Is high-flying Elon Musk, Tesla CEO and purveyor of electric and self-driving cars (and maybe trucks), battery storage for solar systems, private-sector space ships, and “hyper-loop” transportation, headed for a crash? That’s the case that the investment website Seeking Alpha makes in a devastating analysis of trendy Tesla, where continued losses only seem to pump up the company’s stock. Until recently, that is.
In a 25-page Tesla takedown titled “Tesla Approaches Terminal Decline,” analyst Andreas Hopf said Tesla has been characterized by “Panglossian valuation,” a literary reference to Voltaire’s 1759 satiric novel Candide, where Dr. Peter Pangloss insists that “everything is for the best in this best of all possible worlds.” Hopf chides “journalists and analysts alike” for “continued falling for every new-fangled non-profit idea emerging from Palo Alto.”
Hopf takes aim at the green dream that Musk has promoted with his electric cars – the Model S, the Model X, and the very troubled Model 3, beset by manufacturing and battery production problems. This promise of environmental resurrection from Tesla cars, he writes, “is based on illusion.” The faulty premise, he says, is the idea “that humankind can shop and consume itself into a sustainable future. However, even a million Tesla’s on the world’s roads will not impact the environment for better or worse. It is a system issue. The Financial Times agrees. Sustainability and promotion to the purchase of raw-material consuming heavyweight products are mutually exclusive.” Tesla, writes Hopf, is “a bottomless pit.”
Tesla’s soaring stock prices in the face of continued financial losses are built on a foundation of sand and slight-of-hand, according to Hopf. A clear example is Tesla’s purchase of SolarCity, “sold on synergies and profit contributions that never materialized.” The SolarCity takeover, Hopf says, was “primarily engineered to benefit Elon Musk and his cousins Lyndon and Peter Riva, who not only saw their precarious SolarCity stock options conveniently converted to safer Tesla stock options, but also their SolarCity bonds paid back prematurely with full interest.”
Despite hype about solar and batteries and “energy” and “mobility” (self-driving cars and fantasy hyperloop technology), Tesla remains a car company. It gets 89% of its revenues from car sales and leases. For three quarters, noted Hopf, the auto revenues “have stalled.” Tesla continues to lose money on every auto sale, and can’t see a way clear to turn that around. The troubled Model 3 won’t fix the problem.
Hopf writes, “Contrary to the CEO’s claims, the Model S never financed the Model X and the Model X never financed the Model 3. Consequently, Tesla exists at the mercy of other people’s money and interest expense began to climb more sharply to close in on $500 million per year (enhanced by SolarCity indebtedness, SolarCity interestingly being the behind-the-curtain guarantor for the recent $1.8 billion issue of senior notes).” The company is choking on debt.
The cars themselves are less than meets the consumer eye, as unreliability has been a significant problem, pushing up warranty costs. While Tesla claims that the reliability for Model S and Model X cars is improving, Hopf reports, “Inundated service centers and an incessant stream of customer complaints reveal the CEO’s debonair disconnect from reality. Due to questionable build quality, actual warranty costs incurred are increasing and it remains to be seen if current warranty provision levels will be sufficient to cover an aging fleet.”
Then there is the hyped Model 3, designed to be an entry-level ($30,000) EV. It is a slightly smaller, drab, frugally-equipped (no FM radio, no onboard WiFi) version of the Model S. Despite getting a huge advanced order book for the car, perhaps as much as 500,000, Tesla has yet to figure out how to build it other than by hand. In addition to citing the production problems “substandard by any means,” Hopf trashes the car itself, and its “unergonomic potentially dangerous central touch screen, away from the driver’s line of sight. Having to navigate touchscreen menus to wind down the windows is taking things too far.”
Musk is a genius at distracting attention from his company’s shortcomings by hyping new ventures. The latest is Tesla’s announcement this week that it will produce self-driving tractor-trailer trucks. The rollout of what Musk calls “The Beast” was originally schedule for September. This may be another of Musk’s “now you see it, now you don’t” moments. A report in the online news service Axios noted that the Tesla trucks would cost twice conventional diesel 18-wheelers, but Musk claimed he has advanced orders lined up.
The Axios account concluded that Musk is arguably distracting himself from his core mission, which is to work out the bugs and reliably produce hundreds of thousands of his currently troubled mainstream Model 3 sedan per year.