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New Developments For Tesla

Sep. 25, 2020 9:01 AM ETTesla, Inc. (TSLA)
Ruerd Heeg profile picture
Ruerd Heeg's Blog
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Deep Value, Foreign Companies, Nano-cap, Long Only

Seeking Alpha Analyst Since 2012

As a mathematician (Ph.D.) I use 7 quantitative strategies with statistically extremely high returns. I select these cheap companies with software comparing thousands of global stocks on value metrics, liquidity, quality metrics, and momentum. I focus on global nanocaps and net-nets. Check Turning Rough Stones: turningroughstones.substack.com

About: Tesla (TSLA)

Battery Day

As expected Battery Day was nothing noteworthy. No announcements of big breakthroughs available anytime soon. No announcements on solid state batteries. Such batteries have  energy densities twice as high as litium-ion batteries. Toyota is working on them. I suppose they will have them before Tesla comes with its "next generation" batteries, that are not much better than current batteries. See also here.

D&O Insurance

Are the directors still insured? The insurance provided by Elon Musk was supposed to end at Battery Day. Rumors are directors can be insured except for Elon Musk. But that is silly because liabilities of directors cannot really be separated. See here. I have no doubt that story will continue. So far no 8-K yet.

Delivery estimates

There are several new reports about increasing inventory in the US. See here, here and my previous article. With only one week left in the quarter Tesla might not be able to sell or deliver all these new cars.

Based on production estimate deliveries can be at most 136k. See here and here. Yes, that would imply a new record. But after excluding about 40k deliveries of cars made in China we are looking at at most 96k deliveries of cars made in Fremont. Last year we saw Fremont was not profitable with that number of deliveries. Similarly the factory in Shanghai will not be profitable because it operates much below its production capacity.

Moreover I expect deliveries of cars made in Fremont to decrease much in the next few quarters because of new competition. That competition has already arrived in Europe but will finally arrive in the US during the next quarter. Tesla already sees the effect of competition, in particular in Norway and Netherlands.

Quality issues

China may be a black box for the moment but it won't be long before Chinese have learnt other brands provide better value for money. That people were locked out of their cars because of a network outage at Tesla will not help deliveries either.

Purchase obligations

Meanwhile Tesla has to continue producing cars just to honor its purchase obligations to Panasonic. So I am not surprised Tesla announced a big price drop for its standalone battery product.

In the next few quarters deliveries will sharply decrease because of increased competition and reduced backlog. So what kind of levers can Tesla pull in the following quarters? The only thing I can think of is selling Model Y in China and Europe. I do not think model Y is homologated there yet. Moreover it remains to be seen whether this will be enough to completely honor battery purchase obligations.

Bottom line

In the next quarters losses and negative cash flows will be epic because of lower delivery numbers. I expect the market to front run this development. So my opinion on the stock is still strong sell.

Analyst's Disclosure: I am/we are short TSLA.

Global Deep Value Stocks is a long only newsletter. I do not discuss stocks like Tesla in Global Deep Value Stocks.

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