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TSLA Or TSLAQ? Why I'm Betting On Zero

Sep. 11, 2018 2:06 PM ETTesla, Inc. (TSLA)216 Comments
MangoTree Analysis profile picture
MangoTree Analysis


  • The Model 3 has not shown an ability to generate demand beyond its approximately 420K total current reservations.
  • Once this backlog is worked through, Tesla won't be able to sustain profitability and cash generation.
  • Once the hype dies off, reality will set in, and current financials will dictate the share price, rather than product and technology hype.
  • Even assuming optimistic free cash flow estimates, Tesla stock gets cut down by more than 90%.
  • The equity, in my opinion, is worth zero.

Starting From the Top: Model S/Model X

Since inception, Tesla's (NASDAQ:TSLA) business model has been selling high-end EVs, the Tesla Model X and the Tesla Model S. Let's just look at deliveries. In Q2'2018, Tesla delivered 10,930 Model S cars, vs. 12,000 Model S cars sold in Q2'2017, down 9% Y/Y. The Model X sold 11,370 units in the quarter, compared to 10K in the year ago period, up 14% Y/Y. Seeing this data brings me to the conclusion that the Y/Y drop in units sold with the Model S isn't driven by production capacity at the Fremont Factory, rather the cannibalization of the Model S by the Model 3, driving demand away from the Model S to the Model 3. An interesting note I would like to point out is that with similar companies like Mercedes-Benz and BMW, when lower end vehicles are rolled out, the high-end vehicles overall demand drops off, as the luxury brand image is hurt by low-end products.

(source: Wikipedia)

So if the Model 3 doesn't pan out, and demand doesn't persist, it isn't like Tesla can fall back on the Model S to generate revenue growth based on the delivery totals. If the problem with unit sales were increased intensity around Model 3 production, eating into S/X production, wouldn't it make sense if Model X sales declined? The bread-and-butter of Tesla's business is high-end EVs, and now the Model 3 is cannibalizing the total unit sales of the Model S. Even worse though, Tesla now has competition. The problem, Tesla doesn't have anything in the way of a moat to protect Tesla from competitors. Such "moats" used to include the Supercharger network and the vertically-integrated sales model that Tesla uses to sell their EVs. Now however, the Supercharger network has been opened up to other EVs. Competitors don't even need to create their own infrastructure, as Tesla is providing it for them. And

This article was written by

MangoTree Analysis profile picture
(10/1/23): MTA is focused on L/S ideas primarily in the TMT space. MTA's investment process is environment agnostic, and views each opportunity through the lens of generating alpha against whatever timetable is appropriate for the idea. MTA employs a mock sell-side coverage process, utilizing valuation methodologies, ratings and price objectives, and takes advantage of alternative data.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in TSLA over the next 72 hours. 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 not a financial adviser. This is not financial advice. Everything said here is my personal opinion. Please do your own due diligence with regards to investments.

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Comments (216)

west281356 profile picture
Very comprehensive article. Thanks.
LOL. The longer the article, the more the BS?

Patience grasshopper, the sales/ production report is only ~2 weeks away.

By the way, most of the shorts are headed for the exits.
marriottmare profile picture
Long term gains,
TSLA $400 by the middle of next month.I hope these articles and short comments continue though. We need more buyers for our puts.
Dear estoperpetua, I would say $400 only if Tesla makes a profit as Musk promised for the 3rd quarter which will be reported on October 30, 2018 (maybe as late as November 7, 2018). I would love for this to happen because I want EVs and Tesla to be profitable, but there is evidence out there that indicate there will not be a profit for the 3rd quarter, E.g. Musk's behavior over the past month, cash depleting quickly due to debt payments increasing, profit margins lower for the Model 3, some reports saying that Model 3 production is actually falling short for the 3rd quarter, etc. So, watch for when their 3rd quarterly report comes out, because it will be Tesla's most important quarterly report in it's lifetime.
They will never run out of customers, you cant just say they have 420k backlog and thats its....
the TAM is huge and the only reason they aren't wait listed is most individuals dont want to put a deposit down if they had a ready supply i would buy one
ByronCorp profile picture
I've been unable to find any information on the number of unissued shares of TSLA. Can't TSLA just issue 3.3MM new shares to raise $1B and survive another quarter? Sure it would dilute existing shareholders a bit, but it would keep it alive. I welcome all feedback.
"Tesla has produced EVs for years now, whereas competitors have only started on the EV production process."

This is totaly wrong. Big manufacturers know damn well that Musk is Tesla's own worst enemy, they are not in a hurry. What most of you stock guys don't get is that an EV is not a more complicated product it has far less moving parts and point's of failure. If Tesla had a big battery breaktrhrough MOAT of some kind I would absolutely say they have the edge, otherwise no...not a bit.

Audi service technicians will get month's of training for the etron, it will be servicable on almost every corner in europe and they are testing it a lot in every condition, meanwhile Tesla can't paint, can't secure bumpers so they don't fall off and so on...
JaoMing, That is an excellent point. The only bottle neck that I can see other manufacturers having is battery availability. But I'm sure LG and other battery companies are increasing thier production capacity to meet the future demands from other EV makers.
Production is just one problem, another problem are Tesla's junk bonds which have reached all time lows as reported on Monday by CNN: money.cnn.com/...
This indicates that the current production goals are probably not enough to make a profit because of the Tesla's growing debt obligation payments.
Victor27 profile picture
I guess you meant betting on ZERO STOCKS IN HAND OF RETAIL INVESTERS . Fidelity just raised their share by 48%, buying 6.8 million shares and thereby becoming the biggest shareholder after musk with now over 21 million shares. All institutions together raised their share by 10% from 97m to 107m in a few weeks only, thereby reducing the shares left for the retail investors to approx 2 to 3% (down from approx 7.5 to 8.). Blackrock which is a very good reference raised it's share in Tesla to over 6,4 million. If this trends continues there will be ZERO shares left for the general public. And the only shares held by the public will be fictional shares sold by short sellers who eventually need to cover. With 25% short interest it seems the very same shares are short again and again and again in a closed loop which eventually will burst . Short positions are already 10 times as high the shares in hands of retail investors. Short positions will be some kind of subprime hot potatoes being passed and the ones who hold he shorts will get burned heavily as soon as the press covers that the institution + insiders + tencent + PIF hold more the 100% of the shares which is likely to happens soon as many bought the dip and many other don't want to miss the next ride.
Did you seriously just ask what stops Porsche or Mercedes from selling EVs at their own vertically integrated stores?

How about an horde of lawsuits by the countless dealerships that would be screwed over by that?

I understand that writing about Tesla’s supposed imminent collapse gets a lot of traffic, and writers need a new angle... but that is just silly.
So I've said this before, and is the main reason why I never was interested in an investment in Tesla:

The auto industry is BRUTAL and very tough to get started in. It WAS possible for Tesla to get into it and find it's own spot, but it would have had to have executed perfectly, which it didn't even close to do.
Scott M Weitz profile picture
Great report. Completely agree.
tacticaltrading profile picture
"...Morgan Stanley believes that Tesla's currently non-existent autonomous driving ride-share services are worth ~$95/share."

You have to appreciate the notion of putting a value of $95/share on something that not only does not yet exist, the technology (Software) to make it happen has not yet been developed.
Yes, there are hardware platforms that "work" but, IMHO, the software is a very long way from being ready for commercial deployment.
Then again, Since Tesla tends to release things "Early" and in "Beta" stages of development...
Once it does exist, how long will it be before it goes horribly wrong.

Here's the catch. "The Trolley Problem"
The software developer must make the decision Now, not in real time as a situation unfolds.
This is a legal kerfuffle and eventually it will come up.
Where are the 3 Laws when we need them
Cost equals footprint. Why is a Tesla car expensive? Because many engineers and managers and other Tesla employees had to work for years to create the car. Those people had an environmental impact, driving to work, consuming food and water, etc. new battery tech requires R&D and yet more people living and impacting the earth. The most environmentally friendly vehicle is the one that’s already been manufactured. I’m going to drive my 2007 Prius for at least another 10 years. I’m not convinced we’re saving the planet by producing a bunch of new high tech cars.
I'm going to drive my pickup that can crush your puny prius.

I am kidding of course, but even trucks are getting more and more fuel efficient.
The company I worked for at the time offered employees a $5k stipend free and clear if they bought or leased a hybrid. I’m not driving it to save the planet, but I do love it anyway. Gen 2 Prius is a great reliable car.
I think it might be difficult for Tesla to recover to a normal level based on chinese philosophy. Seems CEO himself has already lose confidence for this business. Short or buy put? Just my personal views.
@SV Investor2

"The biggest transition is right around the conner [sic]."

Freudian slip.
4 years ago when I started reading articles about Tsla I made my opinion that articles written by the "shorts" were most of the time much better structured, supported and informed than articles written by the "longs". This is why I sided with the shorts even though I understood that the collapse of a cult stock is awfully hard to predict. Now one aspects that shorts were consistently wrong with during those 4 years is demand. Demand for Tesla cars was invariably better than predicted by the shorts.
But BMW Porsce etc. etc. have a super network
Supercharger in the world as Tesla? Do they have a battery pack like Tesla's? have the reliable autopilot like that of Tesla? they have Tesla's technology ... make beautiful cars are all capable .... but apparently others do not have what Tesla otherwise would not bother to push to make it fail. PS. Musk I think I'm used to driving luxury cars, more than you, so I do not think you want to make cars less beautiful than the famous brands!
But is not it all that strange to you to talk about Tesla's failure? but when other companies listed on the stock exchange, perhaps you owned shares, have failed, have you ever read that they were failing? have they ever warned you? in 2008 have you warned of the fall of WS? .... no one warns you when you are taking money, rather pushing to make them lose!
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