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

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.