Tesla Bonds Tumble To Record Low As Trump Tax Plan Kills EV Credits

Tyler Durden's picture

Elon Musk has a problem... well a few problems, actually.

Production on its messianic Model 3 is worse than terrible...

Electrek.com reports that as Tesla CEO Elon Musk made clear during the company’s conference call with financial analysts last week, Model 3 production is still very much in “production hell” – so much so that Musk refused to confirm how many Model 3 vehicles they produced in October.

He said that “people would just read too much into it.”

Now we have looked into it and at the end of last month, Tesla had built just over 440 Model 3 vehicles since the start of production in July, according to sources familiar with the matter.

It means that Tesla built roughly 180 Model 3 vehicles last month.

That’s clearly not where Tesla wanted to be at that point.

Tesla highlighted batteries, body-shop welding and final assembly as production bottlenecks. It walked back its 2Q claim that Model 3 gross margin would go positive in 4Q, now expecting it to reach breakeven by end of that period. Tesla previously guided toward positive 2H cash from operations.

Because it's building them by hand...

Tesla's warning about “production bottlenecks” might not be its last as Elon Musk’s dream of building millions of the "everyman’s electric car" melts before his eyes. 

Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.


While the car’s production began in early July, the advanced assembly line Tesla has boasted of building still wasn’t fully ready as of a few weeks ago, the people said. Tesla’s factory workers had been piecing together parts of the cars in a special area while the company feverishly worked to finish the machinery designed to produce Model 3’s at a rate of thousands a week, the people said.

As one analyst quoted by WSJ snydely pointed out, “that’s not how mass production vehicles are made.”

Automotive experts say it is unusual to be building large parts of a car by hand during production. “That’s not how mass production vehicles are made,” said Dennis Virag, a manufacturing consultant who has worked in the automotive industry for 40 years. “That’s horse-and-carriage type manufacturing. That’s not today’s automotive world.”

Tesla owners are becoming increasingly frustrated and vocal at the product quality...

The perpetual service nightmare that ensued with Martin's $80,000 electric vehicle prompted him to upload a 25-minute YouTube video chronicling every issue he’s had in his short 11 months of ownership.  Per Jalopnik:

Among the issues he mentions are paint imperfections, a dusty touch screen, and poor trim alignment on the door—these were what he found on the day the car was delivered. Other issues quickly crept up, but Martin waited about six months and 3,000 miles before taking his new car to a service center. When he did, he mentioned to the technicians that his electric driver-side mirror would only unfold partially; he had to physically push it the rest of the way.


Martin also asked the shop to get the door trim lined up properly, but allegedly the mechanics couldn’t quite get it perfect. In addition, Martin mentioned that his rear passenger-side door had a strange delay between the handle being pulled and the door actually opening.


On top of that, he told the shop about a rattle from the rear passenger-side door, a crooked steering wheel when driving straight, a front door that creaked when it opened, and a defective windshield with little horizontal lines in it.


Tesla is cutting supplier orders drastically...

Just days after the Shanghai government was stunned to read in the WSJ that it had granted Tesla permission to open a new gigafactory in its free-trade zone (turns out the two are only in the negotiations stage), according to Taiwanese media reports one of Tesla’s largest suppliers in the country has been instructed to pare back production on parts for the Tesla Model 3 – the latest sign that the cash-burning Silicon Valley carmaker is going to miss its goal of producing 5,000 cars a week by December.

Hota Industrial Manufacturing Co, a Taiwanese automotive components maker and long-time Tesla supplier, has been told to dial back its production of Model 3 components from 5,000 units per week in December to 3,000 per week – a 40% drop, Taiwan’s Economic Daily reports and adds that Hota Chairman Shen Kuo-jung said that the company has received a notice from Tesla to reduce its December order quantity due to production “bottlenecks.”

Which won't help the fact that Tesla is burning a record $16 million per day...

Tesla continued to burn epic amounts of cash, outdoing itself in Q3 with a record cash burn of $1.4 billion - or roughly $16 million per day: an unprecedented amount. This was higher than the $1.2 billion consensus forecast. In Q3, Tesla's CapEx was $1.116 billion, a number which is set to continue pressuring its balance sheet as the company continues to ramp up Model 3 production. Indeed, Tesla announced that capital expenditures are expected to be approximately $1 billion in Q4, "driven largely by milestone payments on Model 3 production equipment, as well as Gigafactory 1, and further expansion of stores, service centers, delivery hubs and the Supercharger network."

The Electric Vehicle Tax Credit is fading away...

Senate Republicans’ tax-cut plan differs from that of their House counterparts on whether to get rid of the $7,500 tax credit for consumers who buy an electric car. Regardless of which way Congress goes -- the Senate wants to keep the credit, the House doesn’t -- the sun is already setting on the perk.

Credits phase out after each manufacturer sells 200,000 qualifying electric or plug-in hybrid vehicles and several are nearing that milestone with Tesla Inc.at roughly 132,000 by mid-2017, while General Motors Co. reached about 142,000 and Nissan Motor Co. almost 111,000, according to Bloomberg New Energy Finance.

And finally, there are 2.7 trillion reasons why Tesla's hopes of global dominance won't happen... unfortunately, those incentives aren’t nearly enough to create the infrastructure to support Morgan Stanley’s forecast of 526 million electric vehicles operating globally by 2040. Building the charging stations and other infrastructure necessary would cost an astonishing $2.7 trillion, much of which would probably need to be allocated by governments.

Morgan Stanley says the problem requires a mix of private and public funding across regions and sectors. The investment bank’s strategists added that any auto company or government with aggressive targets would be unfeasible unless the infrastructure is in place.

All of which leads to perhaps Musk's biggest challenge... funding this ponzi scheme just hit a record high as Tesla bond prices crater...

pushing yields on the company's junk debt to almost 6.4%.

Leaving the 'car' company with almost $10 billion in debt payments due...

Musk is going to need to conjure another big distraction soon or the smoke and mirrors may just be about to break.

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Fahq Yuhaad's picture

The name is Bonds. James Bonds.

I can fix your trim alignment.

Gap Admirer's picture

MAGA. Gubmint should not be in the business of pushing products on people.  Fire that entire gubmint division. The Push Shit On People division.

jcaz's picture

Bilden carz izz hard.....

Gotta client who has an early deposit on a 3-  when his rep bothers to take his phone call,  he gets some vague story about where his order stands,  and when my client suggests canceling his order,  an even more vague story about where to get his refund;

This turd is starting to circle the bowl.......

IH8OBAMA's picture

Henry Ford Elon is not.


Freddie's picture

Tesla's factory sounds like an old 1970s British Leyland or Jaguar factory.

Ford pretty much bought Jabuar sight unseen.  They showed up at the factory in Coventry and were shocked at how primative everything was.  I guess it was the one spot in Coventry the Nazis did not bombs.   They supposedly were beating out body panels by hand.  Sounds like Tesla.

NurseRatched's picture

Tesla can't make Model 3s in large number.  Worse, they can't make battery packs, either.  When Panasonic made the battery packs, Tesla could assemble cars.  Now Tesla is the bottleneck that the old supplier wasn't.

The Model X has crappy build quality.  The Model S is old and long-in-the-tooth with no redesign coiming.  The Model 3 will cost about $500 per month more than deposit-makers planned on. And a majority of the people who put down a paltry $1,000 refundable deposit have no desire to actually own an electric car; they are just speculators looking to make a quick buck. They will ask for their deposits back soon when they realize the gulf between the promises and reality.

Also, how are those 15,000 high-paying manufacturing jobs promised for Buffalo's River Bend Plant (for the year 2016) doing?


jimmy12345's picture

Telsa is investing heavily in automation (it bought two machine automation companies), so once it's very automated lines get up and running, Tesla will be able to build model 3 cars cheaper and faster due to increased automation.   Tesla has created tens of thousands of jobs in America and is pushing American manufacting into the future.

any_mouse's picture

Investing in something and knowing how to apply something involve different abilities.

The Gigafactory build out involved mixed teams of union and non-union workers. As a result, regardless of your stance on unions, there was confusion on roles. Whoever allowed the situation was not experienced in industrial project management.

Musk is throwing a combination of VC and Gov money around and not getting results on the factory floor.

Body Weld and Final Production are not pioneering areas. Toyota has had automated Body Weld down for over a decade, and has had Final Production down for sometime.

The recalls for airbags and the like are from suppliers. Still Toyota's problem, but not a result of Toyota assembly.

Musk does not know Basic Automotive Industry practices.

Elon is in over his head.

He should give TED talks and leave the doing to others.

b-sugar's picture

hey zh, we know about your short position already. 

Solosides's picture


Silicon Valley: You have two cows. They don’t produce any milk, and your operation loses $500 million per year. Top VC firms invest in your cows, valuing your company at $25 billion.

Freddie's picture

LOL!  Russ Hanneman.  

I do not watch shit TV but whack Silicon Valley off some Icelandic hack site.   But the fat shit TJ Goldeberg is a big Trump hater so I pretty much stopped watching.  The rest of the cast is great but that fat shit TJ aka Erhlich is a fat tribesman shit bag.

Knobbius's picture

You are wise. And your tale is so so true. Upvote for you...

Solosides's picture

More like battery fire!

silverer's picture

The electric unicorn has anthrax. Who would have guessed?

buzzsaw99's picture

anyone who buys a car (or stock or bond) from elon deserves what they get imo.

Fahq Yuhaad's picture

It's the only vehicle with a seventeen inch ......................touch screen

buzzsaw99's picture

no small wonder people are wrecking them left and right.

peddling-fiction's picture

add the iffy autopilot, and you are playing russian roulette on the highway, while watching some PC movie or MSM.

Did I just say Russian?

buzzsaw99's picture

One foot on the brake and one hand on my crotch, hey

Well, there's too much russian porn, I can't watch, no...

Freddie's picture

Didn't that guy die in a a crash in Florida on automatic-robo drive?  Supposedly, he was an Ex-Navy seal watching a Harry Potter movie in his model S while  masturbating? 


yarpos's picture

but so dusty,  you have to feel for young Martin, taking his car all the way back to the dealreship to have his screen wiped

Late onset ADHD's picture

I miss 'true' price discovery... a lot... it's been relegated to "Santa" status...

and Santa hates your funky ass, Elon Musk...

2banana's picture

The first of the dominos is about to fall...

ParticularlyStupidHumanoid's picture

This is all good news for the Elio.

any_mouse's picture

Right. You Dreamer.

Elio was waiting on a billion dollar loan from the Feds back in 2014, or so. I am guessing Elio wasn't on Obama's Kwanza list, like Solyndra.

Without that loan from the FED tit, Elio Motors is never going to happen.

Their choice of Pep Boys to be Elio service centers is/was a mistake. Pep Boys has the worst customer service I have encountered in a national chain. They couldn't do an oil change on a diesel. They did not stock diesel motor oil. Yet, They gave me an appointment for an oil change on a diesel and did not follow through.

tuetenueggel's picture

and many many others will follow.

ParticularlyStupidHumanoid's picture


< F*** HIM! He built a factory in China, so he can go live there too.
< Tesla will save Puerto Rico

mkkby's picture

These cars are junk until an electric "fill up" is as fast as a gas fill up.

Only people buying them are the same losers who think having apple products makes them look cool. They deserve the poor build quality of their $80k status symbols.

Korprit_Phlunkie's picture

I wish TRUMP would do the same to amazon google and facebox too.

Remember when everyone use to hate the hell out of walmart and microsoft? what happened to the good ole days?

pawn's picture

Deal with it tesla. Other pieces to fall.

MK13's picture

Bonds selling at 95 cents on the dollar is hardly a story. With QE international, does anyone think Musk will not find some libtards to bail him out?

After all, Amzn owns WaPo, that can't be anything but politically motivated holding.

buttmusk's picture

Chart is old they are at 93 cents on the dollar now

MK13's picture

Damn, bonds are now 2% less, that will stop that stenched Musk cold, I tell you.

I'd short it like no tomorrow, but when you are shorting gov and libtard backed enterprises, you are playing with fire.

yarpos's picture

slightly different level of "investment" required

GotAFriendInBen's picture

He's well suited for government


Tesla continued to burn epic amounts of cash, outdoing itself in Q3 with a record cash burn of $1.4 billion - or roughly $16 million per day:

Northern Lights's picture

I was too young to remember the crash of DeLorean, but I think what happened with them, will happen with Tesla.

On the same note, if you have one of these piece of shit cars, it just might be a collectible in 25 years.

Boris Gudonov's picture

From a brilliant 20th century author who understood some eternal truths about people, society, and technology:

“When railroading time comes you can railroad—but not before.”

Robert A. Heinlein


Electric cars have been around for almost as long as gasoline automobiles.  There are reasons why they would not be built in significant numbers without taxpayers subsidizing them.  Very good reasons.

Late onset ADHD's picture

Rob was my writing mentor when I was a young man... a fine insightful man... I miss him...

cosmyccowboy's picture

i read and re read 'tunnel in the sky'.... i believe was the title!

Late onset ADHD's picture

he taught me how to 'think' outside myself, as a writer... but in hindsight I was too young to fully appreciate the tutelage until years later... I was never a fan of his 'genre', only the underlying narrative constancy in his body of work... his world-view and how to live as a man and a gentleman changed my life forever - we corresponded up until he passed... a great man...

Boris Gudonov's picture

That quote came from "The Door into Summer".  Great read.

vaporland's picture

I love that book. Spielberg should make a movie of it.

More timely than ever:

  • robotics? check!
  • slimy silicon valley business practices? check!
  • time travel? check!
  • cat? check!

I should read it again...

any_mouse's picture

Spielberg? Interesting choice for Heinlein's work.

Sunny2's picture

Teslas sales in Denmark

2015: 2738
2016: 176 (no tax incentives)
2017 (q1): 6

Pernicious Gold Phallusy's picture

Suppose the subsidies secretly got put back in during a marathon late-night reconciliation session just before passing tax reform, inserted by Congressshits and staffers who had just bought Tesla bonds?