (7/2006-9/2017)
- 2017 - September: 141 SolarCity employees, customer account management and information technology
- 2017 - September: 63 Tesla employees, customer account management and information technology
- 2017 - Andrea James, investor relations consultant (9/2016 – 9/2017)
- 2017 - Jeff Evanson, head of investor relations (1/2011-9/2017)
- 2017 - October: 700 Tesla employees, various positions
- 2017 - Jon Wagner, director of battery engineering (1/2013-10/2017)
- 2017 - William Donnelly, president of Tesla finance (9/2013-10/2017)
Executive attrition and layoffs to nip worker’s rights representation in the bud leave only one conclusion. Unlike General Clausewitz, who in “On War” wrote about the role of commander: “The higher up the chain of command, the greater the need for boldness to be supported by a reflective mind, so that boldness does not degenerate into purposeless bursts of blind passion.” Tesla’s CEO appears to prefer an altogether different approach: “The beatings will continue until morale improves."
For several years, enthusiastic energy and automotive market analysts have proclaimed that a collapse of the ICEV market and, subsequently, the oil and refinery business is imminent. However, investment decisions based on such theses have so far turned out unwise, evidenced by global passenger and commercial vehicle sales that show that EVs in their entirety (HEVs, PHEVs, BEVs and FCEVs) contribute with at best 1.4% in 2017, if the Chinese and European sales scenarios come out positive. Even under intentionally optimistic assumptions, suggested below, EVs would attain only 31% global sales share with nearly 50% of sales occurring in Asia, soon the number one global sales region. Recent record sales and profits reported by Daimler (OTCPK:DDAIF), General Motors (NYSE:GM) or Volvo (OTCPK:VOLVY) show ongoing demand domination of ICEVs.
If Tesla continues its unprofitable markdown efforts like in March 2016, September 2016, and September 2017, it could reach this year’s finishing line at 97,000 sales - Elon Musk’s projected 100,000-200,000 Model 3 sales by the end of 2017 remaining entirely elusive. Tesla would thus have attained 0.136% global passenger vehicle sales share with rising unprofitability to boot.
(Source: OICA, EV Volumes, Tesla, etc.)
Global EV sales share is entirely dependent on massive multi-level government interventions by way of subsidies, incentives and perks. To date, Tesla’s cars remain ideologically motivated Veblen goods, financed by the common taxpayer. EV sales drop sharply, once enticements are dialed back or rescinded entirely, evidenced by Tesla’s decline in once formidable sales regions such as Denmark, Hong Kong or Norway, just as I explained in the global subsidies section of my previous article on Tesla.
In its 2018 budget, Norway is proposing taxation on overweight BEVs, hitting Tesla’s Model S and X hardest, as well as the upcoming heavyweight SUVs from Jaguar and Audi. The U.S. is contemplating a FIT-credit repeal by the end of this year. Those kinds of measures could inspire a last Q4 sales bonanza in those countries, which would be final proof of what really motivates BEV purchases - bargain hunting and the freeloading of benefits.
(Source: Norwegian, Danish and Hong Kong car registration bodies)
Soon, over 50% of the global citizenry will live in dense conurbations and cities where potential BEV buyers will find no place to charge or see the very few charging stations blocked or inconveniently located, besides being unable to shoulder the very high cost of purchase. In other places, the constantly rising cost of electricity renders tales of economic advantage moot and eventually, with higher adoption, governments would have to road-tax BEVs so their owners contribute their fair share to the upkeep of traffic infrastructure.
Having achieved 9.6% global EV sales share this year and possibly 15.4% in 2020 under most positive assumptions - 339,000 total sales with a flawless Model 3 rollout that is already in jeopardy - Tesla never was and will be no market leader, neither in total nor in the EV niche market itself. That honour goes to the EV pioneers Toyota (NYSE:TM), Nissan (OTCPK:NSANY) and Renault (OTCPK:RNLSY). Analyst reports that imagine Tesla’s global sales domination are plainly absurd, even more so in the light of existing and imminent competition:
- Chevrolet Bolt EV (on sale since December 2016)
- Renault ZOE new gen. (on sale since September 2017)
- Nissan LEAF new gen. (on sale since October 2017)
- Hyundai Kona (on sale from H1 or H2 2018)
- Jaguar I-Pace (on sale from H2 2018)
- Audi e-tron quattro (on sale from H2 2018)
- Mercedes EQ C (on sale from 2019)
- Audi e-tron sportback (on sale from 2019)
- Porsche Mission E (on sale from 2019)
BEVs from any vendor are, like their ICEV counterparts, produced, distributed and sold unsustainably with much raw material sourced and then processed unsustainably as well, in case of battery raw materials under excruciating circumstances. Declaring Tesla a “global market share winner” after first innings is, in the light of presented data, premature, if not entirely preposterous.
On the previous Q2 earnings conference call, Goldman Sachs analyst David Tamberrino probed Tesla’s CFO regarding Model S and X order rates. Deepak Ahuja’s illuminating answer to this rather material question was “not relevant,” in line with the company’s monthly national sales obfuscation strategy that is in stark contrast with industry peers. Tesla reports revenue for “U.S.,” “China,” “Norway” and “Other,” bizarrely omitting the UK, Germany and other large countries. (Donn Bailey’s recent article provides some color on China, which does not publish official car registrations).
Looking at the afterglow of what was said to be a disruptive explosion, stunning the global automotive sector with exponential growth, one can glean from Tesla’s automotive revenue and sales that the contrary is the case, no matter what management and supportive analysts try to make investors believe.
International official car registrations paint a clear picture: Model S sales stalled two years ago and Model X is about to. Even though the company offered enormous discounts and favourable financing terms in September (0.5% interest in Norway for a 10-year loan), Model S sales could not be pushed beyond their 2015 (Europe) and 2016 (U.S.) peaks, even though Tesla’s President of Global Sales and Service Jon McNeill was given a special incentive of $700,000 on 18th August to put quantity over margin. Form 14A from June this year revealed that Jon McNeill is the only executive with a personal cash incentive plan. Can, with the help of more CPOs coming off-lease and the Norway/U.S. “tax scares,” sales be boosted one more time?
(Source: National car registration bodies Europe/insideevs.com U.S.)
Since January 2013, Tesla produced 271,131 cars but sold only 254,206 - a delta of 16,925 cars or an astonishing 6.24% of total production. What happened to all those cars? Is Tesla building the largest finished goods inventory in the automotive sector? The world’s largest loaner fleet? Will Tesla be able to sell thousands of inventoried cars with the old exterior design without “Autopilot 2.0” or better trim levels, even with a steep markdown? Or will it write them off? A company suffering from unremitting cash burn must convert inventory into sales. If one takes the ASP of around $100,000 from Q3 as a yardstick, Tesla squandered $1.69 billion in unrealised revenue in only four years.
(Source: Tesla SEC filings)
7. Model 3
The Model 3 (wheelbase 2,880 mm, 1,610 kg) is essentially a slightly smaller version of the Model S (wheelbase 2,960 mm, 2,200 kg) and features a frugal interior with an unergonomic potentially dangerous central touch screen, away from the driver’s line of sight. Having to navigate touchscreen menus to wind down the windows is taking things too far. No FM radio is currently available either, and neither Apple CarPlay nor Android Auto. Steve Jurvetson’s Model 3 pictures show the drabness and non-matching black colors. Elon Musk seems having believed that Level 5 cars are just around the corner.
Tesla recently recalled 11,000 Model X vehicles for defective seats and not for the first time. Unhappy with its prior suppliers, Tesla had brought production in-house. The company is taking its quest to vertical integration to new levels of absurdity, the NYT reports: “The company had even concocted its own Tesla blend of coffee to serve near its cafeterias. 'If we cannot get exactly what we want from the world,' one executive told me, 'then we have to go do it ourselves.'” The Model X is now among the 10 most unreliable cars.
Tesla’s rushed and careless Silicon Valley “ship now, fix later” approach to hardware manufacturing that saw the company skipping proper beta testing, which could render it a frequent service centre visitor. The first batches of cars had to be recalled immediately for faulty battery pack welds, leaky light cluster seals and bad paint jobs. Consequently, Tesla did not dare entering the car to the North American Car Of The Year award 2018, claiming instead that it had not a single spare car for submission. This comes from a company that assured investors that as of 1st July 2017 “volume production” had begun. Considering Tesla’s ongoing problems with quality control, the Model 3 is prone to suffer from the same issues that see service centers inundated with repeated Model S and X repairs and customers displeased by long waiting times even for the most mundane of parts.
During the Q3 earnings conference call, Elon Musk admitted, despite supposedly growing demand (debunked above) that Model S and X production is reduced from 2,000 to 1,800 per week to concentrate on Model 3 production. However, in the Q2 2014 earnings conference call, Elon Musk had assured investors: “In the case of the new S/X Body Line, which is a line that has been designed to be capable of 2,500 units a week, maybe more than that. Conservatively 2,500 units a week. At a lower cost point.” Maybe cost-cutting is why Tesla ships cars without seats and touchscreens?
Regarding Model 3 production and automation, the recent call illuminated that Tesla’s CEO is fully out of touch with the physical reality of robotics: "And we are pushing robots to the limit in terms of the speed that they can operate at, and asking our suppliers to make robots go way faster, and they are shocked because nobody has ever asked them that question. It's like if you can see the robot move, it's too slow. We should be caring about air friction like things moving so fast. You should need a strobe light to see it." He even went as far to claim: "And obviously we're going to be designing a lot of the robotic elements and what makes the robots internally. So yes, because current suppliers are just too slow to respond in some cases."
As a long-time KUKA and Gildemeister investor (until both companies were sold), I find the underlying insinuation that no automaker and robot vendor ever contemplated higher efficiencies plainly absurd, as did the Financial Times. Automated production lines have been around for decades. Tesla’s CEO seems to be fully unaware of why industrial robots have limits, affecting actuators, speed and precision when handling heavy parts reliably and minimal downtime. Air friction is certainly no constraint, but moments, acceleration and deceleration. One SA author even asserted: "Tesla appears to be innovating in robotics and factory innovation, a potential long-term source of durable competitive advantage." Will Fanuc, KUKA or ABB bow to the boisterous demands of a niche customer? Certainly not - global automation technology leaders innovate on their own accord.
Model 3 production is substandard by any means. Deepak Ahuja hints “the goal is now to fix Grohmann,” the automation company Tesla acquired in 2016, misleading its owner and existing customers - an issue still not resolved.
Justifiably, Tesla fans wonder why the “$35,000 mass-market” car is still a mirage. Will it ever arrive?
Tesla’s “Autopilot” effort is still in disarray after numerous promises were made that were then not kept. Customers spent $5,000 plus $3,000 for “full self driving” without the chance to ever enjoy Level 5 autonomy, what essentially means a robotic car that can drive itself at any time on any road under any weather conditions and any traffic condition. The managerial churn in Tesla’s autopilot department shows the company has dropped the ball more than once, first osborning AP 1.0 customers that were promised “lifetime upgrades” to then osborn AP 2.0 and later AP 2.5 customers who purchased hardware and software incapable of delivering “full self driving” ever.
Anyone hoping to join Tesla’s “Mobility” or “Ride-sharing” services, insinuated by Adam Jonas of Morgan Stanley on multiple occasions, will be disappointed. The cars are technically incapable to be used in such contexts.
David Einhorn’s Greenlight Capital in its recent investor letter puts it bluntly:
"Some of TSLA’s presumed market lead in areas like autonomous driving may more likely reflect TSLA’s willingness to put inadequately tested and dangerous products on the road rather than a true technological advantage."
Several SA authors already have extensively covered SolarCity’s product deficiencies, shady business practices and financial predicament. Please consult Montana Sceptic’s, Bill Cunningham’s or EnerTuition’s SA articles on the matter.
Any investor still buying into the “synergy story” or “PV solar dominance story” must read David Robinson’s latest article in The Buffalo News, a local journalist that over time became more critical of how the local community, job seekers and the New York taxpayer are peppered with ever changing messages.
PV solar tiles
Since June 2017, the allegedly revolutionary PV solar tiles, a product category that already was commercially unsuccessful in the European and American marketplace, are being installed on customers’ roofs… only they aren’t. To this day, not a single forum post, Instagram picture or YouTube video has surfaced. This is not very surprising, because neither on Tesla’s website, where the configurator provides seemingly random figures, nor elsewhere can potential buyers obtain technical specifications, performance ratings, UL-certification documents, etc.
The Q3 earnings call revealed that, supposedly, the PV solar tiles are “still being tested” to ensure up to 30 years' lifetime use (like an asphalt shingle roof), although at launch and for pre-ordering (to collect more customer deposits - interest-free credit), Elon Musk claimed they would be guaranteed for infinity.
In a nutshell, since its ill-fated birth as project “Steel Pulse,” the PV solar tiles have been vaporware, inherently less efficient than regular PV solar panels, more complex to install and expensive, as I explained at more detail in April. As one astute SA commenter ventured, it was a piece of showmanship to sell investors the SolarCity bailout.
The $1 billion energy storage business that Elon Musk presented in 2015 - “So, 38,000 reservations is more, like 50,000 or 60,000 actual Powerwalls (…) So, it's like crazy off the hook. Yeah. And it seems to have gone super viral” - never materialized. The Powerwall 1.0 sank without a trace, Powerwall 2.0 was withdrawn from some markets and turned out to be far more expensive than the bare product price advertised on Tesla’s website.
Gross margin for energy storage and generation was negative with -1.1% at the end of Q3 2016, before the SolarCity business was included into that business segment. Nearly a year later, the storage part of the business performs far worse at -34% (revenue $317 million - $273 million attributable to SolarCity = $44 million with COGS $237 million - $178 million attributable to SolarCity = $59 million).
Only a total of around 320MW of storage products have been sold since 2015, including Tesla’s Australian subcontractor effort, itself a peculiarity, because instead of using battery cells from its own heavily promoted battery factory, the company had to turn to Samsung SDI to deliver the goods. Surprisingly shortly after, Tesla was able to send a few Powerpacks to Puerto Rico for one of its several controversial post-hurricane-season PR efforts.
The energy storage business is, like Tesla’s music streaming service or the more recent inter-city ballistic rocket travel system, a loss-making solution to no problem.
While Daimler already began testing electric local freight and delivery trucks via its FUSO subsidiary from 2014, expanding its effort with its Urban eTruck from 2016 and commencing in 2017 with its heavy-duty E-FUSO Vision One, Tesla has yet to reveal its effort that was already postponed twice from the 26th October until the 16th November. Daimler claims that over the first decade, urban and regional transportation will make most sense to be electrified, either via battery or fuel-cell powered drive systems.
In tune with that, Toyota already is running its heavy-duty fuel-cell truck since October 2017 to distribute incoming cargo between the ports of Los Angeles/Long Beach and warehouse centers up to 100 miles afar. Haulage and distribution companies operate under extremely tight budgets, aiming to have vehicles operational as close to 24/7 as possible. Therefore, it remains to be seen how this sector will develop over the next two or three decades.
Deutsche Post DHL already is commercially building and operating urban delivery trucks since 2016, which helps combat the increasing pollution problem in dense cities from equally increasing online shopping delivery traffic. As with many things Tesla, a classic case of Aesop’s fable, with Tesla being the hare and real truck-makers being the tortoise.
In what – sorry to say it so bluntly – can only be judged a vainglorious display of irrationality, Tesla announced in June 2017 that is developing a music streaming service, at a time when Model 3 volume production was about to commence. Right on cue, business publications came to the fore, suggesting that Tesla was about to “disrupt yet another industry,” opening another formidable income stream for the company by way of vertical integration. Investors should rather ask themselves why Tesla is still not offering its technology savvy customers Apple Music, Spotify (Private:MUSIC) or Pandora (NYSE:P), to name a few established music streaming services, and no radio currently on the Model 3.
In 2016, Elon Musk bought a used Herrenknecht TBM and declared that his Boring Company will revolutionize subterranean transportation, as if the New York City Subway and London Underground, or the submarine Channel Tunnel and the Swiss Gotthard Basis Tunnel were nothing but precursory exercises by unskilled engineers to future tunneling proper. As always, Elon Musk claimed that to make his ideas feasible, TBMs simply have to “go faster” and “go 3D”, whatever that means. After obtaining “verbal approval” to build a high-speed “Hyperloop” tunnel connecting NYC with Philadelphia, Baltimore and Washington D.C. and buying a second used TBM, the company has focused on selling hats.
An amalgamation of Alfred Ely Beach’s Pneumatic Transit from 1870 or the Swissmetro concept from 2005 and many similar concepts, popularized by Jules Verne and other science fiction authors, the Hyperloop is fully incompatible with existing passenger and freight railway networks, instead relying on an unproven infrastructure - exactly what is not needed to advance affordable and inclusive sustainable transportation worldwide.
A solution to no problem.
Missile inter-city travel
Is there a need for post-Concorde-speed travel, using dangerous ballistic missiles, propelled by huge amounts of toxic rocket-fuel, polluting the atmosphere? It is an idea straight from a 50s' Popular Mechanics back-issue and highly unsustainable at that. Meanwhile, the last Form D SEC filing for SpaceX shows the company needed another $350 cash infusion.
This time, the final word consequently belongs to Henry Ford:
Failure is simply the opportunity to begin again, this time more intelligently.
Disclosure: I am/we are long VLKAY, MMTOF, POAHF.
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: Additional disclosure: This is no recommendation to buy or sell securities as that carries with it very high risks. The information contained in this article is for informational purposes only and subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decision.