Chevy Volt a Failure - GM to Layoff 1,300

Tesla's stock was getting hammered, first on the Moody's downgrade of its debt, and the wake up call that the company is going to run out of money soon without a capital raise, then the crash, then a massive recall of Model S's and Musk's April fools tweet, which went over like a lead brick.

But then, the day before Tesla was set to report that production number, magically an "internal memo" from Musk to employees was leaked to some site called Jalopnik, in which he said that they were close to 2,000 cars per week. It stemmed the tide on the stock drubbing, and he seemingly put a mind meld on people again, for the time being. (Really, he just gave a tweek to start a short squeeze, because ultimately he isn't going to be able to hold off the inevitable).

The 2,000 cars per week, still ain't enough, and as you pointed out, it is not the 2,500 the bullshit artist promised (prior to that he had promised 5,000 cars per week). But if production does stay there, at least it is a jump from the 743 Model 3s they produced during the last week of last year (last time he missed on a promise). So it was another opportunity to squeeze all the shorts in this stock for some fast money by some computer algorithms.

The bottom line is that Tesla has burned though a crazy amount of cash. Even with subsidies and handouts, it sells cars at enormous losses. And it doesn't even do much of that, because he is nowhere near the volume of cars he was promising 5 years ago by now. It faces increasing competition, as every luxury vehicle maker is going to have competitive electric vehicles within the next year and a half, and while Tesla was a cool toy 4 or 5 years ago, fads change. Even if that doesn't happen, the company has debt and other contractual obligations of $18 billion. That is as it continues to incinerate cash at an extraordinary clip. It has convertible bonds worth $230 million due in November and $920 million due in March of next year. It's in deep doo doo.

For the last 5 years, this insanity hasn't mattered, because it was able to access the debt markets to keep raising cash to burn through. To the point that he used Tesla's cult status to bail out his other failure Solar City, and people barely protested, even as it just loaded up Tesla with more debt and violated every tenet of good corporate governance.


When he went to that well too many times in the debt market, they just diluted their stock with secondary offerings to raise cash. Why not? In bubble world, it had no impact. ... it never has any impact. In a normal world that should send the stock price on a path toward Hades. In bubble world, it spurs a buying panic. It doesn't matter. Until it does. And it may be starting to. Right now, it has bonds now trading well below par, meaning the poor souls who lent them money in the past are seeing capital losses on the secondary market, the bonds are junk that was just downgraded further, and there are increasing signs that even the interest payments may become too burdensome for Tesla.

What that means for Tesla is. ... it is going to need $2 to $3 billion sometime soon (despite Musk's bullshit last week that they aren't going to need to raise capital) just to stay on their hamster wheel. And the environment in which endless bullshit could get that kind of money is drying up, because central banks which created that bubble have been gingerly starting to try to tighten financial conditions, which is why the stock market started to buckle, LIBOR has spiked, the various yield curves have been confused, the bitcoin bubble is crashing, etc. And that is with financial conditions still ridiculously loose, and the Fed not having done much yet (and the ECB still expanding its balance sheet). Imagine what happens, if the Fed follows through on its plan to not repurchase debt on the expiring bonds in its portfolio (hundreds of millions of dollars of a put they kept in the debt markets for the last decade) at the same time our treasury is going to be issuing more than a billion dollars of new treasuries, because we just stupidly passed tax cuts (lowering revenues) and increased spending at the same time. The mere fact that they haven't really done much yet, but still LIBOR is spiking, subprime auto loan defaults have picked up dramatically (and some of the smaller lenders are starting to go under). ... and in Tesla we see some of the first cracks in corporate debt, which is the primary candidate for the next financial crisis (unlike the last one which was led by consumers). ... should make people shudder about what happens when this ACTUALLY plays out. What you are seeing is just the anticipation.

Either way, equity in Tesla is worthless baring a miracle in which it discovers an actual profitable business and a product with widesread adoption. And not just any product, but something good enough to make up the billions of dollars Musk has already pissed way. Unless consumers develop a taste for bullshit, which he is quite good at producing, I personally doubt that kind of turnaround is coming.

 

Tesla reported earnings last night. ... Nothing big there. It has no earnings, so it's just a matter of 1) How much money it is losing, and 2) What accounting tricks they try to use to make things look better than they are.

It was the conference call that was a big deal. I have never heard anything quite like it. And I think the world is waking up to what a charlatan Elon Musk is. Tesla has taken government hand outs, borrowed an eye-popping amount of money and diluted the value of its stock. ... just to exist. It amounts to billions upon billions of dollars. ... and it has burned through almost all of it. It burned through another billion dollars of cash last quarter. Which prompted some analysts to put out notes during the last few months suggesting that Musk is going to need to raise more money soon or else the company could go kaput.

That prompted Musk to tweet that no, the company doesn't need to raise money and it is going to be cash flow positive by Q3 or Q4 of this year.

Rather than just buying hype and bullshit (a marked change), the analysts on the call wanted details about how that is going to happen. And Musk acted like a petulant ass, cutting off questions, calling any tough question he couldn't answer "boring," and doing his "haters" and "not cool" thing to avoid answering what are ridiculous appropriate questions. It was kind of stunning.

To cut through it, the issue is: Musk is burning through cash. As has always been the case, he made grand promises (in the case of the Model 3, which was supposed to carry the company by now) and he hasn't been able to fulfill them. Without a capital raise of at least a few billion dollars more, he is out of business. ... when is a matter of how much cash he keeps burning through. At this pace, he won't make it through the year. But he's talking about scaling back the capital expenditures, in which case maybe he can string out what money he has left for another year.

In the past, this hasn't been a problem for Musk. His bullshit, and loose lending conditions, made it easy to raise money for him. But he's gone to the well so many times, and lending conditions have been tightening. He has a staggering amount of debt, and the last bonds he issued are trading well below par -- in junk bond territory. Likewise, he can't dilute the value of his stock like he did a few times (when he couldn't access the debt markets), because this time it will sell off (as it should have the other times). That is likely what his investment bankers are telling him. So he's stuck trying to sell the BS that things are great and he doesn't need to raise money.

The name of the analyst won't mean anything to most people on here, but one of the more stunning Musk-asshole moments came when Tony Sacconaghi from Sanford Bernstein, who is maybe the most respected analyst in that space, and is a really mild-mannered, straightforward, smart guy, asked a question about the capital requirements, and Musk cut him off with, "“Excuse me. Next. Next. Boring, bonehead questions are not cool. Next?”

That was after Sacconaghi asked an obvious question about whether the company can reach 25 percent gross margins on the Model 3 (It can't), and Musk said yeah. ... but then said that the margins are much lower than that, but don't worry about it cause they'll solve it within 3 to 6 months. ... ending the BS with, "So don't make a federal case out of it."

EDIT: By the way, I find it interesting that everyone is so down on the Model 3 production numbers, because the one thing that is stretching out this fraud a little is the fact that Musk misses all of his targets. At the end of the day, to be successful, a business needs to sell products for more money that it spends. It isn't a difficult concept. The more product Musk sells, the more the company loses. So in a perverse way, it's a good thing he is unable to sell more cars.

 

One more post about the charlatan (Musk). ... This was something I saw Mark Spiegel (has a big short position in Tesla) point out a week or two ago, and I hadn't even thought about it. ...

Musk has a a large percentage of his personal wealth tied up in Tesla shares. He borrows hundreds of millions of dollars against the value of those shares and he lives a jet-setting lifestyle. ... expensive homes, models and actresses, planes, etc.

Buried in Tesla's last proxy statement, it said that directors and executive officers could still use their Tesla stock as collateral for loans and investments, but it is now limited to 25 percent of the value of the pledged stock.

If you look at the registration statement from Tesla's last stock sale in March 2017, it looked like Musk owed close to $625 million to various financial institutions (more than half of it to Morgan Stanley). Musk would be paying interest on that borrowed money. ... and he draws a salary of less than $50,000. So since then, unless he has some hidden source of income, he's personally burning through money to live a lavish lifestyle, the same way his company burns through money. ... At the same time, he has also poured $100 million into his latest scheme, "The Boring Company." So Spiegel's best guess is that he has borrowed closer to $800 million by now. ... to keep up his lifestyle and keep throwing money at "ideas" whimsically. If that is the case, with the new margin requirements from that proxy statement, those loans would need to be collateralized by $3.2 billion of Tesla shares. The proxy noted that Musk has currently pledged close to 14 million of his less than 38 million shares as collateral to support his loans. Take the $800 million number (if something close to it is correct), and given the 25 percent margin requirement, it implies that if Tesla's share price drops below $232 a share or so, he faces a margin call. And note, the stock got as low as $244.5o recently.

Anyhow, that was interesting to me. ... Musk has more Tesla shares he can pledge as collateral to meet a margin call, if it comes to that, so an outright liquidation of his stock is very unlikely. So I don't want to overstate it -- yet. It would take a dip below $100 a share for him to be wiped out (or close to it). But still. ... Given that he has a company that doesn't have a profitable product and is burning through a billion dollars of cash a quarter), and is out of business within a year at this pace, unless it scales back the waste, there is at least a chance that within the next few years we'll be talking about Elon Musk the way we talk about Bernie Ebbers and Aubrey McLendon. ... i.e. CEO margin calls that ended spectacularly badly.