Streetwise Professor

December 23, 2022

On Elon

Filed under: Politics,Tesla — cpirrong @ 4:16 pm

From 2013-2016 or so I gained some notoriety as a critic of Elon Musk. Some of my posts were quoted or discussed in mainstream publications, I was interviewed on Bloomberg News, . . . and Elon blocked me on Twitter!

One of my criticisms was that Musk’s real business genius was in rent seeking. All of his businesses, especially during that era, relied heavily on various forms of government subsidy. Further, he was quite expert at getting very favorable treatment for location businesses, e.g., his Boca Chica launch area for SpaceX. Indeed, this continues to today: recently some other rent seekers–wind farm developers–sued Texas because it cut off tax breaks to them, but not to Tesla.

My other main criticism was that Musk repeatedly overpromised and underdelivered. Anybody remember the vaunted Solar Roof? Anybody actually seen one? Recall all the (unrealized) hype about a coast-to-coast charging network. Model introduction dates. Production targets. The actual implementation of the “hyperloop” is the merest shadow of what Musk teased the world with.

The most egregious example was the Solar City merger, which was touted as some great new business model that would exploit wonderful economies of scope between rooftop solar, home battery storage, and electric vehicles. I called bullshit at the time, and bullshit it has proven to be.

My explanation of the real reason for the Solar City deal was that its bankruptcy would put a huge dent in his reputation as a business genius and innovator, and that he had to conceal the wretched financial condition of the company in the Tesla balance sheet. It’s pretty clear that I was right: Solar City is basically in wind down mode.

In the light of experience, it is pretty clear to me that in all of these promises and claims, Elon was playing pretend and extend. Keep dazzling investors with future prospect so they would continue to shovel money in today, in the hope that eventually Tesla would be sufficiently profitable to survive without hype.

And it that respect, you have to say that Musk’s strategy was wise, predicated on dishonesty as it was. Tesla did start producing large quantities of vehicles in multiple factories around the world. Tesla stock eventually soared to stratospheric values–although the past year has been sobering indeed. In fact, the past week has been sobering, with the stock falling almost 20 percent: it is off almost exactly 2/3rds in the past year.

Although the most optimistic projections of Tesla’s prospects have been dashed, it is clearly a going concern and will continue to be one–especially with the help of government tailwinds. In that sense, Elon’s strategy of overpromising was a canny play.

I was always more critical of Tesla than SpaceX, and indeed, the space company has proved to be a standout, especially as compared to its peer group, especially the execrable Boeing.

But now Tesla and SpaceX are basically background noise in the Musk saga. Now it’s all about Twitter, all the time.

I think it’s fair to say that his bid for Twitter illustrates his mercurial nature, and it is pretty clear that he regretted it soon after making it. He tried to wriggle out of his commitment, but seeing the legal writing on the Delaware Chancery Court wall he sucked it up and bought the company.

And once he bought it, he showed incredible will and fortitude to transform the company. In part this was a business necessity. He obviously overpaid, and had to make the company, if not profitable, at least not a huge cash suck. So he whacked more than half the employees.

These firings unleashed a torrent of shrieks, and dire predictions of the utter collapse of the company.

But the platform continues to perform with no apparent technological problems, despite these alarming prognostications. This strongly suggests that the company was massively bloated, and that most of the employees did not contribute to its output and profitability.

I think that this is a characteristic of the tech sector generally–not just Twitter. I hope to write a post on that subject soon.

More remarkably, Musk is giving every indication of having a serious commitment to free speech, and to opposing government interference in public debate. Especially the kind of underhanded interference that had long been suspected by “conspiracy theorists”–and which even the limited releases of “Twitter Files” has demonstrated to be true.

Remember that the phrases “conspiracy theory” and “conspiracy theorists” were born in the 1960s as part of government efforts (especially the CIA) to discredit any question of government operations, and especially the operations of the intelligence community. The FBI’s reference to conspiracy theories/theorists in its response to the Twitter Files confirms and validates that the old playbook is still in use.

Moreover, Musk has revealed the extent to which old Twitter was dedicated to silencing and obstructing those whom its leftist management and employees disliked (hated, actually) even without government prompting: like John Cleese’s character in the Argument Clinic sketch, they were censoring on their own time. Further, he has taken steps to reverse that, although there are still reasons for concern.

I see no reason to revise my criticisms of Musk’s earlier conduct in light of these current developments. I think the judgments were well founded, and I have not seen any evidence that would require a reevaluation. That said, I am quite pleased with–and pleasantly surprised by–his actions regarding Twitter.

Yet, given his mercurial nature, and the intense competing demands on his time–especially given that Tesla is no facing serious headwinds and investors are clearly disturbed by his Twitter distraction–it remains to be seen whether this good start will be maintained and indeed broadened. On the one hand, he has a direct economic interest in making Twitter a viable economic enterprise, and it is likely that a more open platform will advance that objective. On the other, Musk’s revolution has sparked a massive counter-revolution among journalists in particular, but also among governments. The EU has been particularly mafia-like in the nice-little-business-you-got-here-shame-if-anything-happened-to-it sense, threatening severe consequences if Twitter does not adopt “moderation” (i.e., censorship) policies in line with the EU’s statist preferences. The Biden administration has not been quite so direct as the EU, but it has made threatening noises too. Several senators have also been making threats.

Meaning that the old “you can’t do anything to Twitter because it’s a private company” bromide that was common in the old Twitter days when it was censoring those the left didn’t like has become completely non-operative in the Musk Twitter days when he is promising to eliminate censorship. Elon will have to wage a war against governments around the world in order to advance his apparently completely sincere and principled free speech agenda.

Whether he can or will do that remains to be seen. Governments can make his principles very, very expensive, and therefore Elon may have to make the choice between his economic interests and his pro-freedom principles. We don’t know what value Elon places on those principles, or the costs that governments will impose on him if he attempts to act on them. The ultimate outcome, therefore, is very much in doubt.

I was never pulling for Elon to fail with Tesla or other pre-Twitter endeavors: I was criticizing the means he employed to achieve success. I am pulling for him to succeed at Twitter, and given what and who he is fighting against, I hope that he adopts the all’s fair approach that he has employed so often in the past.

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April 16, 2022

Elon v. Twitter: Cognitive Dissonance, Quickly Resolved

Filed under: Economics,Politics,Regulation,Tesla — cpirrong @ 12:40 pm

I am a longtime critic of Elon Musk. I have criticized his rent seeking, most notably his extensive reliance on government subsidies to build his business empire. I have criticized his deceptiveness and self-dealing in the Tesla acquisition of Solar City–which despite all his bloviation about synergies was flatly a bailout of a failing company paid for by Tesla shareholders. I have criticized his numerous misleading statements over the years, most notably his promising the moon and then failing to deliver (e.g., heard of the solar roof lately?).

I am also a longtime critic of Twitter. It is a censorship engine masquerading as a social media company. Its management has, and still does, viewed its mission as enforcing the leftist progressive political narrative, and in pursuit of that mission ruthlessly suppresses all dissenting voices–especially if they gain any prominence.

Therefore, my first reaction to the news of Elon mounting a takeover attempt of Twitter was cognitive dissonance. That soon passed, however. Life is about choices between less than ideal alternatives, and as problematic as he is, Elon still dominates Twitter and its allies, hands down.

He at least talks the talk on free speech, and his criticisms of Twitter are trenchant and largely in agreement with my views. Although one may question how truly committed he is (he blocks people who needle him, myself included) there is considerable option value here. We know Twitter is committed to being the speech police, Musk offers the possibility of a freer and fairer platform.

The hysterical (in both senses of the word) response of Twitter management, employees, and the phalanxes of leftist, statist orthodoxy is wildly entertaining, and suggests that Elon is a real threat to what they viewed as their plaything: they certainly believe he is. There is so much material to choose from here, but Robert Reich’s widely mocked article in the Guardian provides a good summary of the various panicked arguments opposing Musk’s move. This was particularly hysterical (again in both senses of the word):

Elon Musk’s vision for the Internet is dangerous nonsense: Musk has long advocated a libertarian vision of an ‘uncontrolled’ internet. That’s also the dream of every dictator, strongman and demagogue.

Dictators, strongmen, and demagogues have libertarian visions. Who knew?

It is also beyond amusing that those who for years sneeringly dismissed Twitter critics by saying “it’s a private company so it can do what it wants” are now in full psychological meltdown over the prospect that someone might take a company private and do what he wants–because it’s not what they want. Say, here’s an idea: if he takes over Twitter, start your own platform, bitches. That’s what you’ve been telling us for years, isn’t it?

If I had any doubts about whom to support in this battle, two of my other bêtes noires, Gary Gensler (SEC) and the Department of Justice immediately mounted up to ride to Twitter’s rescue:

Regardless of whether there are issues at Tesla, they existed before he dropped his bomb on Twitter. But I’m sure the timing of this is just a coinky dink, right?

Like Peruvian General Benavides said: ““For my friends, everything; for my enemies, the law.”

Further proof, moreover, that Twitter is just an appendage of the ruling class.

And the SEC should actually be more focused on corporate governance at Twitter. The company implemented a poison pill defense in order to fend off an offer at a price that Twitter would have no possibility in hell of reaching without it. (NB: it’s stock price is up 8 percent since its IPO.) But it’s OK to screw the shareholders to protect the guardians of the narrative, right?

(Musk has threatened to sue the board over this. Alas, poison pill defenses have survived legal challenges, and in fact thrived. That’s why hostile takeovers are largely a thing of the past. The political economy of American regulators and the judiciary decidedly works in favor of incumbent corporate interests.).

This epic thread is spot on:

Seriously. Read the full conversation.

So how will it turn out? Well, it will provide numerous opportunities for schadenfreude. It will reveal the utter hypocrisy of the ruling class. It will reveal how Twitter is really an apparatchik of the ruling class. But I think Elon’s odds of success are low. He will be taking on the ruling class. And very practically speaking, poison pill defenses are extremely hard to overcome. And that will be especially true in this case because Twitter’s board is not using it as a means of extracting a better price: I seriously doubt that there is any price that they would accept if that involved giving control to Elon. But if anyone can beat these odds, it’s likely Elon. The very thing that I have criticized in the past, specifically the lack of any scruple in pursuing what he wants, is exactly what is needed to win a battle like this.

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July 12, 2021

Elon’s On Fire!

Filed under: China,Climate Change,Cryptocurrency,Energy,Tesla — cpirrong @ 6:29 pm

No. Wait. That was a Tesla in Taiwan City.

But Elon did ignite some (metaphorical) pyrotechnics in a Delaware Chancery courtroom with his fiery defense of the Solar City deal of 2016. My criticism of the deal at the time–which inspired some of my better lines, IMO–is the gravamen of the shareholder lawsuit against Musk. Namely, that the Tesla purchase of Solar City was a bailout of a sinking Solar City, mainly driven by Elon’s desperation to avoid a blow to his reputation as a visionary genius.

Nothing in what I’ve read about Elon’s testimony changes my mind. Ya sure the Tesla board was totes independent of him. Ya sure he did not dominate the board. Ya sure the deal made sense on the merits. Whatever, dude.

All that said, I surmise that the plaintiffs have a difficult hill to climb. Proving, legally, in court, what we all know to be true is sometimes a very difficult thing. That’s probably a good thing, but that’s a statement about the average–not any particular case.

That said, since the Solar City deal Tesla’s stock price, unlike Elon, has gone to Mars. It’s about 20 percent off its all time high in January, but still about 15 times above its June, 2015 price, which I thought was inflated then. So what do I know?

The most logical explanation to me is that $TSLA is not so much a bet on Tesla qua Tesla, or Musk qua Musk, but on government policies around the world that seem hell bent on forcing us all to drive electric cars, never mind fire risks (and Taiwan City is not a freak event), or the environmental costs of mining, or the insanity of renewables, or the increasing inability of electrical grids to handle existing demands let alone massive new ones such as that arising from electric autos, or on and on and on and on. Tesla is a first mover in electric vehicles, governments are compelling the shift to electric vehicles regardless of all the myriad problems, so Tesla stock booms. It’s not an efficiency story or an innovation story. It’s a wealth creation (for Tesla shareholders) by wealth destruction (the rest of us) story.

A couple of other Tesla/Musk-related comments that have struck me recently but not sufficiently to catalyze a post.

Tesla is having problems in China. Musk assiduously courts China. Musk makes huge sunk investments in China. China shtups Musk.

This storyline alone is sufficient to make you question Musk’s acumen. Did he really think that China would not act opportunistically? FFS. Opportunism ‘R Us is the CCP motto. Look at how the CCP is shtupping domestic tech companies (and those foolish enough to invest in tech company IPOs). If that’s what they do to “their” companies, what can foreign devils expect? Foreign devil Elon apparently thought he was special. He ain’t.

Crypto. Elon’s pronouncements can cause massive movements in cryptocurrency prices. This alone is enough to demonstrate the utter arbitrariness of crypto. Why should the value of anything depend on the musings of a mercurial and megalomaniacal individual other than the things that individual can control? Especially when said mercurial and megalomaniacal individual no doubt derives immense glee from watching people jump to his tune? That incentivizes him to say ever more outlandish things. Which the KoolAid drinkers respond to, which just incentivizes him more.

Why do his musings matter? Because people believe they matter.

In coordination games sunspot equilibria exist. In sunspot equilibria, values/prices change in response to a variable that people think matters, even though it is totally unrelated to fundamentals. Currencies–including cryptocurrencies–have a coordination game aspect where expectations matter. The value of currency (or a cryptocurrency) depends on what people think its value is, or what they expect it to be. If people believe that variable X–e.g., what Elon Musk tweets–matters, then X will matter.

That is apparently the case with crypto: whatever Elon says, cryptos do, at least to a considerable degree. What is more bizarre is that whereas “sunspots” are exogenous, Elon’s pronouncements are endogenous–he says what he says almost surely based on the fact that he knows that what he says will move prices. Yeah, that’s exactly the kind of power you want to give a megalomaniac.

Exogenous/extrinsic uncertainty can lead to excessive volatility. Crypto suggests that endogenous uncertainty a la Musk creates massive excess volatility.

So you want to “invest” in crypto why, exactly? To speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on how speculators speculate on Elon’s mood swings and narcissism. (To complete this post, continue ad infinitum.)

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May 14, 2020

Strange New Respect

Filed under: Climate Change,CoronaCrisis,Economics,Energy,Politics,Regulation,Tesla — cpirrong @ 5:50 pm

The past few weeks have brought pleasant surprises from people whom I usually disagree with and/or dislike.

For one, Michael Moore, the executive producer of Planet of the Humans. Moore does not appear on camera: that falls to Jeff Gibbs and (producer) Ozzie Zehner. The main virtue of the film is its evisceration of “green energy,” including wind and solar. It notes repeatedly that the unreliability of these sources of power makes them dependent on fossil fuel generation, and in some cases results in the consumption of more fossil fuels than would be the case if the renewables did not exist at all. Further, it points out-vividly-the dirty processes involved with creating wind and solar, most notably mining. The issues of disposing of derelict wind and solar facilities are touched on too, though that could have been beefed up some.

If you know about wind and solar, these things are hardly news to you. But for environmentalists to acknowledge that reality, and criticize green icons for perpetrating frauds in promoting these wildly inefficient forms of energy, is news.

The most important part of the film is its brutal look at biomass. It makes two points. First, that although green power advocates usually talk about wind and solar, much of the actual “renewable” energy is produced by biomass, e.g., burning woodchips. In other words, it exposes the bait-and-switch huckersterism behind a lot of green energy promotion. You thought you were getting windmills? Sucker: you’re getting plants that burn down forests. You fucked up! You trusted us!

Second, that biomass is hardly renewable (hence the quote marks above), and results in huge environmental damage. Yes, trees can regrow, but not as fast as biomass plants burn them. Moreover, the destruction of forests is truly devastating to wildlife and to irreplaceable habitats, and to the ostensible purpose of renewables–reduction of CO2.

The film also points out the massive corporate involvement in green energy, and this represents its weakest point. Corporations, like bank robbers, go where the money is. But that begs the question: Why is there money in horribly inefficient renewables? Answer: Because of government subsidies.

Alas, the movie only touches briefly on this reality. Perhaps that is a bridge too far for socialists like Moore. But he (and Gibbs and Zehner) really want to stop what they rightly view as the environmental and economic folly of renewables, they have to turn off the money tap. That requires attacking the government-corporate-environmentalist iron triangle on all three sides, not just two.

I am not a believer in the underlying premise of the movie, viz., that there are too many people consuming too much stuff, and if we don’t reduce people and how much they consume, the planet will collapse. That’s a dubious neo-Malthusian mindset. But put that aside. It’s a great thing that even hard core environmentalists call bull on the monstrosity that is green/renewable energy, and point out the hypocrisy and fundamental dishonesty of those who hype it.

My second candidate is long-time target Elon Musk. He has come out as a vocal opponent to lockdowns, and a vocal advocate for liberty.

Now I know that Elon is talking his book. Especially with competitors starting up their plants in the Midwest, the lockdown in California that has idled Musk’s Fremont manufacturing facility is costing Tesla money. But whatever. The point is that he is forcefully pointing out the huge economic costs of lockdowns, and their immense detrimental impact on personal liberty earns him some newfound respect, strange or otherwise.

Lastly, Angela Merkel. She has taken a much more balanced approach to Covid-19 than most other national leaders. Perhaps most importantly, she has clearly been trying to navigate the tradeoff between health, economic well-being, and liberty. Rather than moving the goalposts when previous criteria for evaluating lockdowns had been met, when it became clear that the epidemic was not as severe in Germany as had been feared, and that the economic consequences were huge, and that children were neither potential sufferers or spreaders, she pivoted to reopening quickly and pretty rationally.

The same cannot be said in other major countries, including the UK and France as notable examples. She comes off well in comparison to Trump, although the comparison is not completely fair. Trump only has the bully pulpit to work with, for one thing: actual power is wielded by governors. But Trump’s use of the bully pulpit has been poor. Moreover, he has deferred far too much to execrable “experts,” most notably the slippery Dr. Fauci, who has been on the opposite sides of every policy decision (Masks? Yes! Masks? No! Crisis? Yes! Crisis? No!), is utterly incapable of and in fact disdainful of balancing health vs. economics and liberty, and who brings to the table a record of failure that Neil Ferguson could envy, for its duration if nothing else. The Peter Principle personified: he is clearly at the level of his incompetence, and due to the perversity of government, has remained at that level for decades.

Merkel’s performance is particulary outstanding when compared to those who wield the real power in the current crisis, American governors, especially those like Whittmer, Pritzker, Evers, Walz, Brown, Wolf, Cuomo, Murphy, Northam, and Newsom. These people are goalpost movers par excellence, and quite clearly find the unfettered exercise of power to be orgasmic.

It is embarrassing in the extreme to see the Germans–the Germans–be far more solicitous of freedom and choice than elected American officials, who seem to treat freedom–including the freedom to earn a livelihood–as an outrageous intrusion on their power and amour-propre.

Will this represent the new normal? Will SWP props for Moore, Merkel, and Musk become routine in the post- (hopefully) Covid era? I doubt it, but for today, I’m happy to give credit where credit is due.

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August 27, 2019

“HE’S FULL OF SHIT”: You Read It Here First

Filed under: Climate Change,Economics,Tesla — cpirrong @ 5:50 pm

Three guesses as to who “he” is. First two don’t count.

Vanity Fair has a long article, with a title starting with the quote in the title of this post, showing that Elon Musk’s solar roof in particular, and its solar business in general, is a fraud. The article also shows that Elon engineered Tesla’s purchase of Solar City to prevent it from going belly up, and thereby torpedoing Elon’s reputation as a genius.

Which is exactly what I said on the very day the deal was announced three years ago.

I’ve been calling BS on Elon since May, 2013. Nice to see people are finally catching up.

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April 24, 2019

Elon the Stakhanovite

Filed under: Economics,Energy,Tesla — cpirrong @ 7:02 pm

Our Elon is all about exceeding expectations. Analysts predicted a $1.30/share loss in Q1. Elon scoffed. Piddling! He showed ’em–the actual loss was $2.90.

Overexceeding norms by 123 percent! Stakhanov would be proud.

Joking aside, the Q1 numbers were a bloodbath. A loss of over $700 million. In a quarter, mind. Cash flow was negative $920 million. The company said this is an improvement! A year ago it was -$1.05 billion!

Well, the cash flow numbers would have been worse–and worse than last year–had Tesla spent the anticipated $509 million in capex, instead of the actual $279 million.

Remember what I said about Tesla bleeds cash like a Game of Thrones battle scene hemorrhages blood? That hasn’t changed.

Tell me again why Tesla is a growth company. What other growth company is, or has ever been, on a capex starvation diet? Especially one that claims to have all sorts of new products just on the verge of production.

Revenues also cratered–$4.5 billion v. estimated $5.2 billion, and down from $7.2 billion a mere quarter ago.

A few days before the Q1 earnings release, Tesla held “Autonomy Investors Day” in which attempted to distract attention from its dismal present with Futurama visions of a magical future, with zillions of autonomous robotaxis prowling the world’s thoroughfares. Yeah. Robotaxis. That’s the ticket!

This is just the Musk MO–always try to keep the suckers focused on a brilliant future. The next big thing is around the corner. The problem is, it is always around the corner, and the autonomous vehicles–and Tesla the company–haven’t learned how to turn the corner.

Elon also claimed (based on highly dubious assertions that NVIDIA hotly disputes) that Tesla would create a better chip than one of the world’s leading, and most innovative, chipmakers. Sure! And the problem with production is with the world’s leading battery manufacturer, not the car manufacturing tyro. Sure!

It appears, however, that Elon’s con is less convincing than it used to be. People are figuring it out. Finally. The Autonomy Day was widely panned, and his claims regarding chips widely mocked.

Elon also said “The only criticism and it’s a fair one, sometimes I’m not on time. But I get it done and the Tesla team gets it done.” Sometimes? Try always. And gets it done? Like the rooftop panels? The factory in Buffalo? The $35K Model 3 that is virtually impossible to actually, you know, buy? The innovative vertically integrated clean energy company that would result from the merger of SolarCity and Tesla? (Tesla is basically winding up SolarCity. It is disappearing like the Cheshire Cat. Except there won’t be a smile left when it’s done.)

I will just note in passing that a SpaceX test capsule had an “anomaly” on testing. Pictures show smoke billowing from the test area. I guess “anomaly” is how you spell “fire” now.

Remember that Elon promised no new capital raises. Given that losses are anticipated again in Q2, and that promises of profit in Q3 are dubious given Elon’s track record, how this is possible is beyond me. And again, how that promise can be squared with his promises regarding autonomous vehicles and the Model Y and the semi etc., etc., etc. is even more fantastical.

As I have been saying for a while, this will not end well. And it is looking like that bad end is nigh.

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March 11, 2019

Meet the New CEO of Tesla: Emily Litella

Filed under: Climate Change,Energy,Tesla — cpirrong @ 7:17 pm

So, remember that stuff about closing all sales outlets, selling exclusively on-line, and cutting prices? Tesla’s new CEO has an announcement:

So what’s “very different”? Here’s what the company says officially:

Over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months.

So what you are saying then is prior to making the announcement that you were closing all retail locations you HADN’T evaluated every single location. Got it!

The company also reversed field on the price cuts.

To quote Casey Stengel: Can anybody play this game?

I mean really. A major, and arguably unprecedented in the industry, change in selling strategy and a major change in pricing policy are things that are not to be entered into lightly. Presumably they were the result of serious and sober consideration by serious and sober people. Right?

Serious and sober. Elon. Heh. Sometimes I crack myself up.

The initial decision was insanity. And the reversal validates that judgment. But too late to overcome the obvious implication of the initial decision: that the company is in dire straits. Further, the utterly botched process of pushing the panic button and then trying to un-push it answers Casey’s question quite definitively: No!

That is, the initial decision betrayed desperation. The decision plus the reversal betray the utter incompetence of the company’s management, and hence its incapacity to deal with its daunting challenges. And given that Tesla is a micromanaged company, that incompetence has a name: Elon.

I called Emily Litella the new CEO of Tesla in jest. But come to think of it, she could almost certainly do a better job. As could Rosanne Rosannadanna as head of investor relations and corporate affairs.

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March 6, 2019

Fists of Fury Fly Over Tesla’s Price Cuts

Filed under: Climate Change,Economics,Energy,Tesla — cpirrong @ 8:29 pm

According to this Seeking Alpha post, Chinese buyers are furious at the Tesla price cuts. The WSJ concurs.

And with good reason. In my post yesterday, I wrote that Tesla cut prices by 6 percent–which was another of the company’s half-truths. Or maybe fifth-truths, because for the pricier models the price cuts are on the order of 30 percent. The Model 3 Performance version price cut is 8 percent in China, and the pricier the car, the bigger the percentage discount. So no wonder buyers are furious. They look like suckers because if they’d waited, they would have saved as much as $50K.

A 6 percent price cut by an ostensibly demand constrained growth company is bad enough. 8-30 percent price cuts is Armageddon time.

As I noted in yesterday’s post, this is a sign of a truly desperate company. Or maybe a completely delusional one. Because anyone in their right mind would know that price cuts–especially of this magnitude, and especially on what should be the most profitable vehicles–vaporize customer goodwill. Especially the goodwill of the type of customers who are vital to making the company profitable by buying the high margin vehicles.

You only do that if you are so desperate for cash today that you say f-the-future, it will have to take care of itself: if I don’t get cash today, I won’t have to worry about the future.

But they’re not done with incinerating their credibility faster than a flaming Model S that lost a wheel and hit a tree! The company also cut prices on its “Autopilot” function–and won’t refund those who pre-ordered and pre-paid. And oh, it just said that what it had previously said about self-driving capability was, what’s that old phrase?–no longer operative.


But hey. Why listen to me? Elon’s got some really, really cool stuff coming . Trust him! What could go wrong?

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March 4, 2019

More Muskapades

Filed under: Economics,Energy,Tesla — cpirrong @ 7:48 pm

It’s been an eventful few weeks for our Elon. His new corporate counsel departed after barely enough time to warm his seat, because Elon (whose Twitter free associations the GC was charged with monitoring) tweeted a forward looking statement (“clarified” after a few hours) about 2019 output without the GC’s approval. The SEC then moved post haste to get a judge to rule Elon in contempt of his previous settlement agreement. Then, apparently believing he hadn’t twitted the SEC enough, held an invitation only call with select analysts–a facial (in the Marv Albert use of the term) violation of the SEC’s Regulation FD (“Fair Disclosure”) .

But we’re not done. Tesla announced–at long last!–that the long-promised $35K Model 3 would soon be available.


Not so fast. In typical Elon fashion, this was just a garnish on a crap sandwich: in addition to the Model 3 announcement Tesla said, oh-by-the-way-we’re-closing-all-our-sales-outlets-and-laying-off-thousands-and-cutting-prices-6-percent-bye.

This is hardly what you would expect to see from a demand constrained growth company. In typically weasely Tesla fashion, the company said that the closing of sales outlets cut costs and allowed it to cut prices. Uhm, that’s not the way it works.

The price cut is particularly telling. This wreaks of a company that needs to generate cash in a hurry (and is hence willing to burn some goodwill), and has an overhang of inventory on its hands. This price cut has also infuriated recent buyers. And the future effects may be quite damaging: people may well hold off buying, in anticipation of buying cheaper later.

The Wall Street Journal said that Tesla is going into “uncharted territory” by closing its showrooms. Not really: bankruptcy is pretty well-charted.

And of course, desperate times call for desperate measures. So right on cue, Elon/Tesla said that an announcement regarding the launch of the long-awaited crossover Model Y was only weeks away.

Just where is the cash for the capex necessary to build a new vehicle going to come from? How to reconcile this with the capex diet that Tesla has been on in recent quarters?

Methinks that this is really another financing ploy intended to keep the balloon aloft a little longer. With the announcement, the company will be able to take deposits, use the cash for other purposes, and then dawdle on actually, you know, building and delivering cars. (Check out the lag between deposit and delivery on Model 3s, and the difficulty those trying to get back their deposits face.)

This act is getting a little old, but it still works to some degree. So expect Elon to continue his muskapades until reality inevitably rears its ugly head.

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