Chevy Volt a Failure - GM to Layoff 1,300

Well, now I know where you live!

One thing I saw Chanos say recently at a live discussion, is that one huge warning sign for a company is when executives are leaving in droves. This is him verbatim: "We use a lot of tools in my day job, to identify problem companies, but the one slam bam, always leads to problems, indicator, is when we see massive, massive executive departures at a company. Not just a few people, but 20, 30 leave a year. Which is very, very unusual. ... So if you see a company like that, and I can think of one right now that makes electric vehicles out in California, where the executive departures list we keep is now 3 pages, single spaced, for the last 18 months."

One of those executives was Matt Schwall, an engineer, who left Tesla for Waymo in May. Incidentally, that was a day after Doug Field, the engineering chief (formerly an executive at Apple), took a leave of absence. A month later he left for good. In any case, I suspect what you are seeing anecdotally is kind of how things are developing. Waymo is leading the way on self driving technology, and it's also attracting a lot of the best engineering talent.

 

Good work by the WSJ

Tesla Asks Suppliers for Cash Back to Help Turn a Profit

So essentially, they cranked out a lot of cars, for which there is questionable demand -- a whole other story that I haven't posted about, but there is maybe some evidence that Model 3s are piling up and the number of people who have cancelled their Model 3 reservations and asked for their $1,000 deposit back has been huge, with those people having trouble getting the deposit back. It's hard to know what is true and what isn't, but some sleuths have found lots filled with the Model 3s they have produced and not that many going out.

In any case, with cash running down quickly (but he's going to build a huge plant in China!), it sounds like the liquidity crunch is now hitting, and Tesla has accounts receivables to to suppliers that it can't pay. I posted about that a year or two ago, when they turned a "profit" one quarter, and I noticed that one of the tricks they had used was not paying suppliers. He plays games. Anyhow, it sounds like he went to his suppliers and said, "We need you to send us cash back on payments we have already made." It is "essential to Tesla's continued operation." Consider it an investment in us to continue us doing business together. Put another way, it might be: "Give us a haircut, or else we are not going to survive, and then your business with us is over and the billions of dollars of payables we owe you guys, well, good luck in bankruptcy court."

 

I can give you a long post about why fundamentals are divorced from stock valuations in general, and Tesla in particular. And why that may be coming to an end. I'll spare you most of it, except to say that Tesla has been a gross extreme, because unlike many companies with stock valuations that are going to look silly when people look back at where we got to, not only did Tesla lose a lot of money, it has lived on government subsidies, followed by endless borrowing of billions of dollars (which is also the key to your question about who would be buying Tesla stock today -- the cheap money that Tesla availed itself of has turned equity markets into casinos). I mean, something like Facebook is way overvalued to a ridiculous extreme, but it has little debt and it actually earns money. It's a real company. Tesla is just silly.

In the case of Tesla, there is actually one other thing that has propped up the stock, and may continue to. ... until it no longer does. The short interest in the stock was close to 30 percent of the float last I looked. Including several really big name hedgies who have publicly been in front of their shorts, basically daring every other big schlong billionaire to try to torture them by taking the other side of that trade. Those are the people who have bought the stock. Fundamentals don't play into it -- because this is a cheap money market, not a Benjamin Graham market. As long as there there is a stock market mania in force, and central banks are net flooding the world with more liquidity and credit and leverage, which is what caused the mania and a bubble (and what my first paragraph was alluding to), that is a prime environment for people to torture those shorts with orchestrated squeezes that test their resolve -- and earn what seems like easy money in the process. It's pretty standard when you have huge shorts.

I said that probably 4 or 5 years ago on this thread, when I think it was cranberry who was responding to my posts with stuff about the stock price. Like "Ha ha. What does he know?" This is the biggest no brainer short on earth. I knew it then, I know it now. I have itched to short this stock and have had to stop myself several times. Eventually, the Jim Chanoses and Mark Spiegels of the world are going to bank a fortune on it. The problem is that you need deep pockets to withstand others running up the price (as irrational as it seems, although it makes more sense than it would seem in a world of cheap money, which creates serious distortions and misallocations of capital) on you. And when you short a stock, your losses are potentially infinite, because while the stock can only go down to zero (i.e. a 100 percent return), theoretically it can go up to anywhere -- and in this case, it has been brutal for people who have shorted it for the last several years. You need DEEP pockets and a lot of conviction. I had the conviction. Not pockets that are deep enough.

As long as the news is bad, and people seem to start to be turning on Musk and facing reality -- not coincidentally, as the cheap money has becoming a bit tighter (and this game is going to end with a spectacular thud) -- the short squeezes may not be as brutal as they have been over the last few years. I recently saw Chanos say the hard time to short the stock was 2013, 2014, because it went from $30 to $300. Now? The last year + it's gone nowhere with a lot of volatility. It's actually underperforming the Nasdaq. He said that with a smile. I'd be having a heart attack if I had short it, given the losses he must be sitting on. Which is why I never shorted this stock. I knew it was the right short, but I didn't relish standing in front of a speeding train and waiting for an outcome I knew EVENTUALLY was coming. As I am sure I put it on this thread, I knew things can remain irrational way longer than I can remain solvent.

 

I really don't follow you. What does that have to do with my post or what you quoted (or with Tesla, at all)?