Driverless Cars

Is BMW hurting bad enough to offer 10yrs free servicing?

F766F1E7-A008-441C-AEA7-EBF203AF1B5F.jpeg

10 years? Sounds a bit desperate. A bit like the Korean makes a few decades back using monster incentives to lure customers by a value to good to refuse proposition. Have luxury car sales become so hard to get in Australia that the prestige make has to offer 10 years of free servicing and 1yr free insurance?

BMW sales in Australia fell 12.2% year on year in August 2018. Audi crumbled 25.8%. Benz did better at -3.4%. Land Rover fell 32%, Lexus down 11.7%. Porsche crumpled 25.4%.

It is likely the fine print in the 10 years free servicing basic package isn’t transferable between owners so if most buyers hold their BMWs for 5 years the total incentive is much less to roll out. If the fine print allows transfers it only adds to the desperate state of having to hurl freebies to shift metal. Dealers tend to make less on the sale of the car but plenty on gouging customers for service and spares.

Seems the tyres are going flat. Total car sales in Australia were down 1.5% in August. Passenger car sales fell 13.4% while those eco conscious Aussies bought 8.3% more SUVs. Medium and large sedan segments fell 24.1% and 60.3% respectively. Every SUV segment rose except upper large. Toyota finished up 1.7% for the month with 19.8% share.

Is Musk losing it?

F52C5B1C-71A6-4BC6-9339-4CDDC6AD7F10.jpeg

Is Tesla CEO Elon Musk losing it? More senior resignations from accounting and HR this week  reveal more cracks in the automaker. He emailed a journalist, calling him a “mother f*cker”. He went further to say he hoped the cave rescuer he called a “”pedo” sued him because a UK man who is single and spent so much time in Thailand must be a child rapist.

He rattled off he had “secured” funding of $420/share to go private and then all of a sudden he didn’t, prompting the SEC to investigate. He was then on radio with comedian Joe Rogan toking what is reportedly a mixture of tobacco and marijuana. Are these the actions of a man running a $50bn market cap company?

Clearly his board can’t control him.  With the shares collapsing and bond prices falling, refinancing will become problematic. Chief  Accounting Officer Dave Morton quit the company after revealing his concerns about the various obstacles Tesla faces.

Tesla’s Chief People Officer, Gabrielle Toledano, took leave in August and said she wouldn’t be returning to Tesla.

Musk has been a genius and visionary to get Tesla where it is today. Yet he is a direct victim of his own hubris. Sleeping under boxes with Tesla bankrupt written on them to living on the factory roof to rattling off about production hell while accusing families of drivers dead due to over reliance in a system he aggressively promoted.Tesla was technically asking for suppliers to refund a portion of the monies they were paid since 2016 to the EV maker so it could post a profit which is borderline accounting manipulation in an attempt to give the impression of an ongoing concern.

He also complained at the lack of support in the media despite being called out on this nonsense.

Musk’s compensation is also linked to a $650bn market cap, which is effectively saying to the market that his company will be worth more than Daimler, BMW, VW, GM, Ford, Toyota, Nissan, Honda, Renault, Fiat-Chrysler, Ferrari and Porsche combined. Just read that last sentence again. Do investors honestly believe that Tesla which consistently misses and is going up against companies that have been in the game for decades, seen brutal cycles, invest multiples more in technology and forgotten more than they remembered will somehow all become slaves to a company which has no technological advantages whatsoever?

The Tesla story is on the ropes. Expect more mega-releases on new products to try to keep the dream alive and the disciples faithful. I guess ‘Lucy in the sky with diamonds’ worked for The Beatles…

Musk to be investigated by SEC over tweets

F5258E32-BB7D-4C88-8983-84011F8CB8CB.png

CM has always thought that Elon Musk is the ultimate salesman. CM has also wrote that the biggest risk to being a short seller was then”cult” status of the company. On any rational investment grounds the stock is ridiculously priced but as the old adage goes, “the market can stay irrational longer than you can remain solvent!

Tesla is a car company that is worth more than GM, Ford & FiatChrysler combined. One that trades at 5x Daimler in valuation terms, a luxury competitor that is in the sweet spot of its product line up and rudely profitable.

Back in June, Musk bought $35mn worth of shares in Tesla. The whole idea that someone is willing to fork out $75bn on a whim seems somewhat implausible. Is it safe to assume that all of 100s of lawyers, bankers and brokers would need a little bit of time to prepare the necessary documentation to cement such a ridiculous sum? Or is money now just so free and easy that a billionaire deploys a vault full of cash loaded full of Zero Halliburtons into a private jet after a few phone calls?

SEC enforcement attorneys had already been gathering general information about Tesla’s public statements on manufacturing goals and sales targets. Now SEC attorneys are investigating whether his tweets about securing funding were factual.

CM is not accusing Musk of insider trading albeit as a matter of course the SEC should investigate when he knew about his mega financier. One wonders how it is that we know so little about the buyer, the term sheet, the question of shareholder approval and how “secure” it is? Taking it private will remove the lens of quarterly reporting but it doesn’t remove the fact of how dreadfully the company is run or how amateur production is. Even if public scrutiny is removed, the problems of profitability don’t disappear and the need for funds, credit ratings etc if he taps public markets for debt capital remain.

If Musk pulls it all off and the company becomes a roaring success then CM will gladly eat a whole humble pie and openly admit it was wrong.

As to the SEC investigation let’s hope it has learnt the lessons of its bumbling incompetency over Bernie Madoff and doesn’t miss anything that might be bleeding obvious.

Tesla – Augmented Earnings Vehicle?

9945EA82-B127-4462-8B8C-89F045F7F10B.jpeg

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.

Cutting back on the Tesla staff cookie tin

1D03F7F2-33FA-4403-9F96-CBF68FEFF0BC.jpeg

Where have we heard this before? When companies look to tighten the belt, bosses often pat themselves on the back by cutting back on ‘unnecessary expenses’ like staff coffee room biscuits. That somehow over a 12 month period a company hemorrhaging millions has saved $832.67 on cookie cutting. Maybe $1,239.31 on fewer newspaper subscriptions. Well it seems Tesla’s Elon Musk is getting tough on approvals. Well he might especially after claims he doesn’t need a capital raise and made wise cracks about going bankrupt on April fool’s day.

Musk tweeted that his finance team were going to be out to trim back on any expense deemed not vital to the cause. All $1mn approvals must be solely signed off by the CEO himself. Suchnis the extent of ‘production hell’ he has moved to 24-7 shifts to hit his slated targets.

His email also bragged,

It is extremely rare for an automotive company to grow the production rate by over 100% from one year to the next. Moreover, there has simultaneously been a significant improvement in quality and build accuracy…

Indeed it is extremely rare to have auto companies doubling production year over year because most companies never plan to improvise their manufacturing  methods to start with. Toyota doesn’t meet a week before starting a new vehicle build and have a thought bubble. “Tanaka-san, did you get hold of Fanuc to see if they have any spare robots they can install by Friday?” Moreover the quality improvements are also a celebration of dreadful moving to mediocre. These aren’t achievements in any manufacturers book. They’re a candid admission of ‘amateur hour’

Musk continued,

Any Tesla department or supplier that is unable to do this will need to have a very good explanation why not, along with a plan for fixing the problem and present that to me directly. If anyone needs help achieving this, please let me know as soon as possible. We are going to find a way or make a way to get there.”

Seriously? It is a rather frightening prospect now that the CEO, whom took over the production floor several weeks ago, is sending a  crisis stations email to staff and suppliers.

His levels of lashing out of late seem somewhat concerning. Two weeks ago he accused the NTSB of lacking credibility by kicking off Tesla in the investigation panel into the recent death caused of a driver in California who had relied on autopilot Attaking the regulator is never a wise move. Worse, he blamed the driver in response to a lawsuit launched by the deceased’s family claiming he put too much faith in a system he champions as smarter than humans. Which is it?

Musk’s full letter to employees is here but perhaps he should take a lead out of the Riva Aquarama production line book. Carlo Riva built the Ferrari of yachts with excruciating attention to detail. All the different stages of production crew had different coloured jackets on. When looking out his window if he ever saw colours mingling he knew he had a problem.

Musk talks the confidence game but the pressure is bearing down on him. Senior departures, impending court actions and a production system that has been found wanting after such a short period of time that major changes need to be enacted because the original concept was so poorly thought out. So much for sensible factory capex allocation.

Elon Musk also made surprising remarks about the new found existence of sub suppliers. Musk can’t  lick his finger to find the direction of the wind forever. This is rookie level discovery. Frankly shareholders should be very concerned.

Do as I say not as I do

7A8328A2-F15C-4EE7-9A26-BF6F64D24F5F.jpeg

Tesla’s senior VP of engineering Doug Field has been selling down his stake in the company despite suggesting he’s  insulted by those shorting the stock. Field has sold over $6.5mn in stock since Sep 2015, selling $500k worth in recent months according to filings. Surely any company that has signed off on an incentive package triggered at a $650bn market cap (12x today) would be nuts to sell any of the stock now. Will Musk’s April Fool’s joke about Tesla’s bankruptcy actually become a self fulfilling prophecy? Be careful why you wish for!

Tesla’s Autopilot beta testing means customers are crash test dummies

DCD0B79C-8F2E-4A81-912B-A7B6EE330A61

Back in April 2016, we wrote about the dangerous legal ramifications facing Tesla due to its overzealous promotion of the auto-pilot function. What people tend to forget is the issues surrounding liability. An insurance company often covers a driver with respect to accidents – wet road, poor visibility or being hit by another driver. The insurer covers that type of damage. Yet the death of a Tesla driver in California last week was found to have had the auto pilot function on. Why should an insurer pay for damages that result from willful negligence promoted by the manufacturer itself? This is a design fault. Moreover how could Elon Musk’s legal team not suggest that he refrain from such promotion? Accidents as a result of Tesla’s auto pilot are becoming so numerous that it is hard to fathom why people put so much faith in the system, as this video highlights. They are willingly becoming crash test dummies.

DF8508D5-2491-49EB-BEA8-15C64DE165AB.jpeg

Tesla’s own website notes, “Build upon Enhanced Autopilot and order Full Self-Driving Capability on your Tesla. This doubles the number of active cameras from four to eight, enabling full self-driving in almost all circumstances, at what we believe will be a probability of safety at least twice as good as the average human driver. The system is designed to be able to conduct short and long distance trips with no action required by the person in the driver’s seat.”

The video on the autopilot webpage highlighting the autopilot function on the makes no reference to ensure drivers pay attention to the road even when the system is in use. Sounds to me like the ambulance chasers have plenty of ammunition to launch a class action. It only cost Toyota $1.2bn for the runaway accelerator issue. For a company deeply in debt with such heavy losses, rising interest rates, falling credit rating and senior departures, Tesla should be careful not to get carried away with signaling the virtues of systems that are clearly flawed.

4349AF04-8ACD-4587-A072-A4640B7E29A9.jpeg