Tag Archives: Tesla

Is California Bailing Out Tesla through the Backdoor? by Wolf Richter

Knowing California and knowing Tesla, it’s not even a spoiler to say the answer to the title questions is: Sure looks like it. From Wolf Richter at wolf street.com:

Tesla will lose federal subsidies; so something big needs to be done.

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout.

Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero.

Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins. A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t.

This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled.

That’s what Tesla is facing next year in the US.

In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market. Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it.

To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out.

To continue reading: Is California Bailing Out Tesla through the Backdoor?

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Is It March of 2000? by Karl Denninger

Financial markets are never rational, but sometimes they are especially irrational. From Karl Denninger at theburningplatform.com:

There was a little company called “Micro Strategy” (by the way they still exist.)

In the first week of March the stock had skyrocketed by over 50%.  The next week it “checked back” most of those gains.

The following week the stock collapsed.

A couple of weeks later, the Nazdaq cracked big.  I was house-shopping, in a hotel, woke up to CNBC full of crying babies and chuckled.

I will note that MicroStrategy was a little dogsqueeze company.  In terms of market cap it was a nothing – literally.  Even today, 17 years later, it’s a little $2 billion firm — granted, much smaller today in market cap than it was then.

In the run-up of the previous weeks and months there had been plenty of indications of trouble.  Many companies had reported slashing prices, increasingly-saturated markets were well-understood and of course there was the “burn rate” nonsense of the period.

It’s arguable that it was that MSTR collapse that upset the apple cart.  You see, when people are buying stocks of companies that have nothing but negative free cash flow as far as the eye can see or sky-high P/Es of 60, 80, 100 or more they’re betting with their eyes taped over on exactly one thing: Indefinite exponential growth of the business and, of course down the line, profits.

The problem is that this is an impossible premise.  There is no way for that to ever happen because it is mathematically impossible.

Today we have Amazon, Facebook and Apple all priced in this way.  Of the three only Apple has some argument for its valuation, but even there given the recent run of almost 50% it’s priced for indefinite exponential growth of a saturated product — iPhones.

To continue reading: Is It March of 2000?

The Corporatocracy, by Robert Gore

cartoon-regulatory-octopus

The interests of Washington and large corporations have merged so completely they are now inseparable.

America’s large corporations and its government have merged. Or was it an acquisition? If the latter, who acquired whom? Unfortunately, the labels affixed to purely corporate combinations lose their analytical usefulness here. While the two retain their own distinct legal structures and managements, so to speak, such a close community of interest has evolved that it’s no longer possible to separate them or delineate their individual contours. Political labels are no help; the ones most often used have become hopelessly imprecise. The Wikipedia definition of “fascism” is over 8,000 words, with 43 notes and 16 references.

However, the conjoined blob is so big, rapacious, and intrusive that akin to Justice Potter Stewart’s famous non-definition of obscenity, everybody knows it when they see or otherwise come into contact with it. This article will use the term “corporatocracy.” It’s less letters, dashes, and words to type than “the corporate-government-combination.” No serviceable understanding of either US history or current events is possible without close study of the corporatocracy. Unfortunately, such study, like entomology or cleaning septic tanks, requires a stout constitution. But take heart, entomologists grow to love their creepy crawly things, and septic tank cleaners say that after a few minutes you don’t even notice the smell.

A cherished delusion of naive liberals holds that big government is a counterweight, not a partner, to big business. Such a rationale is touted when the righteous demand new regulation, the public and media endorse it, the legislators pass it, and the president signs it into law. However, there are always unpaved stretches on the road to hell—once regulation is law, the righteous, public, media, legislators, and president, and their ostensibly good intentions, are on to the next cause.

In the quiet obscurity they relish, regulators and regulated get down to doing what they do best: bending the law to their joint benefit. Business, whose P&L’s can be powerfully affected by regulations, hire armies of lobbyists and lawyers in a never ending effort to tilt the playing field in their direction, and improve bottom lines, stock prices, and executive bonuses. The return on such investment is far higher than on old fashioned expenditures like research and development, plant and equipment, and job-creating expansion.

PRIME DECEIT TORCHES THE SWAMP!

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Not-so-naive liberals, professed conservatives, and apolitical opportunists work both sides of the street. The revolving door ensures that all concerned do well. Playing this game isn’t cheap, which serves as a barrier to entry to scrappy competitors who compete those old fashioned ways: innovation, hustle, and better products and services at lower prices. Regulation cartelizes industries; look, for instance, at banking and medicine. No surprise that regulatory barriers are one of Warren Buffett’s favorite “moats”: deep and hard-to-cross waterways that protect durable commercial advantages.

Washington doesn’t just fortify favored corporations’ business plans. A $4-plus-trillion-a-year enterprise, the government is the world’s largest purchaser of goods and services. Procuring those contracts employs more armies of lobbyists and lawyers, and has a powerful effect on policy. The shoddy premises supporting the welfare and warfare states, and their epic waste, are obvious to many of the taxpayers forced to underwrite them. They’ve decried them for decades, and voted for candidates promising to cut welfare, waste, war, and taxes. However, beyond voting, taxpayers can devote little time to stopping or slowing the gravy train. Their resources are infinitesimal compared to the resources its passengers expend to keep it running.

The modus operandi for Washington and big business have converged. Debt, its issuance and marketing, is the pillar of the financial nexus and revolving door between Washington and Wall Street. The government and its central bank artificially pump up the economy and hide its deterioration with debt and machinations: ultra low interest rates, quantitative easing, and debt monetization. Big businesses lever their balance sheets to pump up their stock prices or make acquisitions, machinations that do nothing to improve core businesses but often hide ongoing deterioration.

The history of any long-running government program is a catalogue of failures and expanding budgets. Washington cherishes failure, the fountainhead of larger appropriations and more power. Success would put bureaucrats out of work and give politicians less influence to peddle. Likewise in business, failure has become much more acceptable than it was during those bad old days of cutthroat capitalism. Marissa Mayer’s undistinguished five-year tenure at Yahoo, while perhaps not a complete failure, certainly can’t be termed a success. Nevertheless, she’s walking away from the company with at least $186 million for her middling endeavors. Given all that discrimination out there against women, one can only imagine what she would have made if she were a man.

Silicon Valley puts billions into companies like Uber, AirBnb, Snapchat, and Lyft that lose those billions and will continue to do so for the foreseeable—and probably the unforeseeable—future. Private equity shops load up companies with debt that gets paid out as special dividends to the private equity shops, leaving the indebted and enfeebled companies unable to compete and the rest of us wondering how such rape is legal in our rape-conscious age. This recipe for inevitable failure is now playing out in the beleaguered retail sector, which would be nowhere near as beleaguered if it wasn’t so beset with debt.

Tesla, a stock market darling and the quintessence of companies in which failure is the business plan, milks Wall Street for financing and Washington (and a bunch of state and local jurisdictions) for subsidies. It has lost billions during its ten years of existence, but its many admirers sing the praises of CEO Elon Musk, always using the term “consummate salesman”—perhaps it’s on his business card. Musk and fan club dream of “the next big thing” and engage in mutual masturbatory fantasies of transforming the world…and Mars. All this is harmless enough as fodder for dazzling audiovisual presentations and slick speeches, but downright dangerous when real billions, private and public, gets sucked in.

Meanwhile, the corporatocracy crucifies an old-line, profitable corporation, Volkswagen, that cheated on one of its hundreds of thousands of regulations. It undoubtedly wasn’t the cheating that got VW in trouble. Regulations are made to be cheated—it’s impossible to run a business without doing so—but the proper offerings must be made to the corporatocracy. If that were not the case, there would be Wall Street, Pharma, and Defense Contractor wings at federal penitentiaries. VW didn’t kowtow low enough or pay high enough to the bureaucrats and politicians, who retaliated, probably “nudged” by a VW competitor.

As a successful businessman, President Trump knows many of the corporatocracy’s skims, scams, and schemes. Perhaps that will enable him to keep his pledge and drain the swamp. However, it’s extensive, fetid, and teems with loathsome creatures, so a bet he’ll succeed involves exceedingly long odds. You’re probably better off buying Tesla stock.

A BLESSED TIME WHEN THERE WAS NO SWAMP

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4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home, by Wolf Richter

Here is the bloodied bear case on Tesla, from Wolf Richter. For the gleeful bull case, you’ll have to look elsewhere. From Richter at wolfstreet.com:

The bloodletting among Tesla shorts has become legendary.

Tesla has been shorted for years by some very smart money betting the overvalued shares will tank any moment. At the end of March, short interest was 31.4 million shares. This short interest amounts to 26% of the “float,” which is the number of shares available to trade (shares outstanding minus restricted stock). This is huge!

Yet, at $308 a share, the stock brushes up against its all-time high, giving Tesla a market capitalization of $50 billion, just shy of GM’s $51 billion. But they don’t even compare. In March, GM sold 63 times as many cars in the US as Tesla. Over the past eight years, GM earned $47.1 billion; Tesla lost $2.7 billion.

With this valuation, Tesla has been a logical short. But the bloodletting among Tesla shorts has become legendary. So the Los Angeles Timesasked these four short sellers why they’d venture into this trade:

  • Mark Spiegel of Stanphyl Capital Management.
  • David Rocker, formerly of Rocker Partners.
  • Mark Yusko, founder and CIO at Morgan Creek Capital Management.
  • Anton Wahlman, former stock analyst who now writes about the auto industry (he said he currently holds no position on Tesla).

And here are seven of their reasons for shorting Tesla:

1. Negative Cash Flows

“If you can’t make money selling a $100,000 car to rich people, how are you going to make money selling a $45,000 car to normal people?” Rocker told The Times. He was referring to the upcoming mass-market Model 3.

“I’m saying they’re going to lose money on every Model 3 they build and sell,” Spiegel said. Based on Tesla’s Q4 2016 earnings report, he figured the combined average selling price for non-leased Model S and X is about $104,000 and the combined average cost of building them about $82,000.

The Model 3 will be smaller, more basic, and with a cheaper battery. There is also hope Tesla can produce several hundred thousand per year, thus getting better prices from suppliers and bringing per-vehicle production costs down. Alas…

“You can cut the price of a car in half, but you can’t cut the cost in half,” Wahlman warned.

To continue reading: 4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home

Former GM Vice Chair Trashes Tesla: “Musk Is A Great Salesman But They’re Doomed. It’s Going To Fail” by Tyler Durden

Competition is coming to Tesla in the high-end electric car market and Bob Lutz think it dooms Tesla. From Tyler Durden at zerohedge.com:

For those who may have missed it, GM’s former Vice Chairman Bob Lutz dropped a whole lot of reality on some unsuspecting Tesla cheerleaders on CNBC this morning. A rather blunt Lutz shared his views, as have we on several occasions, that Tesla’s constant cash burn combined with a barrage of competitive models that are about to hit the market likely indicate that the company is “doomed.” As for Tesla’s gravity-defying stock price, Lutz attributed the company’s soaring market cap solely to Musk being the “greatest salesman in the world” along with his being “aided and abetted by some analysts.”

“I am a well known Tesla skeptic. Somehow it’s levitating and I think it’s Elon Musk is the greatest salesman in the world. He paints this vision of an unlimited future, aided and abetted by some analysts. It’s like Elon Musk has been beamed down from another planet to show us mortals how to run a company.”

“The fact is it’s a constant cash drain. They’re highly dependent on federal government and state incentives for money which constantly flows in. They have capital raises all the time.”

“Even the high-end cars that they build now cost more to build than they’re able to sell them for.”

“Mercedes, BWM, Volkswagen, GM, Audi and Porsche are all coming out with 300-mile [range] electric luxury sedans…I think they’re doomed.”

At that point, an incredulous CNBC host was forced to step in asking “what does doomed mean?”

“What does doomed mean? Their stock price comes in? They go out of business? They have regular competition like other companies? What do you mean by doomed?”

To continue reading: Former GM Vice Chair Trashes Tesla: “Musk Is A Great Salesman But They’re Doomed. It’s Going To Fail”

Musktopia Here We Come! by James Howard Kunstler

Historians will look back and undoubtedly see Elon Musk as a symbol of our age. From James Howard Kunstler at kunstler.com:

It ought to be sign of just how delusional the nation is these days that Elon Musk of Tesla and Space X is taken seriously. Musk continues to dangle his fantasy of travel to Mars before a country that can barely get its shit together on Planet Earth, and the Tesla car represents one of the main reasons for it — namely, that we’ll do anything to preserve, maintain, and defend our addiction to incessant and pointless motoring (and nothing to devise a saner living arrangement).

Even people with Ivy League educations believe that the electric car is a “solution” to our basic economic quandary, which is to keep all the accessories and furnishings of suburbia running at all costs in the face of problems with fossil fuels, especially climate change. First, understand how the Tesla car and electric motoring are bound up in our culture of virtue signaling, the main motivational feature of political correctness. Virtue signaling is a status acquisition racket. In this case, you get social brownie points for indicating that you’re on-board with “clean energy,” you’re “green,” “an environmentalist,” “Earth –friendly.” Ordinary schmoes can drive a Prius for their brownie points. But the Tesla driver gets all that and much more: the envy of the Prius drivers!

This is all horse shit, of course, because there’s nothing green or Earth-friendly about Tesla cars, or electric cars in general. Evidently, many Americans think these cars run on batteries. No they don’t. Not really. The battery is just a storage unit for electricity that comes from power plants that burn something, or from hydroelectric installations like Hoover Dam, with its problems of declining reservoir levels and aging re-bar concrete construction. A lot of what gets burned for electric power is coal. Connect the dots. Also consider the embedded energy that it takes to just manufacture the cars. That had to come from somewhere, too.

To continue reading: Musktopia Here We Come!

Short-seller Chanos says Tesla sure does remind him of Valeant, by Christine Wang

A lot of executives have left Tesla recently. Rats deserting a sinking ship? From Christine Wang at cnbc.com:

The flight of executives from Tesla Motors reminds one shrewd investor of the shakeups that preceded Valeant’s plummet.

Famed short-seller Jim Chanos told CNBC that by his count, Tesla has already seen eight executives leave the company this year.

“The last high-profile company that we saw with such a similar large number of senior executive departures was Valeant,” Chanos said.

The battered pharmaceutical company has seen its stock plunge 90 percent in the past 12 months.

In May, Tesla’s vice president of production and its vice president of manufacturing left the company. At the time, Chanos told “Halftime Report” that one of his firm’s “historical signposts of a company in trouble is when numbers of senior people leave over a short period of time.”

“Tesla fits that bill. … We have all kinds of questions about the profitability of the business,” Chanos said.

In the wake of these departures, Tesla has also been hiring executives from other automakers including a new vice president of vehicle production from Audi.

The closely followed investment manager has been vocal about his short position on Tesla. He called the deal between the electric automaker and SolarCity a “shameful example of corporate governance at its worst” last month.

Tesla declined to comment.

http://www.cnbc.com/2016/07/06/short-seller-chanos-says-tesla-sure-does-remind-him-of-valeant.html