Tesla – Augmented Earnings Vehicle?

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Tesla is no longer a joke. It is a farce. CM has not been a fan for the following 30 reasons. The 31st has arrived although it ties in with point 4. Tesla is technically asking for suppliers to refund a portion of the monies they were paid since 2016 to the EV maker so it can post a profit which is borderline accounting manipulation in an attempt to give the impression of an ongoing concern. If suppliers willingly extend this “interest free loan/refund” back to Tesla then it is legit of course but it smells rancid and any investors worth their salt should be able to see through this disgraceful stunt. Is the idea that Tesla shares roof on the announcement of a profit? Then the company could raise capital on the basis of fictitious “earnings” which lowers the effective cost of capital if people are dumb enough to fund it? Will these auto makers get to claim a rebate when (if) it finds profitablity?

Elon Musk is the consummate salesman. He can’t be faulted for his brilliance in being able to sell the vision of a car business that is deeply indebted, unprofitable and still worth more than Ford, GM and Fiat Chrysler combined.

Yet we questioned his state of mind – joking about bankruptcy, lambasting the families over deaths caused by the failure of his autopilot which he sold as virtually foolproof. Then his brazen publicity stunt to rescue kids in Thailand with a device the rescue squad believed was useless caused him to call one of the brave team a “pedo”.

These are recurring signs of stress with the charismatic CEO. That the game of pretending to be a real bonafide car company is fast unraveling. Sure, he has done amazing things to open the eyes of incumbent car makers of a luxury EV market.  They are coming through in short order with countless  competitor variants with distribution chains to die for. Moreover with quality that Tesla can only dream of. Not building car shells half finished and counting them as completed like Micheal Keaton’s “Working Class Man”.

The WSJ claims, “The auto maker’s memo, sent by a global supply manager, described the request as essential to Tesla’s continued operation and characterized it as an investment in the car company to continue the long-term growth between both players….Tesla declined to comment on the specific memo. But it confirmed it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which haven’t been completed. The company called such requests a standard part of procurement negotiations to improve its competitive advantage, especially as it ramps up Model 3 production.

It is not the suppliers’ responsibility to pony up to help Tesla. They signed up on the basis of Musk’s vision at the time on being able to fulfill  his quest. His constant pushbacks, failures and delays have cost them a fortune already. Incumbent auto suppliers have long learnt lessons of teaming up with car makers that fail to deliver. That is why next to no recognized parts suppliers have signed up to the dreams of Musk.

He is without a doubt a visionary. A maverick and full credit for him to date in keeping the ideals of what will undoubtedly be a future trend. Unfortunately there are no short cuts in the auto industry. He is now painfully facing that reality. Experience is a hard teacher. You get the test first and the lesson afterwards.

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