#elonmusk

Is Musk losing it?

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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

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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 Q2 – Simple Minds

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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?

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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.

Power prices hit $1200/kWh in SA

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When the wind doesn’t blow, South Australia’s 40% reliance on renewables gets exposed for it’s Achilles heel – lunatic power prices. At one stage today, power prices hit twelve hundred dollars ($1200) a kWh. Put into layman’s terms, if you accidentally left the porch lights on when you went to work and they were powered by two 100 watt light bulbs, in 10 hours each would rack up 1 kWh of energy. So that little mistake would cost $2,400 at those prices! So much for Elon Musk’s mega battery saving the day for South Australians during power shortages. No wonder Jay Weatherill’s government was turfed.

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.