Tesla

Tesla Elongates Fight against ‘unfair’ media

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CM totally sympathizes with clickbait media cycle. Tesla CEO Elon Musk railed at the negative coverage surrounding the company in recent times. The memories are clearly short. The media is generally effusive with praise of Tesla. How most newspapers and magazines fawn over Musk! Dan Primack made this point well:

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Edmunds has also written a damning review of the Model 3 announcing how many problems the car has faced since it was bought.

Some things from the Edmunds long term test were as follows:

The most annoying of those issues was a repeated, uncontrollable increase in stereo volume, sometimes when we weren’t even in the car. Basically, the stereo would suddenly go to full volume without explanation. This and other issues are cataloged from our notes below:

• Would not recognize keycard in or on the console and hence would not go into gear. It did, however, unlock the car. Workaround was to force quit the app and restart the app. Then it would allow the choice of Drive or Reverse.

• The backup camera screen did not appear when reversing.

• Nav screen going haywire: zooming, scrolling, pinching, pixelating all at once.

• Audio system turning on by itself at full volume.

• Audio display randomly moving up and down the screen without any command from a human.

• Audio system came on and went to full volume all by itself while the car was off, locked and unoccupied. I heard it from 100 yards away. “Who is that joker playing his stereo so loud I can hear it from here?” Oh, it’s Elon. I turned it down, but it kept wavering up and down as I started driving, working against my repeated attempts to dial it down. Then it blasted all the way to maximum. My ears are still ringing two hours later. Fixed after reboot. Not sure about hearing damage.

• Audio page leaping up and down rapidly like the up-caret button to expand the source menu was being played with by a kid who ate too much candy. Concurrent with the volume problem above. Same reboot.

• Icons on the map screen flickering.

• The passenger vanity mirror fell off completely. Installed and held on only by double-sided tape. Reinstalled by pressing really hard on the mirror.

• The screen went completely dark on startup, no music or operation. Restarted the car. The screen worked; the backup camera did not.

• The car will not shift into Drive or Reverse upon startup. “Vehicle Systems Are Powering Up. Shift Into D or R After Message Clears.” Have to wait for it to power up. A loud click comes from the rear of the car as if a drive shaft is engaging and the message on the screen goes away.

• The car displays a new message: “Cannot Maintain Vehicle Power. Car May Stop Driving or Shut Down.” No shutdowns yet, but keeping an eye out.

• With 170 miles of range, the car displays a “Regenerative Braking Limited” message. Plenty of available space to store regen power. Logged the issue, then reset the screen with a reboot. The message has not displayed since.

• While the car was parked, the passenger sun visor was left down and the mirror fell out. Pressed back into place. Hoping it won’t fall out again.

While no one should expect reliability to be at levels of mainstream manufacturers that have been at it for decades longer, quality remains a big issue for Tesla. For Musk to slam the media will only lead to responses as this.

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If only Elon Musk could summon institutional questions

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Elon Musk has apparently terminated the question of a Bernstein analyst ((followed by the rest of the institutional queue) on the basis of it being “uncool”. He said, “We’re going to YouTube [for retail investors]. These questions are so dry. They’re killing me!” If only the Tesla CEO could summon the right type of questions that deflected criticism of the company as easily as maneuvering a parked Model S from a tight parking spot.

While he urged non-believers to sell the stock, there is little to be gained pushing a line of  opacity for a company with production issues, continuing losses and $10.6bn in debt. Earnings results are not about having fun but for investors/analysts to probe and qualify assumptions in the interest of making rational investment decisions.

CM has made constant reference to Musk’s amazing ability to sell. He is coming up to the pointy end of having to deliver. There are countless distractions which perculate below the surface – copyright infringement trial launched by Nikola Motor, the NTSB autopilot probe, countless resignations and recent calls to cut the staff canteen cookies. By blowing off the main investor pool that feeds him, the question of CEO capability becomes a bigger factor than the dreadful earnings themselves.

There is no better disinfectant than sunlight but Musk continues to deflect. Cash flow continues to decline  The production shutdown in April will thump Q2 earnings, not to mention the capex spend should rise plus the write off of equipment that has proven to be surplus to requirements. Here he is talking of 10,000 units a week down the line to fill the hearts of the faithful followers. Perhaps his comments about not needing to raise capital are best addressed by the fact he’s raised 7x since that statement.

Today’s results meeting is more telling in that snake oil salesman tactics of talking up the situation was replaced by silence and stonewalling. Telling.

Cutting back on the Tesla staff cookie tin

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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

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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!

The day Elon Musk gets asked by…

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Elon Musk said in the FY2017 conference call today: “Super Bullish…What I find sort of interesting is that our competitors – the car industry thinks they’re really good at manufacturing. And actually they are quite good at manufacturing, but they just don’t realize just how much potential there is for improvement. It’s way more than they think…I went through this math I think on a prior earnings call, but like it sounds like some of the fastest car factories produce a car maybe every 25 seconds. That sounds fast. But if you think of a 5-meter long car, including gap, and a 4.5 meter car with a half meter gap or something, that’s only 0.2 meters per second. Like grandma with a walker can exceed the speed of the fastest production line we’re in, so really no that fast. Walking speed is one meter per second, so five times faster than the fastest production line on earth.”

Listening to commentary like this just shows how cavalier the processes at Tesla are. The day Tesla gets called in by other kings of industry for lessons on production techniques the comment will hold water.

Toyota, which has coined almost every manufacturing effficiency jargon over 50 years, was invited by Porsche to fix its problems in the 90s. Several years ago Toyota was called in to help Lockheed Martin streamline production of the F-35 Joint Strike Fighter because of the massive cost overruns. The day Boeing calls up Elon Musk for tips on how to belt out more 787s two slices of humble pie will be consumed immediately.

Seriously one has to question how this board can believe it has the potential to be worth more than all the other volume and luxury auto majors combined when they make such fictitious claims. Sounds like Sakamoto from Elpida promising endless dreams. Elpida went belly up because it failed to deliver. .

Tesla’s FY2017 – cashflow stunts bigger than a roadster in orbit

TESLA CF VS ONETEL

No beating around the bush. Tesla’s cash-flow situation resembles that of One.Tel in Australia before it became insolvent. Rocketing financing and investing cash-flow with troubled operating cash which in Tesla’s case was flattered by some accounting trickery.  The Q4 2017 earnings release spoke of fairies and magic pixie dust for the most part. Q1 deliveries to date look to undershoot.  Once again a promise to hit production of 2,500 Tesla Model 3s by the end of Q1 and 5,000 a week by end of Q2 2018 (i.e. 6 months away). Note that Tesla had about 860 undelivered Model 3 cars at the end of Q4. That is a high ratio given 1550 were shipped in Q4.

While the company claims a cash balance of $3.4bn which many will pop champagne corks over, Tesla has accrued liabilities, accounts payable and customer deposits totaling $4.975bn at quarter end. This also excludes the $608mn in extra ‘residual value guarantees’ on the books YoY.

The company expects to break even during the year. However with gross automotive margins about to suck up the Model 3 in larger numbers that will take some doing despite claims it can do 25% vs the existing line-up’s 18% range. As at January, Q1 sales in the US are at 2016 levels and European registrations are down around 14% in aggregate across Norway, Holland, Italy, Belgium, Sweden, Austria and Switzerland. Lots can change but it doesn’t read well to kick off 2018’s challenge to break even at an operating level. The Model 3 is on average two-thirds cheaper than the average selling price on existing products so to even hold margins constant will take the mother of all cost cutting all the meanwhile facing new competition over 2018 which will weigh on pricing.

Interesting within the operating cash-flow statement is a term “Changes in operating assets and liabilities,net of effect of business combinations” which shows a quarter on quarter swing of $746.8m pushing net operating cash to +$509mn achieving a new quarterly record. This was achieved mainly by improved collection of receivables (believable), inventory reduction of finished vehicles (were incomplete vehicles that left the factory to parking lots yet to be delivered due to a lack of parts counted?), improved working capital from the ramp of Model 3, and growth in customer deposits (this was only  $168m QoQ vs expectations of $400m) from Semi and Roadsters that were announced with fanfare during Q4. Cash burn appeared lower because the company included customer deposits for the upcoming Semi and Roadster in its operating CF. That is slightly deceiving because deposits aren’t supposed to be drawn from current operations. The Roadster is supposed to be ready by 2020. This seems odd.

Tesla wrote “Despite the delays that we experienced in our production ramp, Model 3 net reservations remained stable in Q4.” Strange there was no mention of progress on Roadster and Semi orders in Q4. Was the $250,000 deposit within 10 days for the Founder series Roadster a bit steep? Truck orders seem around 600-700 at this stage and at $5,000 a deposit, generously speaking $3,500,000 isn’t a swing. As mentioned earlier the +$168m in customer deposits could only reflect how poorly orders for those vehicles are tracking such is the need to avoid talking about them in the statement (surely something to crow about) other than projected performance stats.

Capital expenditures in 2018 are projected to be slightly more than 2017 according to the statement. Tesla also mentioned “quarterly operating income should turn sustainably positive at some point in 2018.” That is a hugely optimistic target for the company which has failed so many times to deliver on promises. As CM always argues, the ‘cult’ following of Tesla is a dangerous vixen which can keep the ‘dream’ floating in orbit when reality is that “Nevada, we have a problem”.

The market can stay irrational longer than you can stay solvent. The 3% bounce in the shares reflects that blind optimism. Our study shows that even if it made margins similar to mainstream makers it is grossly overvalued.

Tesla X review

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Catching an Uber to Sai Kung in HK and happened to be picked up in a Tesla X. The driver has had it for 9 months and said he’s had many problems. I asked him whether he’d buy another Tesla and he said no chance. He wants a Mercedes Benz. “Everything is better”.

His comments-

”handling – there is no confidence”

”autopilot – never use and friend has crashed using it.”

”quality is poor”

”noises in wheel hubs”

”centre panel is good”

”big windows good”

From the back seat the ride is thrashy but with so much torque suspension needs to be relatively firmer to stop squatting.

I get the coolness of this car. Indeed Elon Musk deserves praise for innovation and waking the sleeping auto giants to the luxury end of EVs. Sadly waking these giants that have production nailed means they hold all the aces, not Tesla. Tesla’s full year earnings aren’t far away where we’ll get a picture of whether the dream can stay alive.

As for this driver Tesla hasn’t won long term customer loyalty.