When Will The Tesla Stock-Promote Finally Fail

Tyler Durden's picture

Via AdventuresInCapitalism.com,

The history of industry leading consumer tech products has not been kind to investors who overstay their welcome. You need look no further than all the hundreds of notable recent failures, to realize that these companies almost always flame out. The list below (in no particular order) is a nice trip down memory lane of former favorites, that are now either bankrupt or shells of their former selves—often consumed by some other entity that fortunately put them out of their misery. Of course, the list below, is just from the past decade or two;

Palm, Gateway, Research In Motion, GoPro, FitBit, Heelys, Handspring, Compaq, BlueRay, Garmin, Delorean, Casio, Sega, Tamaguchi, TiVo, Betamax, AOL, Walkman (Sony), Set Top Boxes (Scientific American), Kodak, Atari, Napster, Netscape, Polaroid, etc.

Let’s just say, it’s hard at the top. You must guess each change in technology, each generation of improvement and design it for fickle consumers, while constantly outlaying capital for research and development that may never go anywhere. All the time, others are constantly trying to overtake you.

If you look at the lifecycles of these companies, they often follow a similar trajectory from ingenious creation with huge margins, to a few generations of new products with smaller margins, to massive competition as deep pocketed competitors and venture capitalists try and emulate your product, to missing a product cycle, to becoming obsolete. These consumer product companies rarely last more than a decade; often just a few years. In the end, consumer focused tech is vicious and Darwinian, with very few long-term competitive advantages.

Of course, Tesla (TSLA – USA) is something of an anomaly here. While the companies in the above list, all produced prodigious cash while they were industry leaders, Tesla seems to incinerate cash while in the lead—using repeated equity and now debt offerings to plug the hole. While other companies had a huge stash of cash to fall back on when others overtook them, Tesla’s cash balance leaves it only a few quarters from insolvency. Add in a host of questionable related party transactions, convoluted financial statements (what the hell is pro-forma revenue?), the inability to ever hit company guidance, deceptive disclosures and a business that seems to lose more money with each vehicle it produces, is it any wonder that Tesla is one of the most shorted large-cap stocks today? If I had to choose the most obvious pending bankruptcy of a large-cap stock, it is clearly Tesla.

At the same time, I have to give Elon Musk credit. He has created a company that is a rather successful cult, even if it is still a failing auto company. Every time that skeptics ask real questions, he deflects them with futuristic sci-fi pronouncements. What other automobile CEO is obsessed with Mars while his assembly line fumbles along? What other CEO talks of hyperloops, while his main product on auto-pilot will kill you if used as currently designed. This “visionary “status has deferred timelines and made all logical financial metrics meaningless to investors—which may be the point of all his hubristic talk in the first place. Extend, pretend, blatantly mislead investors, raise more capital. It’s the junior mining model—applied to auto production—on a scale that would make anyone in Vancouver blush.

Automobile production is a decidedly unsexy industry, with massive capital outlays, high fixed costs, huge cyclicality and low returns on invested capital throughout the cycle—the technical definition of an awful business. The leading players produce millions of vehicles a year, yet trade at mid-single digit cash flow multiples, due to how awful the industry is. Why is Tesla valued like a high-tech growth stock, where investors ignore accelerating operating losses; if the best-case outcome is that it becomes a cyclical auto manufacturer with depressing returns on capital? A new technology like electronic vehicles (EV) sounds cutting edge, but so was automatic transmission, air conditioning, power steering, fuel injection, etc. All the other auto makers copied these technologies and caught up within a few years—much like what is now happening in EV. So, how has Tesla become such an epic bubble, if it is competing (poorly) in an industry that is notorious for destroying capital? It is clearly the promotional genius of Elon Musk. Naturally, he won’t be the first or last “visionary” to have a comeuppance.

So, going back to my question, which is the genesis of this article; when will the Tesla stock promote finally implode?

Long-time readers of this site know that I no longer short companies. This was a hard-learned lesson from when I was short Research in Motion, about two years too soon and watched as it went up 3-fold on me—before ultimately collapsing as I had predicted. Unfortunately, I was not short much by the time of the collapse as a small position had mushroomed into something pretty large and I was forced to keep covering at accelerating losses—lest I be forced to sell good longs to fund the repeated margin requirements of the short. While my thesis had been right, my timing was wrong. As long as investors believed in Blackberry, it didn’t matter that Apple and Samsung were building competing products that were likely to be better. It didn’t matter that Chinese players were producing low-end models that were likely to be almost as good, but at a fraction of the cost. It didn’t matter that competition from cash rich competitors grabbing for market share would crush margins. No one on Wall Street cared—until the iPhone finally showed up and people realized it was better. Then the Research in Motion collapse began.

For the past year, Tesla was a bet on pending mass production of affordable EV cars. Earlier this summer, we saw the first of the Tesla Model 3s to be produced. Even the normally ebullient journalists struggled to hide their disappointment with the product. This is understandable, dozens of competing EV models are coming, starting as soon as 2018. Will they be better than the Model 3? Based on what we know thus far, they’re unlikely to be worse. As they continue to advance EV technology, auto companies with far greater resources than Tesla, will eventually surpass it—much like with Blackberry. Then again, Research in Motion was coining money while at the top of its game—Tesla consumes money, while racking up debt. This won’t be a game of margins and profits—all the incumbents need to do is show that they can break even producing a comparable vehicle. At that point, the funding for Tesla will subside and its debt will bury it.

I was too early with RIMM and I don’t want to be too early with TSLA. So, I’ve been patient. I’ve been waiting for the competitors to show up. They’re now coming. The Tesla Model 3 is a dud—competing products will begin showing up in 2018 and they look much better. However, I’m not going to short TSLA. I’m going to use long-dated puts—much like I’ve played all subsequent dead-man-walking companies with an uncertain mortality date.

The problem with puts, is that long-dated puts are expensive. Fortunately, there’s a way to offset this cost, the bear put spread. This is the purchase of a put and the sale of a put at a lower price. By doing this, your gains are capped by the price of the put you’ve sold, but since your cost is much lower, you get to play with many more of them. Besides, you don’t need Tesla at zero to win with these, you just need Tesla’s share price to drop materially from here. If my timing is wrong, my losses are small and I can reload when they expire. Besides, I don’t expect TSLA to be a zero immediately. It is much more likely to limp towards zero, as opposed to imploding towards zero—making the bear put spread even more attractive than straight puts. Let’s just say that for the past few months, I’ve been adding to this position. The net cost of the spread is cheap and the timing now seems increasingly pregnant.

When will Tesla’s stock promote finally implode? When people realize that it’s a cash incinerating vanity project for Elon Musk, at a time when new, better products are coming to the market. That point is coming soon. Very soon.

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Deplorable's picture

When Trump pulls the plug on subsidies

When sales fail to substantially materialize

When Elon over extends himself with his other ventures

When Elon fires another 500 incompetent employees 

When Tesla runs out of cash and no one will buy his bonds

When 300,000 people cancel their orders and ask for their deposits back

When a Tesla car on auto pilot hits and kills an innocent bystander. 

When every other major car maker enters the market with more affordable EVs


Need I go on?

VD's picture

all Musk needs to do is just ICO the TSLAcoin.


"When every other major car maker enters the market with more affordable EVs" --> when every other PROFITABLE car co with a superior product that's more afforbable brings their EV's to market.



chateau's picture

add the buyer $7500 tax rebate . Tesla will hit that mark soon.

The rest are just starting to Rev their engines and have a full 200,000 cars where they will have a $7500 price point advantage. Given Teska’s Hope is the Type 3 ‘mass market ‘ Car that was supposed to be $35k n now more like $45k, the competition will crush them .

not dead yet's picture

A few months ago Musk was whining that the $7500 buyer tax credit was hurting Tesla versus the competition and would like it eliminated. What a lying douche bag. At the pace government works, unless it's to put sanctions on the Russians which gets fast tracked, Musk must figure if he can get the tax breaks eliminated it will be about the time his will reach the end point while his competitors will be in the early stages. Only an ignorant idiot would believe Musk wants these tax breaks eliminated when in every US state and every country that's eliminated the breaks sales of electrics have crashed. Like Musk lied when he announced the China factory as a done deal, where's he going to get the money, and it was a surprise to the Chinese. Like those tunnels in the eastern US that Musk had approvals to dig but the powers in charge never heard of let alone grant a contract to do so. We all know there are lots of Model 3 cancellations and the car is totally underwhelming yet he now claims to have over 500,000 orders yet no one demands to see the order book. I wonder how many pissed buyers there who thought they were at the head of the line and are now way back in the pack unless they want one with the bigger battery, upgraded interior (stock interior is said to be really really el cheapo), and better paint with a color choice and ending up paying $50,000 because that's all Tesla is making for the first months of production.

Ran into an interesting tidbit. The Tesla fanboys brag about Tesla paying back their $465 million loan early. The government held Tesla warrants that would have been worth huge money to the government kitty so Tesla floated $450 million in stock to pay off the loan and cancel the warrants and fuck the taxpayers out of a nice payday.

Sensei CP3's picture

But, but he has space x, hyper loop tunnel digging and other brilliant ideas that will keep the funding coming.  Soon teslar will be forgotten but he'll be sure to pile on new shit

not dead yet's picture

All of Musks brilliant ideas have been around long before he was born. Every one of his ideas has competition that could kick his ass. If these companies lose cash like Tesla the whole thing will collapse sooner than later. Every car Tesla sells to it's rich buyers loses money yet recently they lowered the prices due to "manufacturing efficiencies." If the order book was jammed, as Musk claims, it would be pretty stupid to lower prices rather than paying down the debt. Or is it orders are slowing and he needs lower prices to keep production moving. Last year he offered a strippo for a lower price and if the order book was full as Musk claimed why make a cheaper strippo.

Withdrawn Sanction's picture

"All of Musks brilliant ideas have been around long before he was born."

Yes indeed.  My neighbor has one and I congratulated him on his nice coal-fired locomotive.  He was crestfallen that I didn't appreciate the "modern" nature of his investment.  I reminded him that in our state, roughly 40% of our electricity is still from coal-fired plants; so in essence, he's burning coal to get to work.  

Unruffled, unfazed, and unrepentent, he continues to virtue signal.  

WillyGroper's picture

it's a money laundering operation.

never intended to turn a profit anymore than solyndra.

they're going to legislate we travel in these mobile crematories.

curbjob's picture

An apt vanity plate on a Tesla would be "Betamax"

yogibear's picture

Self-destructing cars. Cool. Elon Musk has repeat zombie buyers.

Zombie Tesla buyers also buy $1,200 iPhones.

Dickweed Wang's picture

Zombie Tesla buyers also buy $1,200 iPhones.


Mr. Moron, meet Ms. Dumbshit.

VWAndy's picture

 The stupid is very well funded folks. Aint fiat magic grand!

Guderian's picture

Once TSLA crashes, there will be questions asked.

Any rigorous review of TESLA's BtB (Burn through Billions) business practices must lead to indictments of its management.

There will be books of insiders and investigators, disclosing internas that will shock readers for years to come.

That entire BtB scheme reminds me of Bernie Cornfeld's IOS in the 70s.

roddy6667's picture

Tesla wants to do business here is China, maybe a factory in Shanghai. They need to be careful. If they are concealing financial improprieties or fraud, the could be in big trouble. White collar crimes above a certain dollar amount get you a bullet in the head or the executioner's needle. That's why Bernie Madoff's relatives won't set up business here. 

Hyjinx's picture

That's only because the only ones committing white collar crimes on that scale are party appartachniks.  They don't want anyone else cutting in on their graft, that is punishable by death.

not dead yet's picture

Musk said he's putting up his own factory with no Chinese partners which is unheard of in China. Companies partner with locals to get the breaks and greased skids which Musk would not get. It also might be illegal. The big question no one asks is where is he going to get the money, hundreds of millions at least, to build this joint. When Musk made his announcement the Chinese claimed they knew nothing about the deal. Ignorant Americans act as if 3 days after the annnouncement the factory is pumping out cars. Reality is it will take years.

Guderian's picture

May I present BELONi MUSKeteer: The Champion of Announcism!

roddy6667's picture

Nobody wants to be Musk's partner. There are no trade secrets to transfer. It's all off-the-shelf  technology. There are no profits to share. Tesla loses millions a year, money they take in from stock sales and government tax subsidies. not business profits.  China already ha a lot of companies making electric cars. What would a Chinese company gain by forming a partnership with Tesla?

Krink26's picture

I sold the call spread earlier today. Hoping for a nice little hit this week. I hope he's right about the slow bleed out - I'll be buying the bear put myself. Elon's pig isn't flying much further.

Milton Keynes's picture

Tesla has some structural advantages.


1) They have a brand.  Apple has a brand, Tesla has a brand.


2) They have a supercharging network.  the superchargers and destination chargers give them network efficiency.


3) They have a giga-factory. That gives Tesla vertical integration vs their competitors.


4) They own Solar City. I thought they overpaid but solar PV and EVs are closely aligned...

These four advantages will let Tesla move forward. If they sell motors and batteries to smaller manufacturers, they could spread 

technology and market share. If they keep selling to the high end, they could own the luxury market.


I am not an Elon fanboy but they have gone much farther then any reason would predict.  



BlindMonkey's picture

Haven't they gone farther based on the unlimited amount of funding they have gotten?  Given an unlimited source of capital, even a blind monkey could keep an enterprise going, until he couldn't. 

moorewasthebestbond's picture

Your post reads like an old sales brochure for a Chevy Corvair.

BlackSun59's picture

I still say Nader was wrong.


Last of the Middle Class's picture

I dunno, my sister had one and on the elevated section of interstae in a mild breeze it was iffy, though the car got great gas milage and was fun to drive. 

SheHunter's picture

You are getting way downvoted ... everyone loves to hate someone who proudly thumbs their nose at the masses.  Musk is an interesting character.  Part prime salesman and part entrepreneur.  For those reasons I admire him.  He does not force anyone to buy these things.  The Tesla fan club buys the cars of their own, and all their own volition.  Musk talking in riddles?  Maybe he took lessons from the AAPL gang! 

Balkan's picture

Tesla's motors and batteries aren't unique at all.

The battery cells are merely Panasonic 18650s which wholesale price is under 1$ at alibaba.com. 6216 cells in 60kW models cost around 6k while the market price of the whole battery is around 30k.

not dead yet's picture

Solar City got to where they are by government subsidy. Every state, and the UK, where they eliminated subsidies and hookups to the grid Solar City closed up shop litterally over night and fired all their people and like locusts moved onto the next feeding ground. When Nevada was thinking of eliminating the subsidy for homeowner juice going into the grid and capping the number of hookups SC bussed in a bunch of their workers to capitol to protest. In every single enterprise of Musks there is competition. Besides government subsidies Musk got lots of cash from suckers running Tesla stock to the moon and the current bond offering, with nothing for collateral, that suckers snapped up at junk bond rates. It's the cult following that's kept Musk in business. If his stock was selling for book value he would have gone under long ago. Tesla doesn't have a gigafactory. Panasonic does and they let Musk put his name on it. Same with the solar panel factory the state of New York built and gave to Solar City for free where they are building Panasonic panels.

buzzsaw99's picture

elon has looted billions.  the company isn't worth jack shit but elon is.  oh yeah, he fucked some people good.  a little psycho babble is a small price to pay for a looting operation on that large a scale.  on the bright side calpers et al deserve the ass raping they are fixing to get from elon.

the artist's picture

I saw 2 Teslas broken down on the freeway today. 

Funny, any other car you would not ID specifically but Tesla...mental note. 

Cant be good for advertising. When are they going to start their own tow service where a covered trailer comes to take them away so nobody can see the contents...I thing Rolls Royce still does that. 

I have a $2k bet with a friend that Tesla goes belly up. Same guy I took $2k from when Trump won. 

Candy from a baby. 

BlindMonkey's picture

Your friend is a masochistic.

the artist's picture

Shit, the funny part is that he called me at 6PM election night and wanted to double down. I was poorer than I was confident. An hour later he was like, "shit".

I have a $2k bet (he gave me 10:1 odds) with same friend that I will beat him in Ping Pong 2 games to 1 in a 20 game tournament. 

A side bet of $2k even money that he beats me 2 games to 1. 

Right now we are an even match so I already netted $1900. 

with that $1900 I have purchased a super delux ping pong robot so I can train heavily in my living room until March 1st. 

All I do is rough up his ego a little and its candy from a baby. 

Dickweed Wang's picture

When are they going to start their own tow service where a covered trailer comes to take them away so nobody can see the contents . . .


Maybe Musk will come up with a way to beam them up.


Dickweed Wang's picture

I mean what could possibly go wrong with a company that "mass produces" its cars by hand, powers them with 1500 laptop batteries and is massively subsidized by the government through tax credits to buy their cars?

"The largest car company by market cap" . . . what a load of bullshit.

the artist's picture

I am trying to imagine the post Tesla world. Will high school kids and old hippies keep these things on the road like old VW beetles? 

1000:1 that in 10 years there are more vw beetles on the road then Teslas. 

BlindMonkey's picture

That is a good bet for your masochistic friend. Keep us posted. 

Dickweed Wang's picture

Will high school kids and old hippies keep these things on the road like old VW beetles?


Impossible . . . you can't really even properly diagnose a normal car half the time these days without having something like a Tech-2 computer interface that runs in the thousands of $$.  Granted, there are a some things a backyard mechanic can do with something like a CAN or OBDII code reader but how are they going to accomplish the same thing on a vehicle where, for example, the available power of the battery pack (or the entire powertrain for that matter) is computer controlled and encrypted?? Good luck.

the artist's picture

I can imagine the casualty rate to electrocution would be quite high during the learning phase.

Balkan's picture

The batteries themselves won't last more than a few years, used or not. So, I can bet that a 10 yo Tesla is completely dead, without any diagnostic tool.

directaction's picture

There are now. And always will be move beetles on the road than those stupid Teslas

not dead yet's picture

Tesla's do not qualify as hand built. There is plenty of automation involved but they just happen to do more hand work than the big boys would do. More like 6000 to 7000 cells depending on battery output.

Trivictus's picture

The Huckster is a brilliant man. 

He's personally flying movie stars and other elites into outer space and landing them back on earth. 

He's boring tunnels under ground so elites can avoid rush hour traffic. 

He's flying elites to Mars and building Mars colonies as we speak. 

He's giving rides to elites on the hyper-loop. 

He mass produces 20 gazillion Model 3s/mo for the elites. 

Why would the Huckster lie?  BTFD.

moorewasthebestbond's picture

TESLA... the true government motors rears it's ugly head again.

tangent's picture

If it cuts battery costs another 30%, which it has done several times before, it will no longer be dependent on subsidies for profitability. It will be a close call but I don't see them needing subsidies.

roddy6667's picture

If battery costs go down 30%, the other companies will be able to lower their prices, also, and Tesla will still be overpriced. Don't start talking about how the Giga Factory is going to do that. It won't happen.

DipshitMiddleClassWhiteKid's picture

while i agree with the authors analysis, what will wind up happening most likely as Telsa begins to implode is that APPL or Amazon will swoop in and buy it and the stock will go Berzerk


Apple has so much fucking cash that they could buy Tesla and Solor Shitpanels and it wouldnt make a difference. 

silverer's picture

Yes, but Apple would want to sell Tesla cars for $200,000 a copy. They would simply not be interested in that company.