Are you exploiting the power of negativity to its fullest?

As if a hundred short sellers screamed in agony* and suddenly fell silent

-“funding secured”

(*actually not, rather they celebrated, knowing the endgame had finally arrived; since knowing the facts rather than a wishful narrative, they understood the action was the last desperate act of a fraudster at the end of his rope)


Topic: why all the negativity?

Discussion: investors are on balance long biased and thus need an opposing view for balance

Conclusion: more pessimism (almost) always leads to a more balanced view

Bonus: a little tip regarding perspective, productivity and happiness (asking past friends for advice)


With a little help from my (previous) friends

You know the 150 people you actually know? They aren’t the same as they were 10 years ago. If you’re serious in your quest for a fresh perspective on things, write an e-mail and ask for your advice from your old network (I got the idea from the book about networking effectively, that Anna Svahn is writing as we speak).

Tip: start by expressing some appreciation and if possible provide something of value. Givers are more successful than matchers and takers. And appreciative people are happier.


The curious case of the lone genius giga fraudster

Let’s forget for a while that Tesla is burning a billion dollars every three months (e.g., cash flow was -1.3 to -1.4bn in Q2), and that it’s effectively running out of money by the turn of the year, unless it manages to raise new capital by then. Nota Bene, this isn’t controversial; it’s a financial fact.

Tesla has over 10 billion dollars in debt. Tesla holds a billion dollars in client deposits. Tesla has a negative net working capital of 3 billion dollars, giver or take. Tesla has 1 billion in convertible debt maturity effectively coming up by the turn of the year. Tesla has at least half a billion of its cash reserves where it can’t be accessed. Anyway, let’s forget about money running out in just a few months, since that’s not really an issue of cash flow turns positive.

Let’s forget that even though sales have increased at an impressive rate, so have losses and executive compensation. These are indisputable financial facts. If anything, the numbers are artificially positive due to creative accounting, not least by under reserving for service costs.

Let’s also forget about the quality issues with hastily manufactured tent “lemons”. Let’s also forget about Tesla’s failed attempt at disrupting the “stealership” model, consequently leaving clients to deal with maintenance, repair and spare parts themselves.

Let’s forget about the super high death rate of Tesla drivers.

Let’s also forget about all the weird and lofty claims Elon Musk spouts every opportunity he gets. I’m thinking about new car models, trucks, pick-ups, solar house roofs, solar car roofs, bricks, 1 USD/trip super-mach intercity hyperloops etc., without the necessary factory investments.

Let’s also forget about the hundreds of former Tesla fans, witnessing about poor to non-existent service, about cars being paid for but not delivered, about deposits not being returned on demand, about suppliers not getting paid or are asked to pay money back (!)


Before: several years of a monopoly-like situation + subsidies = increasingly unprofitable

Now: serious competition (BMW, Porsche, Volvo, Jaguar, Audi…) + no subsidies => profits?


Chart by Tesla Charts


Build it and the profits will come

At this point let’s just think about one single thing, since profits and cash flows are what ultimately decide the fate of a company:

Some of the bullish analysts and bag holders of Tesla stock are counting on Tesla and Musk finally turning profitable now that its subsidies are ending and a tsunami of competition (with subsidies) is entering their market.

Wait, what? Wut? Hqr sez wut?

Yup, that’s right, that’s what’s coming now according to bulls. Elon Musk has never turned a profit in any of his companies. The last fifteen years, Tesla has only increasing losses to show for its efforts to exploit its supposed first mover advantage and massive subsidies. But, now, finally, with a deluge of formidable competitors, with as deep pockets as experience in building and testing cars, Tesla is supposed to somehow reap the benefits of… scale, competitive position, increased margins?

Not only that, just as the available market is about to fall by 90% in the coming years, Tesla’s subsidies are going away. Tell me again how that is supposed to finally push margins into positive territory.


OK, back to the fraudster

The bigger the lie, the easier to get away with it, and Tesla is about as big as they get, just like Theranos, Enron and Madoff before that. Or Nick Leeson and Jérôme Kerviel.

Many fraudsters start out with good intentions, probably Elon Musk too. However, as reality catches up with dreams, losses and mistakes have to be swept under the rug. “It’s just temporarily“, they think, “for the greater good in the long term“, they reason, and go on to make bigger and bolder bets to cover up their little mishaps.

An idea about luxury roadsters and other premium cars making profits, that finance investments in mass-market car manufacturing that’s supposed to make even greater profits, instead turn into ever increasing losses and thus the necessity for side-shows of acquisitions and unrealistic innovations.

At some point the well-intentioned and benevolent disruptor realizes his predicament and steps over the fraud line. The genius has now become a fraudster; and with increasing vitriol and intensity he attacks everyone who expresses the least bit of skepticism, while coming up with ever more fantastic claims about breakthroughs that are on an “order of magnitude” above and beyond anything previously seen. At this point the smart money knows the game is up and starts pointing it out, but it takes years (Enron, CDOs, Allied Capital), sometimes decades (Madoff), for the Ponzi scheme to collapse into the surprised and devastated hands of the bag holders.


This is not about Tesla, but about balance and perspective

Why all the negativity? Because almost everybody else has a positive bias. It takes effort and guts to find and relay negative information to a herd of stampeding bulls. Very few bother, since everybody seems to hold nothing but contempt for short sellers, including SEC officials (who famously like to interrogate whistle-blowers and short sellers rather than investigate the actual perpetrators).

It’s simply humans being humans when bullish investors turn a blind eye to all the obvious negative facts, and instead pat each others’ backs, repeating their faith based narrative, “obviously corroborated by the stock price (bro)”. It’s not really their fault. The problem actually lies with bears being too silent, passively allowing gullible bulls to be had for a ride. Humans are gullible by nature; we like a good story and we tend to positivity. We want to believe in stories bout heroes. We want to believe in seeing ourselves becoming rich, in particular if it’s by supporting a good cause at the same time. Fraudsters (whether by design or mistake) take advantage if that trait.

That’s why bears armed with facts are so important. They perform an almost invaluable service in their quest of fact finding and creating balance in the otherwise one-sided bullish narrative. Humans are lazy and blind to other stories than their own. Nothing wrong with that, it’s just our nature. But that’s exactly why the bears are needed: to create perspective, to catalyze questioning and to provide facts and arguments that can be directly measured against whatever the bull story is.


It’s currently the most important story there is

But why Tesla all the time? You keep ranting about Tesla; why the negativity?

It’s because it’s the biggest and simultaneously most obvious house of cards out there. It’s the most unbalanced narrative there is in public markets right now, in terms of the bull story being the least factful and the bear story being the most tangible. There’s almost a hundred billion dollars at stake, not to mention bag holders car owners that have or have not received their cars but stand to lose any kind of warranty, pre-payments or access to spare parts or super-chargers.


Quite often, bear stories are more qualitative than financial in nature, i.e., less numbers based and more speculative regarding troubles ahead. Not too rarely, very high valuations feature in bears’ short stories, although most smart bears know that’s nowhere near what’s needed for a successful short.

Not this time though. This time the bulls are the dreamers, and the bears don’t even need to start talking about the valuation, since Tesla’s money is actually running out (and with no plan for raising new).

No matter how much bloggers, podcasters and successful investors try to dig out the true foundations of the bull story in Tesla, they come up empty handed. It’s all narrative and hope that the lone genius, who so far has accomplished nothing, will soon magically wave his cave dildo, display his magic beans, and create actual profits.

Occam’s razor would long ago just have labelled Musk a fraudster rather than a genius, and all his actions would be all that much easier to explain.

A genius wouldn’t manufacture lemons and losses. A fraudster could. A genius wouldn’t fantasize about products he could never afford to build. A fraudster might as a cover-up. A genius wouldn’t put himself at the mercy of markets (no cash, negative flow). A fraudster would claim funding is secured (even if the claim might prove to be securities fraud). Would an environmentalist genius have five large Bel Air mansions and the biggest private jet there is (G650)? He could, but a fraudster fits the bill better. A genius maybe should have produced profits some time in his history. A fraudster wouldn’t see why. Finally, a genius wouldn’t pump up numbers in collaboration with his brother in an unrelated company and push his board into accepting a takeover at the very peak of that company’s business. A fraudster? Hell yeah!

This last bit is admittedly speculative, but the perspective is still important. No matter, the bull-genius narrative has only dreams, hopes and fantasies in its corner; while the bear-fraudster story is based on facts about sales, costs, profits, production numbers, quality reports, traffic statistics and not least a much more likely and coherent overall picture.


Market perspective

By the way, how’s this for perspective: imagine a private investor, an amateur with less than a decade under his market belt, doing all his research after his ordinary job hours, without any real insight in the inner workings of either the financial industry or that of the stocks he invest in. Imagine that same person thinking he understands more than, oh I don’t know, e.g., Mark Spiegel, David Einhorn, Jim Chanos…, and me.

I know, I know, I know… why would decades of profitably navigating several bull and bear markets, including investing on both the long and short side in hundreds if not thousands of individual companies, no less with the help of a solid financial education, actually having investing as full-time profession, supported by many, many competent co-workers and with access to dozens of the top financial research firms, ever stand a chance against a lone amateur? Or, er, wait a minute…

 

That’s not how herds operate

 

Maybe, just maybe, the unquestioning bulls need to be shaken out of their confirmation bias bubble and start listening to the fact-finding minority. Sure, we are guilty of CB too, but I’m sure all experienced bears make a true effort of mapping out the bull case in as much detail as humanly possible. The bulls? I’m not so sure, that’s not how herds typically behave.

How about you? Are you long or short Tesla, and have you queried the other side for their best arguments and pitched your own against them yet?

The first quadrillion dollar company won’t be Amazon, Apple or Alphabet

It’s not hip to be square

-popular commercial ca. 5000 BC


Do you remember when that round, friction-minimizing thingamajig was all the rage in the tech space? That was fun, albeit a bit slow moving in the beginning.

Of course, many were skeptical at first as always. But once Salpeter Steel invested in Squares With Supermany Corners, more and more Stoneage VCs showed interest. However, it wasn’t until the name change to We Have Efficient Enormous Load Relievers the business really took off.

After Peter Steel’s success in the WHEELR industry he turned his focus to the struggling start-up Hot As Hell But Still Good For Cooking And Scaring Wolves Away Inc.

“It doesn’t quite roll off the tongue all that easily”, he thought… not to mention the hassle carving it in stone entailed. He let his mind wander: “Four letter words are always popular. Maybe you should try something on F?”, he suggested to the founders Fred, Isla, Rose and Ember.

And on and on it went, until the famous: “Plastics” comment in the 1967 movie “The Graduate”. Little did they know plastics would soon be demonized by hippies and greens, while the real action would turn to semiconductors, computers, software, mobile phones and other information technology companies.


Topic: Hot technologies in the past, present and future; companies with names beginning on “A”

Discussion: The Singularity Is Near, but how should you invest on the way there?

Conclusion: One word: “Agents”. We could move away from P&P companies that own our data, our portals and more or less force products down our throats; to owning digital autonomous copies of ourselves (the company making those could become the largest in the history of corporations by several orders of magnitude) that finally relieve us of the paradox of choice without relinquishing control to Big Data corporations.


Railways and radios

There was a time when steam engine powered water pumps for coal mining were the only game in tech town. Railways and cars then stole the limelight, not to mention radios (now, that was crazy at a whole new level) and airplanes.

That was, however, just “technology”, not information technology. Once Turing set things in motion after deciphering nazi codes with his version of computers, and possibly indirectly contributed to solving equations underlying the first atom bomb, a whole new industry was born with IBM in pole position.

IBM’s president Thomas Watson had a vision of the future:


“I think there is a world market for maybe five computers.”

Thomas Watson, president of IBM, 1943


A companies

The IT industry has progressed through mainframes and minis to Personal Computers, separating and celebrating hardware vs. software, and a whole stack of layers of operating systems, databases, applications etc. The workload has shifted from central (mainframe) to local (PC) to central (minis) to local (PC, laptops) and central (mobiles vs. cloud) again. The stock market has shifted its focus (a.k.a. ‘hype’) from semiconductors to computers to operating systems to applications to databases to business intelligence to browsers to search engines to network equipment (from data to voice and back to data again), to phones and minimalistic small applications known as applets or apps, not least social media apps.

Where is it all headed? Let’s just take a look at a few randomly selected companies in alphabetical order: Alibaba, Alphabet, Amazon and Apple. The first and most obvious conclusion is that names on ‘A’ are more successful than other companies. But we’ve known about that since Salpeter Steel’s first service business back in 5000 B.C.: AAA Wheeler Tow and Sons.

Jokes aside, the secret sauce is knowing your customer and having access to his attention and wallet, as well as products to sell. The best companies have tons of intelligence on its customers for crafting the perfect pitch, and an addictive portal to control the flow of products and services:


It’s all about the platform and the pitch

During the Mad Men era in the 1960s, a pitch consisted of convincing customers your bland and commoditized product was better than the competition’s. Today deep learning algos instead tease your core preferences from your largely unintended data radiation and satisfy your every want and need perfectly.

Alphabet’s search engine Google controls your attention and sells it to the highest bidder. Amazon knows about everything you buy, when and in what combinations — it controls both the platform and the pitch. Apple does the same, albeit in the form of a handy little gadget that enables recording and sharing as well, and that is placed one step before Amazon and Google. In China, WeChat is even more dominant with a billion Chinese users spending 5 hours a day on the platform.


What’s next? AR contacts, 3D printers, robotic companions?

The highest valued businesses harvest your data, sell it or reverse engineer your utility function to pitch increasingly addictive products. The actual manufacturers of most products and services have taken a back seat to the “portal” companies.

At the risk of predicting the equivalent of the Internet collapsing under its own weight within a year, or nuclear powered vacuum cleaners, here goes some of my thoughts about the remainder of the 21st century in tech.

Contact lenses and bionic limbs

Analyzing and hooking clients will only grow in importance, but the portals will morph into something quite different. Mobile phones will become increasingly mobile/wearable and gradually fuse with the body, perhaps in the form of contact lenses enabling seamless Augmented Reality and Virtual Reality experiences; perhaps through neuronal interfaces pioneered by the prosthetics industry. Nota Bene that there’s already touch feedback bionic limbs available, not to mention rudimentary AR contacts. There are even eye implants that restore some sight to the blind.

Will Apple be able to hold its own when the “phone” hardware becomes so different from today’s fragile glass bars? A robotics or biotech company could very well be better equipped to take the lead in that scenario — or Apple could try to take them over.

The HMI era, the portal of the future

In any case, Human Machine Interface technology will be crucial whatever form it takes. Today’s crude Finger And Voice input methods won’t last long, except for particular situations that don’t require precision.

Intention Readers, Emotion Detection Systems, Autocorrect Deduction Devices (that combine gestures, voice (words + tone), facial expressions, blood flow, heart beat, breathing etc. to guess and anticipate your desires) and so on will replace keyboards and touch screens. All these technologies already exist by the way.

What about existing search and retail platforms? Hard to say, it depends on what the H-M Interface companies decide. They could choose to connect directly to the end products, or they could uphold the status quo and go through Google and Amazon.

There is a whole different set of solutions to the HMI problem: digital and real world agents, wholly owned by you, that gradually mimic your every trait (don’t worry, you’ll be able to edit out unwanted evolutionary mismatched psychological biases). Rather than letting Facebook, Cambridge Analytica, Alphabet, Netflix, Amazon, WeChat, Alibaba and others know everything about you and abuse that information, you can elect complete anonymity but let your own proprietary agent know exactly everything and in effect turn into an exact copy of you. Your agent could over time assume more and more responsibility, from booking tables at restaurants to shopping for groceries and clothes.

In the beginning your agent might merely suggest a few alternatives, and as its precision improves you allow it to only show the single best one, then make preliminary bookings and finally just hand you the goods, reservations and tickets: “Your Uber will arrive at 7:48 tomorrow morning. The alarm is set for 7:19. Your face and iris scan are valid as your flight ticket. You’ll be staying at your usual hotel”

William Gibson wrote about such agents (eventually becoming self aware) in his epic book Neuromancer from 1984. I see the development of such artificial “helpers” as all but inevitable, leaving us ample time to explore both our inner and outer worlds and experience the human condition to its fullest.

Purely digital agents might be the end station. They would receive input from our every move and interaction with the world. The internet of things guarantee we are always recognized, our activities gauged, categorized and the corresponding data securely transmitted to our digital copies roaming the net hunting down optimally tailored experiences for us. A simple RFID implant could do some of the tracking, but otherwise every single item we face would be the eyes, ears, LIDAR, X-ray vision, Ultrasound etc. of your agent’s.


Quadrillion dollar co.

What happens if you own your own data yourself, and your agent doesn’t need the “help (prying eyes)” of search engines and entertainment suggestion algos to sift through billions of choices? Amazon gone? Apple gone? Alphabet gone? Would end product companies stage a comeback, based on highest quality and best price/performance rather than highest portal visibility and most nefarious data scraping abuse?

And, will the Agent company become the first quadrillion dollar company?


Runway to sublimation (a popular post Singularity state)

In David Simpson’s most recent book, The Dawn Of the Singularity, Simpson envisions more or less every household buying or leasing humanoid robots; androids that are quite similar in function to Gibson’s digital agents, albeit in physical form.

Four billion robots at a clip of 1000 USD/month for the basic version and upgrade subscription can turn into serious money over time, in particular valued at 5 times sales. Higher priced versions, upgrades, and using the robots themselves as portals for other goods and services easily increase the numbers by a factor four, and voilà!

I can definitely imagine such robots as both part of the input function for reverse-engineering their owners, and as platforms for showing off your wealth (complementing your car and boat). Once household androids become useful enough, just picture the “Joneses” pitching their robots against each other in terms of best finish, speed, balance, range of functions, intelligence, model and not least price.

Mom, why is our android so slow and old?

I just got back from the Joneses, and they’ve just bought the HuBot2028 LAL. Maybe it’s about time we upgraded ours too


Summary – what to do?

Biotechnology, artificial biology, active nanotechnology (molecular replicators and molecular-sized computers and robots) in contrast to today’s inert nano materials; strong general artificial intelligence (and its current predecessor, deep learning), robotics, quantum computing, bionic limbs, AR/VR and various forms of entertainment etc. are all promising tech areas today.

Add in the potential of immersive computer games, sex robots, designer drugs — or a combination of all three and it’s easy to imagine an interesting near future. The question still remains, however, which companies will emerge as winners in this race. On the one hand, IBM, Alphabet, Amazon, TenCent, Alibaba, Apple and Netflix all have interesting AI software and quantum computing embryos, but on the other, all that research money doesn’t stop history from repeating with altogether new start-ups making the crucial inventions.

I would bet some money on each and every one of all the mentioned companies, but I would be even more ready to invest in new, truly innovative robot and AI companies, if I get a chance before they sell out to the FANGs.

Fortunately, you don’t have to get rich betting on the right digital agent company. The future will be bright enough just having access to them as a consumer; just as standard shipping containers have made us all rich without any of us ever having owned the company that invented them.

Talking about investments, wouldn’t it be cool if our agents could perform financial analysis? They could find out everything, and, if allowed, talk to other agents in as large groups as we grant authority. Thus we would actually know the sales and likely profits, thus enabling optimal investments. Brokers, gone! Portfolio managers, gone!


Interesting you say, but: bah, no robots, no agents, I just want to see what next year’s iPhone looks like.

Barriers of entry – Tesla friend or foe?

Topic: Tesla & barriers of entry (plus the difference between stocks and companies)


Find something you love and do it with focus and abandon

This website is about the joy of exploration and knowledge — sometimes for practical use (enabling increased personal comfort and expanding degrees of freedom), sometimes for the sheer pleasure of enhanced perspective. It’s all about making you resilient in your pursuit of happiness in a world of accelerating change and an increasing divide between human biological instincts and our artificial environment.

You can read more about these thoughts in this post about the meaning of life (and a few related ones as well — links in the post), or through my podcast Future Skills.

Today, however, I’ll write about finance, and Tesla, again. It’s not a hardcore investment article, but still, if you’re not interested in economics and stocks there’s probably precious little for you here today. The post is about whether Tesla is inside or outside the car industry’s high barriers of entry.


Topic: Tesla & barriers of entry (plus the difference between stocks and companies)

Conclusion: be careful what you wish for; you might find yourself on the wrong side of those coveted protective barriers to entry

Trigger: a comment about high barriers to entry in the EV industry (implicitly, and wrongly, benefiting Tesla)

Length: ten minutes?


It’s a car company!

Tesla is a company that produces vehicles for human transportation, a “car” manufacturing company. In order to develop, design, manufacture, deliver and maintain its products Tesla has chosen to design and manufacture the following (among other things):

  • Electric motor
  • Battery pack
  • Car body and chassis
  • Assisted driving software
  • Battery chargers

Tesla designs, develops and manufactures these parts and then assembles them in “car factories”. Their competitors within (cars and) EVs do more or less exactly the same. Those competitors include companies like BMW, Porsche, Jaguar, Volkswagen, Audi, Volvo, General Motors, and many more. Actually, it’s probably safe to say that ten years from now all car companies will be EV companies, but up until now Tesla has been more or less alone in the market for upscale EVs. As of mid-2018 and going forward, Tesla is trying to enter the mid market, at the same time as it’s most competent industry peers are entering Tesla’s home turf of upscale cars.

So, whether you consider EVs a separate market from gas cars or not, which I don’t, at least not long from now it won’t be.

Remember that the main part of Tesla’s stock market valuation is based on profits and cash flows occuring beyond that ten-year mark. So, if you think competition ten years from now is irrelevant, think again.

Tesla’s operations are currently worth about 70 bn USD, of which some 10bn is debt and 60bn is equity (share price 350). Most analysts expect Tesla to keep losing money throughout 2018 and 2019, and at most make annual profits of a handful of billion a year after that. Let’s say profits go from negative to zero to 5bn/year pretty linearly. In that case Tesla’s total profits 2018-2027 amount to around 20bn. The remaining 50bn of value, not even counting the discounting effect, need to come from the year 2028 and after.

Please note that this is not meant to be a professional forecast*, just a way of picturing when and how much value needs to be created in order to warrant the current share price. I’m fully aware that a profit of 4 800m in 2027, that is growing by 12% a year, by then could be worth 20x, or a 100bn (which generously discounted to today at 7% per year could actually be close to the needed 50bn. You would, however, still need to explain how and why Tesla would grow profits that quickly in competition with every car manufacturer in the world, including potential newcomers).

* Actually, I don’t think Tesla in its current form will make any profits ever (except through very creative accounting for a single quarter or two)

The point here is just to show that you can’t disregard competition in what might seem like a distant and irrelevant future, if you actually want to value the company rather than just speculate in its short term share price movements. Tesla’s value most certainly lies beyond the 10-year forward mark, and must be created in competition with formidable players that have streamlined their best practices (and political lobbying) over the last half century or more.


Barriers to entry

Some of the barriers Tesla is facing include but aren’t limited to the following

Access to capital: Tesla is already overreaching finacially, with several billion in negative net working capital (suppliers can only be pushed so far, no matter if they are “fans” or not. Soon they will have other paying EV clients requesting delivery — guess who they’ll prioritize), half a billion of client prepayments (deposits for cars they may never see, and that in any case are significantly delayed which with increased competition could mean clients switch to more reliable alternatives), not to mention 7bn in net debt before recent and coming losses during 2018. Volksvagen, GM, Porsche, BMW, Audi and many more are actually profitable and have ready access to capital Tesla might soon find out it doesn’t

Production best practices: Tesla has tried to take short cuts around established processes and methods with poor results and lost time and money. Tesla tried rapid automation and failed. Tesla is currently trying throwing massive amounts of manual production staff and round the clock manufacturing on the problem, with its predictable quality issues and production stoppages. It takes years to create prototypes, perform test drives, streamline a combination of automation and manual oversight in order to create the beautiful and robust machines cars need to be. Vehicles are emphatically not “basically a motor and a shell”, they are masterpieces of engineering — and there is a reason there are such things as “legendary quality management officers” within the car and truck industries. The only thing really legendary about Tesla’s officers is how quickly they jump ship once they see what’s going on there.

(additional barrier: attracting competent senior officers)

Lagging battery technology: In order to save time and cement its lead in EVs and batteries, Tesla entered into a huge battery purchase agreement with Panasonic. I don’t know this for sure, but “according to sources” Tesla needs to buy 16bn dollars worth of battery cells of a certain – now obsolete – kind before it can source the cells elsewhere. Meanwhile Tesla’s competitors are free to buy modern cells from any battery manufacturer they like, including Panasonic. It will take years, or likely billions in compensation, before Tesla has worked through this first mover disadvantage backlog.

Lagging driver software technology: Tesla’s “autopilot” is ranked last or next to last by industry researchers. The most recent “keep hands on wheel at all times” update seemed to only cement that position. Recent communication from Tesla indicates Tesla is about to start from scratch as its current software is beyond fixing. Tesla may have been first in AP for a while, or at least regarding the audacious promises Musk dared make, but now the company is finding out reality tends to win against fantasy, and that being last means you’re outside the moat and walls with little chance of getting in.

From first to last within chargers: Chargers tell much the same story as batteries and software: Tesla was first off the blocks, but that also meant building in technological cul-de-sacs and spending money on dead ends that second movers could avoid. Much of the story of Tesla is about Musk blazing the way in a glorious attempt to save the world and make history, but wasting too much money and making too lofty promises he can’t keep. Several competitors are building networks of more numerous as well as more efficient chargers. Once again Tesla will find itself outside the barriers to entry, not benefiting from the security inside it hoped for.


But, but, but… barriers to entry and such

I got a comment the other day saying Tesla is worth a lot since the barriers to entry for the EV industry are so high and protective. Yes they are. The problem is that Tesla finds itself outside those barriers and my assessment is that they’ll never manage to climb over them. I imagine Tesla bulls think Tesla is already inside and more or less alone there.

Sadly, nothing could be further from the truth.

Tesla is the new kid on the block; the block being car manufacturing, not some fantasy “EV” or “tech” castle. As the newcomer Tesla needs to come up with at least as good design, testing and production practices as its super experienced peers. Tesla needs to find ways of effectively procuring the products it doesn’t necessarily have to produce itself.

So far, Tesla’s real claim to car manufacturing fame is betting on a high performance electrical engine and putting it into a beautiful but expensive metal body. Tesla’s early adopters had nothing to compare the S and X models to, and I understand why they view Tesla and Elon Musk through rose tinted glasses. The S model was definitely before its time, and Musk could just as well have been a robot sent back from the future to save mankind from global warming.

It was a good try, and it could have worked, I think, if it weren’t for subsequent short cuts and the predictable first mover disadvantages that tend to befall trail blazers.


On the wrong side of an alligator moat

Today, Tesla has an average engine, a poor body job, costly and lagging chargers and batteries, not to mention huge debts and other obligations. Despite being first and making cars consumers and politicians loved, Tesla has run larger and larger losses and cash outflows. Starting now, effectively debt free and massively cash producing competitors, with their subsidies ahead of them, not behind like Tesla, show who’s on the inside the barriers to entry and who’s not.

The stock is a whole different story (currently at 354 USD/share), but mostly without consequence for Tesla’s real life operations and expected longevity. Sure, Tesla might be capable of another stick save in the form of a share issue at all time highs, and/or bond conversions to equity. That would buy Musk and other Tesla longs some time.

No matter, it’s not a few billion here or there that are critical; it’s whether Tesla can produce fully functional cars at a profit in competition with experienced players in one of the most important and competitive industries on Earth. Given the Game Of Thrones Wall-high barrier of entry I find it highly unlikely. Until reality rears its beautiful and effective head, enjoy the imaginative stock price journey signed one of our time’s greatest dreamers: Elon Musk.

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