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Just Say 'No' To Tesla's Misleading Margin Metric

Mar. 06, 2018 9:36 AM ETTesla, Inc. (TSLA)508 Comments
Montana Skeptic profile picture
Montana Skeptic


  • There's no Tesla metric more misleading than its gross margin percentage.
  • How is it misleading? Let us count the ways.
  • What happens when we calculate Tesla’s gross margin in the same manner used, for instance, by Ford? Watch and learn.
  • Yes, the Model 3 may eventually achieve a 15% gross margin. But even if it does, Tesla will still be losing $10,000 per delivery.
  • Before we get to margin in all its grossness, let’s discuss the latest rumblings about how Q1 is shaping up.

I. The Q1 Rumors And The Plight Of The Parts Suppliers

Since CoverDrive and I published last week's article forecasting a Q1 GAAP loss of $855 million, the Bloomberg Model 3 tracker has again dropped its estimate of the weekly production rate, this time to 599.

Naturally, Tesla Charts is on the case:

(Chart courtesy of the magnificent Tesla Charts, whom you can and should find on Twitter @TeslaCharts. Christmas colors, he explains, because this tracker has become something of a gift to Tesla skeptics.)

During the time I’ve written about Tesla (NASDAQ:NASDAQ:TSLA) here, I don’t recall ever hearing more rumors of serious manufacturing problems, more auguries about a sizable shortfall in deliveries, or more speculation about when the next capital raise is coming or whether there might be impediments to it.

In recent articles, both Anton Wahlman and Bill Maurer questioned whether Tesla might actually deliver fewer cars this quarter than it did last quarter despite the ramp-up of the Model 3.

Separately, jaberwock, in a blog post, took a stab at estimating the Model 3 reservation cancellation rate. He employed a methodology similar to one CoverDrive and I used in determining (accurately, I believe) that the yield rate on Model X reservations was approximately 30%. With careful and appropriate caveats about the limitations of his data set, jaberwock estimates almost half the Model 3 reservations have been cancelled.

Meanwhile, over at Twitter, Minor Threat already can taste the next capital raise, while the formidable luis carruthers (@orthereaboot), who assiduously tracks the stunning number of Tesla lemon lawsuits, believes there are securities law impediments that are stopping it from happening.

As for me, I’m just taking it all in, and not ready to draw any conclusions (beyond those I drew in my crossing-the-Rubicon article several weeks back). However, I can’t help

This article was written by

Montana Skeptic profile picture
I have a J.D. degree from Yale Law School, practiced for 30 years as a trial lawyer in commercial cases, and in the decade that followed managed a $1B+ portfolio for a family office. I have recently retired and am free to write about whatever I want. And so I will.The fellow in my icon is Galileo Galilei, who famously said: Eppur si muove.I say, less famously: Time is the only reliable solvent of folly.

Analyst’s 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.

I am short TSLA via long-dated options

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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