Tesla Proves That It Is Just A Low-Margin Car Company – Shortseller

Tesla Inc TSLA

Stanphyl Capital’s commentary for the month ended July 31, 2023, discussing their short position in Tesla Inc (NASDAQ:TSLA).

A Low-Margin Car Company

In July Tesla reported Q2 earnings that proved once again it’s now just a low-margin car company forced to continually slash prices to maintain delivery volume, and on the conference call Musk insinuated that the price-slashing will continue. Rather than discuss the report here with my usual verbiage, I shall instead post a few of my Tweets from the night it was released:

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And one from Jim Chanos:

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Yes, please don’t lecture me about Tesla’s “energy business,” which in Q2 accounted for just 6% of revenue (declining from 6.5% in Q1) and likely has a net margin in the mid-single digits as it’s in an extremely competitive, low-margin industry.

Safety Cover-Up

As mentioned at the beginning of this letter, in July Reuters revealed a massive & systemic Elon Musk-directed Tesla consumer fraud regarding the range of its cars, while in May Handelsblatt did the same for a massive & systemic Tesla safety cover-up (while people are now dying in or because of Teslas at an astounding pace). I believe one or both of these egregious deceptions will finally force Musk from the company and regulators to crack down hard, as well as destroy whatever remains of Tesla’s rapidly diminishing consumer goodwill.

Also, Tesla recently announced that it will open its U.S. charging stations to cars from multiple other manufacturers which, in turn, will adopt Tesla’s connector and charging protocol. (Those competitors are building their own network, too.)

Seeing as many people only buy a Tesla instead of a competing EV in order to access those chargers, and seeing as all the competing charging networks will also adopt this protocol while paying Tesla nothing (Tesla open-sourced it), this will cost Tesla far more in lost auto sale profits than the pennies per share it may gain from charging profits. Thus, any increase in Tesla’s stock price that can be attributed to this is as ridiculous as the increase attributed to its “AI” that regularly sends Teslas crashing into other vehicles, people, trees and buildings.

No Product Edge

Tesla has objectively lost its “product edge,” with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. Tesla ranks near the bottom of both Consumer Reports’ reliability survey and the 2023 JD Power survey:

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In fact, Tesla is likely now the second, third or fourth choice for many EV buyers, and only maintains its volume lead though a short-lived edge in production capacity that will disappear over the next 12 to 36 months as competitors rapidly increase the ability to produce their superior EVs.

Tesla’s poorly-built Model Y faces competition from the much better made (and often just better) electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Chevrolet Blazer EV & Equinox EV, Volvo XC-40 Recharge and Polestar 3. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, BMW’s i4, Hyundai’s Ioniq 6 and Volkswagen’s ID.7, as well as multiple local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan outsells the Model S, while the spectacular new BMW i7, Mercedes EQS and EQE, Audi e-Tron GT and Lucid Air make the Tesla look like a fast Yugo, while the extremely well reviewed new BMW iX, Mercedes EQS SUV and Audi Q8 eTron (as well as multiple new Chinese models) do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla first previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as by the time it’s in meaningful mass-production in 2024 that grotesque-looking kluge will enter a dogfight of a market vs. Ford’s F-150 Lightning, GM’s electric Silverado, the Dodge Ram REV and Rivian’s R1T.

Tesla Is Blackberry

Indeed, for years I’ve said “Tesla is Blackberry”—the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions, and now it’s finally happening.

I believe Musk knows this (hence his recent “Twitter buying distraction”), with VW Group, Hyundai/Kia, Ford, GM, Stellantis, BMW, Mercedes, BYD & other Chinese competitors and, in a few years, Toyota, Nissan & Honda, stealing Tesla’s share and pounding its stock price into the low double-digits, where it will be valued as “just another car company.”

Meanwhile, the NHTSA has initiated the first of what will likely be multiple recalls of Tesla’s fraudulently named “Full Self Driving” (even before the aforementioned safety cover-up revealed by Handelsblatt), and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck), and that the DOJ is investigating him for it and so is the SEC.

The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of “full self-driving.”

And, of course, there will be a massive “valuation reappraisal” for Tesla’s stock as the world wakes up to the fact that its so-called “autonomy technology” is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors’ systems (behind Ford, GM, Mercedes, BMW, Toyota and Volkswagen) and Guidehouse Insights now rates dead last:

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Yet Tesla has sold this trashy software for over six years now…

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…and still promotes it on its website via the aforementioned completely fraudulent video! (For all Tesla-related deaths cited in the media—which is likely only a small fraction of those that have occurred—please see this spreadsheet.)

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market, even if Tesla makes some of its own,  other manufacturers will gladly sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

So Here Is Tesla’s Competition In Cars…

(note: these links are regularly updated)

And In China…

Here’s Tesla’s competition in autonomous driving; the independents all have deals with major OEMs…

Here’s Where Tesla’s Competition Will Get Its Battery Cells…

And Here’s Tesla’s Competition In Storage Batteries…

Thanks,

Mark Spiegel

Stanphyl Capital