Tag Archives: Elon Musk

Is This Why Tesla Executives Are Fleeing? Investors Want To Know

Is Tesla The New Theranos?

I originally started following Tesla as I felt it was a structurally unprofitable business nearing a cash crunch as hundreds of competing products were about to enter the market.

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As I’ve studied Tesla more closely, I’ve come to realize that Elon Musk appears to be running a Ponzi Scheme disguised as an auto-manufacturer; where he has to keep unveiling new products, many of which will never come to market, in order to raise new capital (equity/debt/customer deposits) to keep the scheme alive. The question has always been; when will Tesla collapse?

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-Bullshit-Conversion-Cycle.jpg?itok=O2KMdlapTesla’s Bullshit Conversion Cycle is the key financial metric underlying this scheme (from @ProphetTesla)

As part of my research on Tesla, I decided to read Bad Blood by John Carreyrou, the journalist who first uncovered the Theranos fraud. It is the story of how Elizabeth Holmes created Theranos and then lurched between publicity events in order to raise additional capital and keep the fraud going, despite the fact that the technology did not work. The key lesson from Theranos for determining when a fraud will implode is that there are always idiots willing to put fresh money into a well marketed fraud – so you need a catalyst for when the funding dries up.

The other salient fact was that most senior employees actually knew that something wasn’t quite right, but feared losing their jobs or getting sued if they did anything about it. Therefore, employee turnover was off the charts but no one was willing to risk their career by saying anything publicly. However, when Theranos started risking customers’ lives, the secret got out pretty fast. This is because most people are inherently ethical – especially when they know that their employer is doing something immoral, like releasing flawed lab results to sick patients. Eventually, some employees felt compelled to become whistle-blowers and started to reach out to journalists and regulators. This started a cascading event.

First, one intrepid journalist took the career risk to write about the Theranos fraud. Then other whistle-blowers felt emboldened to step forward and contact this first journalist, as they also wanted their story told – especially as they had already reached out to government regulators who were too scared to investigate a politically powerful company.

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Once a few good articles had been written about Theranos, the dam broke open and the feeding frenzy began. Other journalists, smelling page-clicks rapidly descend on Theranos; more workers spoke out, more incriminating evidence came to light and then there was a sense of voter outrage. Finally, the regulators who were first contacted by the whistle-blowers many months previously, felt compelled to act – at which point the fraud collapsed and the money spigot shut off.

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-executive-departures.jpg?itok=TEBxT2PFExecutives Fleeing Tesla Is A True Bull Market “Up And To The Right”

We’ve already seen the mass exodus of senior Tesla executives. When they say they “want to spend time with their family,” it really means they “want to spend less time in prison.” Next, we have the first whistle-blowers—there will be MANY more. Currently there are at least 3 different ones feeding information to journalists. Using past frauds as a guide, once we get to this point of the media cycle, the fraud usually unravels pretty fast.  Given the perilous state of Tesla’s finances, they are in urgent need of new capital. The question is; who would want to invest new capital when Tesla is now admitting to knowingly selling cars without testing the brakes in order to hit some arbitrary one week production target? When a company admits that it will sacrifice vehicle quality and even risk killing its customers to win a twitter feud and start a short squeeze, regulators must step in. The question is; what else has Tesla done illegally to hit its targets? We know that Tesla long ago passed over the ethical threshold of selling faulty products that have killed people—what other allegations will soon come to light? Elon Musk demanded that Tesla stop testing brakes on June 26. Doug Field, chief engineer, resigned on June 27. Is this a coincidence? Of course not—Doug Field doesn’t want to be responsible for killing people. I think Tuesday’s article will speed up the pace of Tesla’s bankruptcy quite dramatically and I purchased some shorter dated puts after reading it.

Tesla is the fluke stock-promote that found a way to address society’s fascination with ‘green technology’ and the ‘next Steve Jobs.’ Elon Musk eagerly stepped into the role of mad scientist and investors gave him a free pass. It now increasingly seems that everything he’s done for the past few years was simply designed to keep the share price up, keep the dream alive and raise more capital – as opposed to creating shareholder value. Along the way, customer safety has been ignored in order to hit production targets and appease the stock market. In addition to not testing brakes, a recent whistle-blower has accused Tesla of installing over 700 dangerously defective batteries into Model 3 vehicles.

I suspect there will be many more allegations as whistle-blowers come out of the woodwork. It really is the Theranos of auto makers. I suspect it will all end soon. Theranos and Enron both collapsed within 90 days of the journalists getting up to speed. The reporters now know the right questions to ask and Tesla will be out of cash by the time they are all answered.

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-33-07.jpg?itok=kqXN3GzmStock Promotion In Overdrive Lately. What’s Elon Trying To Distract People From?

Besides, Elon Musk isn’t even all that innovative. Hitler already tried this same automotive customer deposit scam 80 years ago (From Wages of Destruction)

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Source: ZeroHedge | Submitted by Kuppy Via AdventuresInCapitalism.com

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“Short-Tempered” Musk Reportedly “Snapped” At Staff Working 12-Hour Shifts In Model 3 “Production Hell” Week

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The conditions at Tesla’s production facility leading up to meeting its Model 3 production goal have been reported as nothing short of hellish as Elon Musk “barked” at employees working 12 hour shifts, bottlenecking other parts of the company’s production and reportedly causing concern by employees that the long hours and strenuous environment would cause even more workplace injuries and accidents.

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Tesla Is Being Sued Again, For Allegedly Not Paying Workers

It wouldn’t be another day in April 2018 if there wasn’t yet another negative Tesla headline hitting the wire.

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That’s right – Tesla has once again been sued, this time as it relates to contract workers at its Fremont factory. Tesla is party to a lawsuit that was also aimed at Balance Staffing, a company responsible for staffing workers at Tesla’s Fremont factory. These workers have alleged not only that they are due additional overtime pay, but also that the service that placed them at Tesla encouraged them to accept debit cards instead of paychecks when it came time to get paid.

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The article continues, citing the temp agency’s standards for overtime pay:

Nezbeth-Altimore points to Balance Staffing’s policy to illustrate her claims over failure to pay necessary overtime wages and provide proper rest periods. California law requires employees to be paid one-and-a-half times their regular rate of pay if they work more than eight hours a day or 40 hours total in a week. After 12 hours in a day, workers are entitled to double their pay.

In its handbook, Balance Staffing only mentions overtime pay for workers who put in more than 8 hours in a work day or 40 hours in a week, the suit says. It makes no mention of working 12 hours a day, according to the suit, something known to happen at Fremont in the past. (CEO Elon Musk said this week that Tesla will be hiring several hundred workers as part of an effort to run Fremont 24/7 to build more Model 3 sedans.) 

“During the relevant time period, Defendants willfully failed to pay all overtime wages owed to Plaintiffs and class members,” the suit says.

Finally, the article notes additional litigation that is outstanding dealing with Tesla’s working conditions, and the obligatory statement from the company, denying it has anything to do with this lawsuit, despite being named a defendant:

Tesla is facing several lawsuits from contract workers over alleged racial bias and abuse at Fremont. One of those cases is moving toward trial, Bloomberg reported last week, as the contract workers aren’t required to settle disputes through binding arbitration, customary for full-time Tesla workers.

In a statement, a Tesla spokesperson said the automaker “goes above and beyond the requirements of California and federal law in providing workers meal and rest breaks and appropriate overtime pay.”

“This is a dispute between a temporary worker and her employer staffing agency, which is responsible for payment of her wages,” the statement said. “There is no specific wrongdoing alleged against Tesla. Regardless, whether Tesla or a staffing agency, we expect employers to act ethically, lawfully and do what is right.”

Is it even possible that both the cash crunch – and the legal issues – at Tesla are getting worse instead of getting better? Regardless, as it relates the company’s finances, those on the short side are starting to smell blood. 

Late last week we did a report on Vilas Capital Management – which has a majority of its short book dedicated to Tesla – and its recent reasoning for making its Tesla short such a large percentage of its capital:

We added meaningfully to our Tesla position in the first quarter at prices in the $340 range. We continue to believe that Tesla is extremely overvalued and that it will experience significant financial difficulties over time.

All companies in a capitalistic system need to earn profits and those profits need to be attractive relative to the amount of shareholder capital employed. Tesla has never earned an annual profit. Along with digital currencies and Unicorns, Tesla appears to be caught up in a gold-rush-fever type of emotional response, both from a “they will take over the world” and a “they will save the world” combination of hopes, instead of their owners looking at the numbers.

Tesla bulls will argue that their production will rise to 5000 Model 3’s per week soon and, therefore, the stock will trade meaningfully higher. Given that the company lost $20,000 per Model S and X sold for roughly $100,000 each last year, due to the fact that it cost more to build, sell, service, charge and maintain these cars than they collected in revenue, as it is important to include all costs when evaluating a business, we predict it will impossible for Tesla to make a profit on a $35,000 to $50,000 car.

As anyone with automotive experience knows, profit margins are far higher on bigger, more expensive cars. Therefore, the faster Tesla makes Model 3’s, the more money they will lose.

Vilas continued:

Roughly five institutions make up nearly 50% of Tesla’s freely floating shares. All it will take is for one of them to realize the likely fact that the company won’t ever earn an annual profit, has been overly optimistic, at best, or quite dishonest, at worst, with their projections of cash flow and profit and Tesla’s shares should fall precipitously. We believe that the CEO’s recent tweet that the company will be profitable and will generate positive cash flow in the second half of the year are likely attempts to artificially inflate the stock and keep creditors at bay.

Given that our calculations show that Tesla needs to raise at least $5 billion of equity, if not closer to $8 billion, to stay solvent in the next 14 months, the company needs to find at least another dozen Ron Baron sized investors.

We do not believe that this will be possible given their expected future losses, working capital and capital expenditure needs, lousy execution with the Model 3, falling demand for their somewhat stale Model S and Model X, tax rebates of $7,500 per car that will start going away shortly, impending competition from Jaguar, Mercedes, Porsche, BMW, Audi, etc., the credit rating downgrade by Moody’s to Caa+ while leaving the credit on watch for further downgrades (Caa+ is basically defined as impending default), the NTSB investigation into the accident caused by the “Full Self Driving” option that they collected $3000 for (which may create a class action lawsuit, fines and the disabling of the feature), the fact that they have had 85 letters and investigations back and forth with the SEC (a very unusual pattern), the fact that their three top finance executives (CFO, Chief Accounting Officer, and Director of Finance) have left the company over the last 18 months leaving huge amounts of awarded by unvested shares on the table, a highly suspicious pattern, and the fact that the company owes suppliers roughly $3 billion of unsecured payments, which could be “called” at any time, similar to a run on a bank.

If Tesla’s suppliers simply asked for their past invoices to be paid and to be paid in cash at the time of their next parts delivery, a likely outcome the worse Tesla’s balance sheet gets, it is clear that Tesla would need to file for protection from creditors. Further, the banks lending Tesla money cannot ignore the balance sheet. They have strict rules that regulators enforce about lending to companies with increasingly negative working capital.

The company’s story about further drawing down lines of credit to finance operating losses and capital expenditure needs may seem plausible to novice investors but, in our opinion, not to suppliers and regulated lenders. In a game of financial musical chairs, it is important to sit down quickly.

Who in their right mind would continue to finance this money losing operation? Up to this point, it has been from growth investors who have likely never owned an auto stock before. Once they figure out the industry and the truth about Tesla’s future, we doubt it will continue.

This second lawsuit and continued scrutiny comes at a time when Tesla is publicly under some of the worst pressure its been under since its founding. The media narrative on the company has certainly has certainly become slightly more skeptical and this has, in turn, triggered Elon Musk to set bigger goals and larger milestones for the future.

The tally of bad press, lawsuits and investigations of recent relating to Tesla is starting to pile up.

  1. NTSB investigation that put the company at a public feud with the NTSB
  2. An initial workplace safety investigation by the state of California
  3. A second reported workplace safety investigation, reported on Friday
  4. A securities fraud class action lawsuit against Musk claiming he knew he was going to miss Model 3 targets for 2017
  5. This contract worker lawsuit
  6. CNBC article detailing poor vetting of suppliers, leading to a pile up of malfunctioned parts
  7. Reports of the company cutting corners as it relates to their pre-owned vehicles
  8. Reveal article alleging the company is under reporting its safety incidents at its Fremont factory
  9. Recent massive recall of 125k Model S sedans

Despite this, we’ve been promised by Elon himself that Tesla:

  1. Will be cash flow positive in Q3 and Q4 of this year
  2. Will not need to do another capital raise in 2018
  3. Will produce 6,000 Model 3’s per week, starting this summer

Critics of the company believe that Elon Musk should be a target by the SEC if these goals – once again, easy to promise, not as easy to deliver – aren’t met. They have been the only thing that has kept Tesla’s stock price from falling well below the $300 mark over the last couple of weeks, despite all of the negative press. This new lawsuit is just another negative to add to that pile. 

Source: ZeroHedge

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In Bizarre Tweet, Elon Musk Threatens Shorts With “Unreal Carnage”

“The sheer magnitude of short carnage will be unreal. If you’re short, I suggest tiptoeing quietly to the exit … “

 

It’s Not Just Analysts: Musk Reportedly Also Hung Up on the NTSB


… It turns out that it is not just analysts that Elon Musk likes hanging up on.

 

Morgan Stanley: “Tesla’s Call Was The Most Unusual I Have Experienced In 20 Years

We were not the only ones who were left speechless by Thursday’s Tesla Tanturm: Elon Musk’s bizarre, childish, perhaps intoxicated, meltdown during Tesla’s conference call, in which he interrupted an analysts, cutting him off in the middle of the question for being “boneheaded, boring and dry”

There Is Just One Thing Preventing Elon Musk’s Vision From Coming True: The Laws Of Physics

When Elon Musk stepped on stage at Tesla’s product-launch event earlier this month, he knew the market’s confidence in Tesla’s brand had sunk to an all-time low since he took over the company a decade ago. So, he resorted to a tactic that should be familiar to anybody who has been following the company: Shock and awe.

While the event was ostensibly scheduled to introduce Tesla’s new semi-truck – a model that won’t make it’s market debut for another two years, assuming Tesla sticks to its product-rollout deadline – Musk had a surprise in store: A new model of the Tesla Roadster that, he bragged, would be the fastest production car ever sold.

Musk made similarly lofty claims about the battery life and performance of both vehicles. The Tesla semi-trucks, he said, would be able to travel for 500 miles on a single charge. The roadster could clock a staggering 620 – more than double the closest challenger.

There was just one problem, as Tesla fans would later find out, courtesy of Bloomberg: None of it was true.

In fact, many of the promises defy the capabilities of modern battery technology.

Elon Musk knows how to make promises. Even by his own standards, the promises made last week while introducing two new Tesla vehicles—the heavy-duty Semi Truck and the speedy Roadster—are monuments of envelope pushing.

To deliver, according to close observers of battery technology, Tesla would have to far exceed what is currently thought possible.

Take the Tesla Semi: Musk vowed it would haul an unprecedented 80,000 pounds for 500 miles on a single charge, then recharge 400 miles of range in 30 minutes. That would require, based on Bloomberg estimates, a charging system that’s 10 times more powerful than one of the fastest battery-charging networks on the road today—Tesla’s own Superchargers.

The diminutive Tesla Roadster is promised to be the quickest production car ever built. But that achievement would mean squeezing into its tiny frame a battery twice as powerful as the largest battery currently available in an electric car.

These claims are so far beyond current industry standards for electric vehicles that they would require either advances in battery technology or a new understanding of how batteries are put to use, said Sam Jaffe, battery analyst for Cairn Energy Research in Boulder, Colorado. In some cases, experts suspect Tesla might be banking on technological improvements between now and the time when new vehicles are actually ready for delivery.

“I don’t think they’re lying,” Jaffe said. “I just think they left something out of the public reveal that would have explained how these numbers work.”

While Jaffe seems inclined to give Tesla the benefit of the doubt, there’s little, if anything, in Musk’s recent behavior to justify this level of credulity. In recent months, Musk has repeatedly suffered the humiliation of seeing his lies and half-truths exposed. For example, the self-styled “visionary” claimed during the unveiling of the Model 3 Sedan that he would have 1,500 copies of the new model ready for customers by the end of the third quarter. Instead, the company managed a meager 260 models as factory-line workers at its Fremont, Calif. factory struggled to assemble the vehicles by hand as the Model 3 assembly line hadn’t been completed.

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Increasingly agitated customers who placed deposits with Tesla back in March 2016 have begun asking for refunds, only to be chagrined by the company’s sluggish response. While nobody in the mainstream press has (somewhat bafflingly) made the connection, Tesla revealed earlier this month that it burned an unprecedented $1.4 billion of cash during the third quarter – or roughly $16 million per day – despite Elon Musk’s assurance that Tesla had its “all-time best quarter” for Model S and X deliveries.

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And let’s not forget the fiasco surrounding Tesla’s autopilot software. Musk has repeatedly exaggerated its performance claims. And customers who paid more than $8,000 for a software upgrade more than a year ago have been repeatedly disappointed by delays and sub-par performance.

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Musk’s exaggerations about the Tesla Roadster were particularly egregious.

Tesla claims that its new $200,000 Roadster is the quickest production car ever made, clocking zero to 60 in 1.9 seconds. Even crazier is the car’s unprecedented battery range: some 620 miles on a single charge. That’s a longer range than any battery-powered vehicle on the road—almost twice as long as Tesla’s class-leading Model S and Model X.

To achieve such power and range, Musk said the tiny Roadster will need to pack a massive 200-kilowatt-hour battery. That’s twice the size of any battery Tesla currently has on the road. Musk has previously said he won’t be making the packs bigger on the Model S and Model X because of space constraints. So how can he double the pack size in the smaller Roadster?

BNEF’s Morsy has a twofold answer. First, he expects Tesla will probably double-stack battery packs, one on top of the other, beneath the Roadster’s floor. That creates some engineering problems for the battery-management system, but those should not be insurmountable. Still, Morsy said, the batteries required would be too large to fit in such a small frame.

“I really don’t think the car you saw last week had the full 200 kilowatt hours in it,” Morsy said. “I don’t think it’s physically possible to do that right now.”

Is it possible that, thanks to incremental improvements in battery density and cost, Musk somehow manages to hit these lofty targets? Perhaps, though, as Bloomberg points out, the fact that Musk is basing these claims on a set of projections that haven’t yet been realized is hardly confidence inspiring.

To be sure, there’s an important caveat to Musk’s claims. While they may be staggeringly exaggerated, there’s still the possibility that incremental improvements in battery technology will make these targets more feasible by the time the models hit the market.

Again, Musk may be banking on the future. While Tesla began taking deposits on the Roadster immediately—$50,000 for the base model—the first vehicles won’t be delivered until 2020. Meanwhile, battery density has been improving at a rate of 7.5 percent a year, meaning that by the time production starts, packs will be smaller and more powerful, even without a major breakthrough in battery chemistry.

“The trend in battery density is, I think, central to any claim Tesla made about both the Roadster and the Semi,” Morsy said. “That’s totally fair. The assumptions on a pack in 2020 shouldn’t be the same ones you use today.”

However, in its analysis of the feasibility of Musk’s claims, Bloomberg overlooked one crucial detail: Back in August, the company’s veteran director of battery technology, Kurt Kelty, unexpectedly resigned to “explore new opportunities,” abruptly ending a tenure with the company that stretched for more than a decade, and comes at a critical time for Elon Musk.

Kelty’s resignation – part of an exodus of high-level executives that is alarming in and of itself – hardly inspires confidence in Tesla’s ability to innovate. We’ve noticed a trend with Tesla: The more the company under delivers, the more Musk over promises.

In our opinion, this is not a sustainable business strategy.  

Source: ZeroHedge