Automotive

If the Green New Deal bans air travel…

…CM looks forward to catching a train to Hawaii.

Alexandria Ocasio-Cortez also intends to get every fossil fueled powered car off the road in a decade. The US has 270 million registered vehicles, the overwhelming majority being petrol powered. The US sells 16-17mn cars a year (sadly slowing). Therefore in the US, 16 years would be required to achieve that target. That’s before taking into account auto maker EV capacity.

Global EV sales were 2.1mn last year. So her plan would take 128 years. That’s unfair as capacity would grow. Let’s assume auto makers could conceivably increase capacity by 2m every 2 years (plants take 2 years to build and those poor Congolese child slave laborers will be run off their feet digging for cobalt to go in the batteries) then conceivably 30mn.cumulative EV units could be built over 10 years. That’s 11% of her goal. Let’s not forget the fossil fuels required to power auto factories to satiate this plan not to mention the steel that goes into the bodies.

Global auto production is c.80mn units. That assumes that the world’s auto makers will snub the ROW to meet her demands.

Socialist mathematics is never quite up to the task. Is Ocasio-Cortez was a true patriot she’d demand GM, Ford & Tesla be the sole products that consumers are allowed to buy to support domestic jobs. They’ll need them because she’ll be causing the lay offs of a shed load of Boeing line workers if planes are banned.

When she finally gets into the Oval Office we should look forward to her catching Ground Force One from 1600 Pennsylvania Avenue Station to travel the country and tell Americans how much better things have become.

Tesla Q2 – Simple Minds

2D9CF341-8A0A-4F3A-AE35-C71EE368C5B4.jpeg

When Simple Minds wrote the lyrics to Promised you a miracle, never could they have imagined Elon Musk could have used them to present his earnings release:
The original lyrics:
Promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Chance as love takes a train
Summer breeze and brilliant light
Only love she sees
He controls on love
Love sails to a new life
Promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Only love she sees
He controls on love
Life throws a curve
Everything is possible
With promises
Everything is possible
Oh
 
I promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Chance reflects on them a while
Love screams so quietly
Slipping back on golden times
Breathing with sweet memories
I promised you a miracle
Belief is a beauty thing
Promises promises
As golden days break wondering
Only love she sees

Perhaps Tesla’s Q2 lyrics may have gone:

 

Promised you a miracle
Belief is a beauty thing
Promises promises
Model 3 customers left wondering
Ever more cashflow down the drain
Suppliers freeze as they’re $3bn light
Only delayed payables do they see
Yet he controls the bluff
Profitabilty sails to a distant life
Promised you a miracle
Credibility is a beauty thing
Promises promises
As the golden payday keeps wandering
Only trust he pleas
He loses controls on Twitter
Life throws a curve
Sledging Thai rescuers is possible
With promises
Everything is possible
Oh
I promised you a miracle
Belief is a beauty thing
Promises promises
As warranty provisions must take a hike
Investors reflect profits may take a while
Short sellers scream so quietly
Slipping back on golden times
Breathing with sweet memories
Banks were promised a profit miracle
Belief is a beauty thing
Promises promises
As targets keep fumbling
Only wait another quarter he says.
CM has said time again that Musk is a brilliant salesman. How he has managed to build a debt edifice worth more than GM, Ford & Fiat-Chrysler combined is a testament. Musk has continually missed delivery on so many promises that there is little stock in backing anything he says.
He championed $2bn in cash & equivalents but leaves out $5bn in accounts payble and accrued liabilities. The cash isn’t “net”
The company still reported $739mn negative free cash. While the rate may have slowed from Q1 it is shockingly high. Is it any wonder letters were sent to suppliers in an attempt to massage the figures to make the numbers look optically pretty.
Tesla wrote, “We aim to increase production to 10,000 Model 3s per week as fast as we can. We believe that the majority of Tesla’s production lines will be ready to produce at this rate by end of this year, but we will still have to increase capacity in certain places and we will need our suppliers to meet this as well. As a result, we expect to hit this rate sometime next year.
The problem with this statement shows the naivety of Musk’s lack of knowledge on mars production. Profitability isn’t sustained by cranking to 10k/week if demand won’t be there when it hits that milestone. There are already flip-a-Model 3 websites littered with early adopters hoping to cash in on the initial euphoria. Yet if new stock is coming out that fast, many are likely to cancel orders because there is no arbitrage opportunity.
Customer deposits fell $42mn on the quarter. Tesla noted non-reservation orders are outstripping reservation orders. If reservation orders are stagnating because or cancellations or deliveries that is not a bold claim worth much. The company suggests it is no longer taking reservations in US or Canada because current supply can meet it but deposits would still be required to hold a car at a showroom before final payment so the customer deposit line should reflect that.
Even when CM ran the most optimistic of scenarios for Tesla, valuations would be mere fractions of what the stock trades today. Yet investors overlook the tsunami of new product from competitors made by brands who have spent decades perfecting production and have access to far superior distribution networks.
More smoke and mirrors. Simple Minds are all that is needed to read through the lines. Nothing remotely impressive with these numbers.
In closing, when the company talks of the ability to power slide the Model 3 when it has faced so much criticism over deaths related to false beliefs in its autopilot system you wonder whether Musk ever listens to legal advice? Well If he can blame the families of crash death victims it is clear he thinks of customers and investors as nothing more than beta testers. Then again if he can promise them miracles he is ultimately the winner if they buy into golden days.

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.