Tesla, Dieselgate, And The Future

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About: Tesla, Inc. (TSLA)
by: Rogier van Vlissingen

Summary

The Tesla fiasco was created by legislation.

Elon Musk just showed up with the instinct to capitalize on the opportunity.

Doing anything by proxy never works, as people will always game the proxy that applied to dieselgate, and it applies to BEVs today.

The change from ICE to BEV is a Rube Goldberg "solution" and largely political posturing when it removes a ton of CO2 for hundreds of times more $/ton than alternative options.

Not only are politicians waking up to the absurdity of subsidizing BEVs, so is the UN and the ESG investment sector.

The lessons to be learned from Tesla (TSLA) will likely never be learned, but the Internet is doing a powerful job in real-time analysis. Besides all the drama surrounding the Model 3 that is currently going on, we are watching the slow dismantling of the SolarCity bailout by Tesla - now generally valued at $0.

Meanwhile, there are still various investigations and potential regulatory actions, as well as a rapidly growing number of lawsuits ranging from the investor lawsuit about the deal itself to a class action about their telemarketing practices, and another about truth in advertising issues and meanwhile, there are mounting piles of lemon law lawsuits for Tesla itself, not to mention investor suits, and whistleblower suits. The telemarketing suit is now settled for $15 mln. Others may yet be brewing - I keep wondering how many SolarCity customers are underwater with their PPAs based on current power rates, with escalation clauses up from 2% to 2.9% annually in an environment of fairly stable electrical rates.

The absurd dream of an integrated renewable energy company is quickly coming to an end. From a societal standpoint, it was always more make-believe than real solution anyway and the SolarCity concept never produced real value. Much like Tesla, it assumed you could lose money and make it up on volume and on expectations of profits... someday. The last remnants of SolarCity are swirling down the drain with layoffs and office closings. From a macro standpoint, residential solar remains a dubious proposition, and so, an electric car, even if driven by solar power. Politicians are starting to wake up.

The Importance of Finance

To many would-be entrepreneurs, it always seems that financial people, investors, bankers, etc. are PITAs until they grow up to realize that actually listening to those people and using their advice constructively provide the guardrails to building a better, more sustainable business model.

Evidently, SolarCity never had a viable business model, and Tesla is completely addicted to similar non-kosher financial concepts as what is fast becoming the ultimate unraveling of SolarCity under the Tesla umbrella. I analyzed the financial naiveté of SolarCity management in past articles, and we should never forget that Elon Musk was a founder. He did not like adult supervision then or now. A recent expression of his kind of hucksterism was the attempt to position the newly introduced reduced range version of the Model 3 with a final cost that reflected not only the $7,500 tax credit, which statistically many buyers won't be able to fully utilize anyway, but to add the prospective "gas savings," to the proposition as if it were cash in order to come up with a "cost" as opposed to the price...

Meanwhile, we cannot help but notice that there are increasingly serious efforts of recognizing credible responsible investment opportunities in the ESG segment, which definitely needs cleaning up from a lot of false expectations. Recently, a shortly to be launched (Dec. 18/Jan. 19) US Vegan Climate Index was brought to my attention, here are some more examples. Meanwhile, next year, we will see the first Plant-Based World Conference is coming to the Jacob Javits Center. At the grassroots level, the Healing America Together tour is a grassroots campaign that is driven by the fact that a whole foods, plant-based diet makes for greater health improvements than any amount of medical pills and procedures, but the serious environmental impact is clear too. Medicaid is one beneficiary as they attempt to transition to paying for results, not treatments, and real healthcare reform lies that way. Pound for pound, plant-based nutrition reduces resource utilization by a factor of 10, in water, GHG-emissions, and soil compared to animal-based food. It is obviously the one area where massive change is possible for almost no cost.

The Climate Change Conundrum

On October 17, Bill Gates posted a note on his blog, Can You Beat My Score On This Climate Change Quiz? Truly a sobering exercise, for it makes you aware what things do or don't have an impact. As Suzy Amis Cameron has it in her book One Meal A Day, even changing one meal a day to vegan makes a huge difference. Individually, changing from an ICE vehicle to BEV is not all that meaningful by comparison. Switching to a plant-based diet is because it reduces your lifetime health care expenditure (statistically speaking), it reduces your environmental footprint, and helps solve world hunger (people will no longer have to compete with livestock for food): per unit of protein, plant-based food uses an order of magnitude (literally 10x) less resources. However, cutting out one transatlantic flight eliminates more GHG-emissions per person than even the diet change. In other words, individually we often do the wrong thing, but as a society, we are completely wrongheaded. The big GHG-reductions are in the food industry, not primarily in the transportation sector, which is 14% or less of total global GHG-emissions.

The biggest thing that could happen to help solve climate change is to sanitize the endless subsidies that help us all do the wrong things. Subsidizing BEVs while you're still subsidizing oil and gas exploration becomes ludicrous. Subsidizing rooftop solar, leading to suboptimal financial decisions by home owners is ludicrous. Subsidizing meat and dairy production, if they are the single biggest causes of both the environmental crisis and the healthcare crisis which is costing us 20% of GNP, is insane.

One of the ways sanity appears to be entering the hysterical business of subsidizing "green" products is my native Holland waking up that they are paying EUR8,000 to remove one ton of CO2 via subsidizing Tesla's when you can do the same thing by other means for EUR20 per ton (in other words, 400x less per ton), per this story in the Telegraaf newspaper. It's becoming a story much like the Russian alternative to the Fisher space pen - you could have used a pencil - that will write upside down just fine. That is a dawning of common sense similar to the one meal a day observation cited above.

The Automotive Guilt Trip of Dieselgate

For anyone still in doubt about the nefarious influence of politics, the biography of Robert Moses, by Robert Caro is a must read. Moses' power was based on the simple facts that parks were something you could see and touch and got votes for four-time NY State Governor Al Smith. Nothing could resist that. Shiny solar panels and sexy BEVs are also something you can point to and see, so never mind if it makes any sense, even paying 400x too much for removing one ton of CO2 from the atmosphere, it is all fair game, for these are tangible accomplishments. Eventually, common sense is bound to catch up, as has happened in Hong Kong and now seems to be happening in Holland.

We need to only look at the quandary of Angela Merkel right now to understand how tempting such allegiances are and how devastating they can be when the truth catches up. For all her environmental work, she has championed the illusion of clean diesel because there are 800,000 auto workers/voters - more with their families. But then, dieselgate happened. Now the auto industry and the politicians that support it are into the next environmental deception, the transition from ICE to BEV. Overpaying hundreds of times per ton of CO2 removed from our collective emissions.

However, the recent report from IPCC makes it clear that it's time for serious measures. And there is where the simple stuff comes in, like the notion that changing just one meal a day to a plant-based meal does more than changing to a BEV from an ICEV. And of course, when you throw in the health benefits (which include putting Viagra out of business), it will soon be plant-based meals around the clock, which is what's happening on the margins, picking up speed at an incredible rate. In short, politicians are going to need to do better and come up with real solutions. The time for feel-good pretend solutions is over.

The Internet Age is different

Facts catch up with you much faster these days, even if some are masters at manipulating them. Having a monosyllabic last name with a "u" in it helps, but eventually, it catches up. On the other hand, there are the fawning media who often just recycle company pablum, be it financial or environmental. There are exceptions that confirm the rule - the LATimes has been doing a credible job, but for the most part, the public is clueless as to what dangers lurk. On the other hand, the amount of quality analysis that is taking place on Twitter for this name is unprecedented. And by virtue of the collaborative work of many players, it happens quickly.

The Recode/Decode interview was a case in point, the messianic complex and self-deception are simply mind-boggling, helped greatly by the naiveté of journalist Kara Swisher who still accepts without challenge the idea that the transition from ICE to BEV vehicles makes any significant difference and that Elon is going to save the planet. It simply defies belief that amidst a growing series of analyses that electric car batteries alone are a staggering environmental problem in its own right, and that the life-cycle pollution of BEVs makes it basically a wash. The fact that Dutch law-makers had to publicly admit that it made no sense to pay 400x too much to take a ton of CO2 out of our emissions is bound to have legs, as funny money becomes harder to come by for politicians. News is now a global business more than ever.

Conclusion

We are at the stage of you can run, but you can't hide. The financial analysis of this past 3Q2019 is pretty devastating, even if most of the mainstream press just runs with the headlines without critical examination of the facts. Those who know where to look will find the real story quickly enough.

For the most part, the press is still entertaining the impression that Tesla is actually part of the solution of our environmental crisis, which is silly on the face of it. Since when does it solve anything to carry around 1000 lbs of extra hardware for the same payload? What remains is an environmental exhibitionism for politicians on the taxpayer credit card, which enabled a completely impractical appearance of a solution, while simple, obvious things are being ignored.

Tesla remains a story stock, and the level of completely uncritical and fact-free adoration seems more important in the stock price even now than any amount of financial analysis. Clearly, the bears are counting on the fact that the voting machine will give way to the weighing machine sooner than later.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.