Quick and dirty Tesla update after Quoth The Raven debate and ahead of Q2 #s

Topic: Tesla the company, Tesla the stock, and Elon Musk

Conclusion: More of a debate, but maybe some short term upside risk for a short seller

Inspiration: This great debate on Quoth The Raven’s podcast episode 50.


Elon Musk has pulled out all the stops on all fronts. He built a tent, he built a number of more or less crappy cars, but probably thousands that are more or less fine too. He’s on twitter all the time calling all kinds of people names I don’t care to repeat. Everybody can see Musk is panicking over something. The question is what.

Is he trying to get fired before a Chapter 11 or a SEC investigation? Is he just trying to burn a few shorts before the curtain falls? Is he really trying to save shorters before turning around his auto start-up? Well, if he’s really trying to save the world, maybe he wants to save shorters too.

Looking in the rear view mirror, Tesla has burned an insane amount of capital as a trail blazer for electrical vehicles; and it doesn’t seem nowhere near turning a profit anytime soon. Looking ahead Tesla might become and industry leader with several billion dollars in annual cash flow as it disrupts the legacy auto industry built around gas stations and combustion engines.

Recently (July 15, 2018), Quoth The Raven arranged an hour-long debate between pro-Tesla Galileo and Tesla skeptic Montana Skeptic. What follows is a truly sloppy transcript written in real time while listening to the debate. I only post it here as a kind of public notebook for the most relevant arguments on either side of the debate. It’s a very good natured debate and there’s lots to learn for bulls and bears alike.

I’m actually kind of blown away by Galileo’s confidence and arguments. It was the first time I’ve heard a coherent bull side of the Tesla story. On the other hand it’s no secret I think Galileo’s view of capex, profits and not least the “software moat” have nothing on Montana Skeptic’s “competition, loss-making, can’t afford capex for future models, M3 is last chance and it’s hugely loss making” argumentation.


Right after the transcript, I’ve added a little bit of short term speculation regarding the share price (Disclosure: I’m short Tesla. Disclaimer: nothing here is a recommendation; do your research elsewhere, I take no responsibility for any losses you may incur. More disclaimers.)


Loosely composed transcript

Feel free to point out mistakes, or why not improve on the document right here in this shared document: TESLA QTR DEBATE “TRANSCRIPT”. Create sentences out of words, paragraphs and narrative out of sentences, add charts, perhaps add own arguments (clearly marked as such) etc.

Please note that I haven’t secured any rights whatsoever to do this from Quoth The Raven. I’m hoping he’ll like the initiative, but if he doesn’t I’ll take it down immediately. A tweet or an e-mail is sufficient. 

 

Tesla debate on QTR

Pro – Galileo

First and foremost the CEO, I’m betting on the jockey not the horse

Smartest leader in the world, incredible leader

Track record of zip2, paypal

Disruptor

Both incredible engineer and business person

Running Tesla as a start-up, CTO, technical founder and business person

Massive opportunity for electrical transport system AND autonomous vehicles

Tesla is in start-up mode

Building for millions of cars not a few 100k

Reaching 20bn in revenue faster than Amazon did; Tesla is one of fastest growing companies ever, 50% per year compounded growth

Clear strategy: High end cars => cheaper and cheaper cars => 10x number of cars in future

Leading battery technology

Big utility projects like in Australia

Autopilot big story for future

Apple-like perfectionism, focus on customer

Several 100bn mcap auto maker in future

 

Con – Montana Sceptic

Competition coming now, has been in monopoly for lux EV last 6 years

Lavish subsidies, still lost lot of money

Real losses, not due to capex, the capex comes from cap raises. Tesla has no money to reinvest.

Lost 700m Q1, probably 700m more in Q2

iPace has arrived, superior reviews. Next Audi, Mercedes, Porsche, Volvo

Model S sales already falling off. Their high margin car being cannibalized by M3.

Competition will gut margins further

Has lost aspirational image in Europe. Next year in US

M3 supposed to be money maker, but after one year with M3 Tesla has lost more than ever. Maybe break even on 60k priced M3, but addressable market for 60k sedan is limited. Running out of demand. 35k doesn’t exist, Tesla will die if tries. No tax credit in future and many pre-ordered because of that

Supercharger network still superior but coming CCS system in Europe is better.

Valuation: GM P/E 6, ford 7. If Tesla warrants 15x, needs 3.5bn profit to defend current market cap.

“Betting on Elon Musk”… Irrational person, calling rescue diver pedo. Not an engineer at all. Not a leader (look at exodus of managers)

EV revolution can’t survive without subsidies due to expensive batteries. Just a niche product without subsidies. Will be better in future but not yet.

Australia project at best break even. Overwhelming nothing. Not profitable.

 

Pro

Competition: could have said about Chevy Volt, but Tesla still much higher sales. Will only believe competition is relevant when it actually is outselling Tesla.

Ironic that EV revolution not coming if at the same time says competition coming now

Tesla had super backlog even before existed – like Apple iPhone

GM, Ford are tied to combustion engine. That’s why low PE


TOPIC: is Tesla’s capex sufficient for 3, Y, semi, roadster 2, solar roof tiles and all else?

Pro

Believe 2018 capex not addressing anything but M3

Investing capex in one project, then moving to next

Can’t expand >100% per year. Irresponsible to try for mfg.

Will have to raise capital to fund Y, Semi, Roadster, solar roof to build out factories and robots. Will see profitability for M3 in 2018 but need and will raise cap for future

Compare Netflix: Tesla should say that “wont be profitable, we are building for the future coming 5 years.”

15bn incremental capex coming 5 year. Vs 50-60bn market cap not too bad 3-4% dilution/year to fund capex. I want them to do capex, growing future earnings power

 

Con

Model Y, said should start in 2019, said in Fremont, said that had capacity, but Strauble (?) said “no, we are jammed to the gills, need new factory”.

Probably takes 3-5 years to build a factory. No 8K filed for China MOU so just a big nothing.

No room for semi in Fremont

Thus: No new products coming for several years

Takes lot of capital and time to develop new products; and exist no plans yet

Supercharger upgrades? Thought that was the moat. No, moats are “lame” said Musk.

Where will Tesla get money to expand or upgrade SC net?

Tesla is slashing its capex; not only underinvested for future, also for present

Only applied for permit for tent, fire damage, and bare bones maintenance, and robotic feather duster system. So, no real capex for mfg expansion being done

Goldman says needs 10.5bn minimum over 2.5 years, which is 5x what ever done before.

Invested billions in capital and have record losses. How convince Wall Street that future capex will create profits?

 

Pro

Need capital but spending too little capex. Cherry picking stats. Catch 22, spending too little and too much at the same time.

Adding more revenue and production capacity than any other car maker. Data shows Tesla knows how to expand capacity.

Cash flow is positive on every product after 2 years.


TOPIC 2: Market share, EV sales, how doing in US

Con

+90% EV sales in US 2018/2017. So what, losing money on them. Of course can get market share. Not eo for a new car co. to take share; especially when doing it at a loss. In particular before subsidies expire and competitor products come online.

 

If Tesla were expanding share and making money would be impressive, but now losing money faster than growing revenue. Tesla is now cherry picking highest margin M3 models in Q3, Q4. Finding clients paying for highest priced models M3 while cannibalizing S,X.

The more they sell the more they lose. Not a promising business model

 

Pro

Making it so easy for me. The other automakers are screwed because Tesla has leading battery cost. If Tesla is losing money the others lose more. Selling dollar at 85c vs the others at 50c? Think the others lose much more than Tesla. Tesla reports positive margins.

M3 best selling car in US, S and X nr 2 and 3. Tesla keeps expanding market share right when others like Chevy Volt should have taken share. Bulls keep saying the next competitor will kill Tesla, but Tesla keeps pulling ahead.

 

Takes time to build a profitable large car maker. When Tesla reaches scale they will be profitable and Tesla is using social media engagement, millions of followers, no spending on marketing. The others are dinosaurs that totally missed the EV trend.

 

“So what?”: EVs were a joke, a niche, but all autos are now investing billions after seeing Tesla being successful. 20bn orders, lining up like for an iPhone… THAT’s not a “so what”, that’s disruption

 

Con

Yes, fans lined up for a 35-7.5k car

Zero evidence for leading battery cost

Gross margin, profit: is higher than other cos because they have to have a dealership model. Teslas costs show up in sales and service centers instead. Need net profits.

The other cos have profitable combustion engines, and can afford subsidizing EVs; Tesla can’t


TOPIC 3: EMs behavior on social media, good or bad?

Pro

Not good calling somebody names. Not good people reporting on tweets rather than on business. Pathetic by Musk to be affected by tweets

Tesla is leveraging social media in strategic way. Direct megaphone, marketing machine, => millions or billions in free press

Presence on Twitter is incredibly valuable if used in right way

Coordinating Oz project, OTA brake update etc. over Twitter

Culture and brand that nobody else has

Only car maker that has figured out how to use social media for marketing. Doesn’t spend a single dollar on marketing.

Elon should stay on Twitter, stay involved, but grow up and not call somebody a pedophile

 

Con

As marriage counselors say: What you love will drive you crazy eventually. The Musk cult is discovering how boldness, iconoclasticness, promiscuous tweeting has a backside: reckless, narcissistic.

Not smart to lash out at short sellers as if responsible for poor manufacturing, or lash out at journalists personally, accusing/suing Martin Tripp for sabotage, and Lopez for bribery, accusing diver for being a pedophile. Not just absurd: sick and despicable. Should cause outcry and calls for Musk stepping down. No other CEO would last 24h after such an accusation. Puts board in a bind. Defamation suit? Why did Musk have to be the centre of attention? Deep seated insecurity. Narcissistic. Needs to be the great saver av all of us. That trait is incurable. reated cult of personality, investors embraced it. Both are stuck with it. This is just an. Charming, lovely exciting can turn into perception of Ugly, problematic damaging

 

Pro

Conference call was smart, giving a voice to retail investors

Accusing short sellers put focus on them so they don’t make synch attacks


FINAL

Con

Lives from cap raise to cap raise. But for a cap raise always on brink of BK

Neg curr assets several Bn dollars; need more capital this year

Other automakers have portfolio of profitable products = advantage

Interior of M3 “tired”, “never was that remarkable”, losing aspirational status

If Tesla can’t eke out a profit in Q3, Q4 they will never be. In coming years, will have nothing else to sell.

Very hard to pencil out a profitability that warrants more than 20-30 dollars/share

 

Pro

Incredible once in a century disruption of transportation: Electrification + Autonomy

Tesla had this vision before anybody else

Legacy for others is huge achilles heel: dealers, not own stores, combustion engines…

Misses entire story since misses how fast

 

Software: sold computer game at 12yo, SW is fundamentally different skill than combustion engine and analog devices. OTA upgrade, touch screen control. Tesla teardown says circuitboard is like an F35 fighter jet. Tesla has software in its DNA, also good at hiring s/w engineers. The others can’t attract s/w engineers. Battery management software, e.g., that Tesla has perfected with several 100k cars on the road will take five years for other cars to learn. This is the major differentiator.

Multi 100bn dollar company. Oz project showed proof of concept at unprecedented scale.

Software is at core, massive moat. Everything ties back to SW vs dinosaurs trying to pivot to a model Tesla invented

 

Con

“Computers with wheels…” — too bad Tesla can’t build wheels that don’t fall out

Crazy to think the other car manufacturers don’t have competent sw engineers, Over The Air updating capabilities ready or planned.


Speculation

As I said above, Musk is clearly coming off the hinges, and a cornered animal can do all kinds of crazy things. I’m guessing Musk could windowdress the company in a single quarter, showing a profit, positive cash flow, high sales numbers or high reported gross margins. I can’t see how any of that would be sustainable; but short term I can definitely see how it could push the share substantially higher short term.

(I can also imagine the market not falling for that trick again, but so far Tesla’s share price has had a tendency to rise on any little hint at potentially positive news)

Looking forward a year, I’m confident the Tesla growth story is over. Tesla doesn’t have a credible path to profitability, and any cash it manages to raise for capex would go to covering losses and maybe, just maybe to projects 3, 4, 5 years into the future. By then Tesla will have lost any lead it once had in roadsters, trucks, chargers, batteries and luxury EVs.


To summarize, I think Q2 is a lost cause. Tesla’s burst effort must have cost more than in Q1, and the cars it has sold are still loss making per unit despite under reserving for warranties. On the other hand, Tesla’s reports are never about earnings. In Q2 Musk can talk about record sales, record production rates, reaching the 5k/week production goal (although they really didn’t), maybe even record gross margins (since they are made up and irrelevant anyway). He can also make promises about profitability and positive cash flow in Q3 and Q4 and claim Tesla doesn’t need to raise capital anytime soon. He can say they’ve reached new highs for a one day production rate. He can more or less say anything, and probably will, in a last ditch effort to push the stock price upward.

Technically, I think the stock looks weak. I also think the real results for Q2 will show vulnerability and low cash levels. I’m sticking to my shorts over earnings, but I can definitely understand if you don’t. What if Musk is extremely upbeat and both promises and reaches profitability in Q3 (based on selling high-spec Model 3s at a positive margin to Tesla’s most hard-core fans)? Then the Tesla bull story could really grow some legs for several months.

Yes, I readily admit I’m a bit wary of what Elon Musk and his fans can accomplish short term. On the other hand, the allure of being short when this thing blows is just to great to risk missing. The doomsday clock is five to midnight, Tesla is out of money, out of products, out of a “cool” leader and out of time. All it has is a crazy cult following that might turn on the company in short order on missteps like PAC contributions or absurd and sick accusations directed at analysts, cave divers and journalists.


P.S. Follow Quoth The Raven and check out his weekly rants on his 2-drinks minimum Friday evening podcast

P.P.S. Please note (again) that I haven’t secured any rights whatsoever to do this from Quoth The Raven. I’m hoping he’ll like the initiative, but if he doesn’t I’ll take it down immediately. A tweet or an e-mail is sufficient. 

Så förbereder du dig inför kvartalsrapporterna

This post is in Swedish but try this one in English instead (Trauma induced psychopatic behavior is inheritable)


“Riktiga män tar inte back-up”

Så stod det på omslaget till kurslitteraturen i informationsteknologi på Handelshögskolan i Stockholm 1990. Den moderna varianten nästan 30 år senare verkar vara “Vinnare hedgar inte”. Det är i alla fall vad en av Teslas aktieägare sagt nyligen inför årets andra kvartalsrapport.


Det är ett sätt att hantera sina investeringar. Här kommer ett annat.

Istället för att satsa allt på ett enda kort och passivt vänta på att rapportsäsongen överfaller dig och din portfölj, förbered dig genom att bestämma dig för vilka företagsrapporter och rapportdata som ska kunna påverka dig, samt när och hur de ska göra det. Gör iordning ett schema för vad du har för potentiella portföljbeslut samt en lista på vilken information du väntar på och när och inte minst hur du har tänkt använda informationen. Tänk igenom före hur du ska lagra datapunkterna på ett systematiskt och konsekvent sätt så du verkligen kan använda den, istället för att uppfinna hjulet på nytt var tredje månad.

Åttastegsmodellen till en effektivare rapportperiod
För det första, var…

Läs resten av artikeln här hos Vontobel.

OK, då. Här får du en åttondel av mina funderingar, men sen får du faktiskt klicka dig till hela artikeln:

För det femte, lita inte på företagsledarna. Deras jobb är att lura dig — i alla fall lite lagom. De kommer alltid vända och vrida på formuleringarna så de låter mer positiva än de egentligen är. Läs deras kommentarer som Djävulen läser Bibeln, för det är så de är formulerade. “Bra” betyder inte nödvändigtvis att det är bra för dig. “Bäst någonsin” eller “all time high” kan betyda så lite ökning som bara en ynka procent, vilket är katastrof för ett företag som förväntas växa med 15 procent…

Förbered dig så slipper du vara Baggy McBagface
Är du för häftig för att förbereda dig? Kör du hellre på känsla? Brukade inte du heller ta säkerhetskopior? Jag har kompisar som förlorade hela sitt arbete dagen innan det skulle lämnas in. De hade hellre sett ut som töntar innan än tvingas göra det efteråt.

Det är enkla men strategiska små grepp som de ovan som gör att du kan ligga steget före istället för att marknaden leker med dig som en påse i vinden.

Har du börjat förbereda dina listor på primärföretag, olika investeringsinstrument, nyckelvariabler, sekundärföretag, datum, guidningsuppföljning, övergripande syn och sammanställning av överraskningar ännu? Eller tänker du åka pendeltåg resten av livet?


Nå Baggy, har du köpt månadsbiljett eller är du redo att läsa alla åtta förslag till förberedelse inför rapportperioden?

How can you change the powerful loop that is your habitual life

Topic: You are a product of your friends, co-workers, family, furniture, architecture, restaurants, shops and streets

Discussion: You start out shaping your environment, but soon it’s shaping you, until you form a stable, self-reinforcing loop.

Tip: Try to identify malign loops everywhere you can think of (investing, macroeconomics, relationships, health)

Conclusion: If you’re not happy with your life you probably need to make bigger changes than you might think


Trauma induced psychopatic behavior is inheritable

Psychopaths can be identified through a brain scan. The trait is inheritable and their brain patterns are highly specific. Jordan Harbinger found out as much when he studied psychopaths. Later, when researching Alzheimer’s in his own family he found out he himself had the brain of one of the worst psychos he had ever come across. And yet, he wasn’t behaving like a psychopath, e.g., he never harmed anybody. More about that a little later…


Looping behavior and post traumatic growth

Recent research shows people often react positively to intense stress and shocks. They are beneficiaries of adverse circumstances. Other people develop PTSD from severe stress. Some people turn into raging psychopaths if exposed to a certain kind of trauma, as if the organism says “Apparently, I can’t trust other people, so instead I’m going to use them”. The good news is that they need to carry the psychopathy genes for that. What’s worse, however, is that once the genes are triggered they can be inherited in their triggered state to up to two generations.

Think about that for a while: the genes for psychopathy can be carried but silent forever, but once triggered by a traumatic experience, epigenetic changes occur that means the children and grandchildren of a psychopath can become active psychopaths themselves without the need for triggers. The pattern for inherited antisocial behavior could have significant implications for societies when observed over very long cycles. Strauss and Howe call those cycles “Saeculums” which are about 90 years long, or the span of a long-lived human. More about that in a little while.

Humans move in stable loops. We conform to our environment, move or change it until we fit in. The people we see, the establishments we frequent, what we eat, the shops we go to, the way our living quarters are arranged shape us. Once set, the context decides most of your life for you, just as you become part of other peoples’ life shaping context. If you’re  not careful you’ll live your life as a domesticated animal with hardly any active choices or enriching experiences at all.

In any case, our environment and experiences shape us, and there is good reason to take control of that process, lest we spend our lives as zombies or psychopaths.


Breaking the loop

With some effort you can change your context and break out of your homeostasis. However, unless you actually move, change jobs, spend most of your time with other people and so on, you’re likely to slip right back into your old habits.

By all means, start small: just take different routes to and from work, walk your dog in unfamiliar areas and visit new shops and restaurants. That way you might meet new people which is key. You’ve probably heard that you are a blend of the five people you spend most of your time with. Are you? And do they represent your values and ideals? If not you need to change them or dilute their influence. For that you may need to make bigger changes such as moving and getting another job. Recent research in psychology and psychedelics have shown that certain intense psychotherapy can break a decade of, e.g., depression looping in one single sitting.

Ideally, you want your environment to be like bicycling downhill rather than uphill, that your environment pushes you forward as opposed to hampering your efforts. You could compare the right technological, cultural and social context to always having homemade food in the freezer and your gymbag at the ready, as opposed to candy and cookies at the house.


Two topics fascinate me regarding this interplay between surroundings and choices: does it explain the Fourth Turning theory, and what can be done to prevent too much perosnal looping?


Could transgenerational epigenetic triggers of pychopathy explain The Fourth Turning?

  1. Big traumatic experiences that affect a whole generation of young people can trigger an entire generation of more or less antisocial behavior. Such a psychopathic generation would share certain memories, feelings and behavioral traits that make them prone to certain kinds of decisions in certain kinds of situations and lines of work
  2. Due to the mechanics of transgenerational epigenetics a certain number of their children are affected as well, and a number of their children. Then, for the fourth generation the bad blood (epigenetically pre-triggered psychopathy) is finally cleaned out, creating a generation that is quite different from the other generations.
  3. Unfortunately, when the Social generation and their children are still young, the Psychopaths are in charge of society’s most important institutions and risk causing a new cycle of trauma and psychopaths. Maybe, just maybe, this is part of the mechanics underlying Strauss and Howe’s theory of generational cycles in The Fourth Turning. Well, I’ll leave that to Howe, whom I’ve recently contacted regarding his updated edition of the book.

What can be done to counter your own laziness, homeostasis and looping behavior?

  1. Humans have a very limited agency as it is, i.e., room for voluntary action that is not immediately and deterministically triggered by circumstances. Some would say we have no free will at all. Be that as it may, but at least we feel we can change our behavior just a little.
  2. Thus it’s crucial to tweak and design one’s surroundings as thoughtfully as possible, to make them conducive to… well, whatever it is you want to achieve.
  3. The following might help: Feng Shui furniture, dark bedrooms, TV placement, computer and phone screen habits, refrigerator contents, shopping habits (I recommend shopping groceries online, right after having eaten and using fixed lists).
  4. Learn to be aware of, recognize and break non productive loops and ineffective coping behavior. Try to guide your coping behavior to loop-breaking rather than loop-reinforcing, e.g., by letting thoughts of “staying the course”, “choosing laziness” trigger the opposite. Drop to the floor right now and make 10 push-ups. Don’t feel like it? You’ll do it later? But there are people around? Those are the exact triggers you want to make you do it without delay. Now!

Conclusion and summary

Never mind the Fourth Turning, that’s for another day and another author, no matter how fascinating.

Take charge of your context. What do you want to achieve? What do you need to achieve that? What kind of traits would help? Where do people with those traits live and hang out? Seek them out. What traits are in the way? Stop seeing people with those characteristics. Design your life around people, activities, companies etc. that  on average are what you want to be. Make a plan on how to get from here to there and take the consequent action, be it moving, resigning, take a course, break up and so on.

Just be careful what you wish for; you need a very good grasp of who you truly are and what you really want, before taking drastic action.

Final thoughts: If you’re not happy with your life something is seriously wrong. I know people who are retired and pretty well off who have planned for reading books and making oil paintings but find themselves constantly renovating the house, just as constantly complaining they never have the time to relax, read and paint. They are stuck in a loop, unhappily so. Are you happy with your job, your activities after work, the level of meaningfulness in your social life, your overall level of belonging and self-actualization etc? If not, no New Year’s resolution about going to the gym or joining a book club is going to change that.

You need to put yourself in a whole new context.


P.S. If this resonated with you here are two suggestions: 1) bookmark my website, 2) check out Start Gaining Momentum and his book Breaking Out Of Homeostasis.