Streetwise Professor

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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  1. @SWP…>>The price cut is particularly telling. It REEKS…<<
    FElon MUsk wreaks enough havoc, recently with a conference call only for the select, that he deserves his own department at the SEC. But it appears they don't even know about him. He gets away with a lot.
    You can't spell 'teflon' without 'elon'

    Comment by Richard Whitney — March 5, 2019 @ 7:05 am

  2. “The Wall Street Journal said that Tesla is going into “uncharted territory” by closing its showrooms. Not really: bankruptcy is pretty well-charted.”
    This is the funniest line I have read all day!

    Comment by Pacy — March 5, 2019 @ 1:29 pm

  3. It’s all so transparent that it’s almost charming.

    As for his fans: they plumb unfathomable depths of folly. Is the supply of such poltroons effectively infinite?

    Comment by dearieme — March 5, 2019 @ 6:04 pm

  4. @Pacy–Glad to provide some levity!

    Comment by cpirrong — March 5, 2019 @ 9:35 pm

  5. I don’t know about infinite, but P. T. Barnum probably understated matters when he said there’s a sucker born every minute.

    Comment by cpirrong — March 5, 2019 @ 9:36 pm

  6. @Richard Whitney–Oh, they know about him all right. But they are afraid of him, or of causing the stock (and bond!) price to collapse by holding him and the company accountable. Apparently they believe that it’s better more suckers get fleeced, and have somebody else take the blame for the company’s collapse, than they do their job of enforcing the securities laws and let the chips fall where they may. They’re from the government, and there to help you, dontcha know.

    Comment by cpirrong — March 5, 2019 @ 9:39 pm

  7. I have two thoughts:
    – Genuine question: If Tesla really has an overhang of material that they can shift at a discount in exchange for quick cash how can that be squared with the long lead time between ordering and delivery? I think that the most cynical thing one can claim is they’re bleeding and are just trying to get the deposits in to cover current expenditure (as the post suggests), but I think they must still be growth-constrained (hence the production line in a temporary structure – otherwise why bother with it?).
    – Don’t write them off yet, they may well survive: There’s a consultancy that benchmarks vehicle manufacturing costs (can’t remember the name) that estimated a Model 3 costs about $3k less to build than Audi’s planned electric platform. So I’ve said it before and I’ll say it again: The engineering going on at Tesla and SpaceX is both figuratively and literally out of this world – they are so far ahead. Same with charging infrastructure. The finance, on the other hand… well, yeah, I guess you could say it’s also out of this world… 🙂 But IF the company survives the next few months and IF Musk can behave himself vis-à-vis the SEC, then they are really well set. If…

    Comment by HibernoFrog — March 6, 2019 @ 3:23 am

  8. Have you bought a Tesla, HibernoFrog?

    Comment by dearieme — March 6, 2019 @ 7:23 am

  9. Not “bought”, per se…only sent a deposit. Maybe.

    Comment by ETat — March 6, 2019 @ 8:49 am

  10. I want to represent the stiffed depositors committee in Tesla’s inevitable chapter 11 case.

    Comment by Tom Kirkendall — March 6, 2019 @ 7:51 pm

  11. @Tom K–You could probably retire on that!

    Comment by cpirrong — March 6, 2019 @ 9:12 pm

  12. I haven’t bought a Tesla, but I’d definitely consider it… and then probably wouldn’t do it, mainly because repairs are crazy expensive (and I live in France, where denting cars is a national pastime) and because I don’t like the idea of somebody as erratic as Musk being able to fiddle with my car’s settings remotely…

    But as an engineer, I believe that their manufacturing and engineering are really very good…

    Comment by HibernoFrog — March 7, 2019 @ 8:22 am

  13. Well unlike previous lies when he announces new cars etc, this didn’t result in a stock price jump. It just kept going down. I think that says a lot, people and especially big investors have heard this song and dance before and it’s old now. I’m surprised you didn’t mention this in your article. Also the demand appears to be evaporating, especially in the foreign markets where growth is key.

    Comment by Daniel Rust — March 7, 2019 @ 4:17 pm

  14. […] As has been pointed out the price cuts never really did make sense: […]

    Pingback by Whoops, Reverse Course! Tesla Backtracks on Price Cuts And Store Closures | The Continental Telegraph — March 11, 2019 @ 11:26 am

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