The descent has begun. Anyone still long please take some time to re-evaluate. Strong chance of bk within next 18 months.

TennAg said:

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The descent has begun. Anyone still long please take some time to re-evaluate. Strong chance of bk within next 18 months.

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Was just talking to my dad about this... We're looking at taking a sizable short on this.

seems very risky to short. inexplicably, people keep buying their junk bonds.

Downgraded yesterday by Moody's. They're pretty much relegated to a stock issue now, which will be more and more dilutive as the price drops. They need several billion just to keep the lights on in the next 18 months.

I would be surprised if there isn't a last gasp with all the hype Elon Musk can muster (a lot). They'll give some pi in the sky pitch for fundraising and only those paying attention will know the money's just to catch up on bills and service debt.

So either wait for that or know you might have to sit through it.

We are patient people, but we're doing a little more analysis right now and waiting to see what sort of announcement Musk makes in the next week. He's going to have to talk. Kind of hoping he'll rally the troops and give an impassioned speech that gives the stock a quick jump and lowers the options cost.

I wonder how their options are priced right now.

1/18/2019 puts at $150 strike are showing $12.48/per

Listen to episodes 9 and 10 if you want the bear thesis for Tesla.

QTR Podcasts

Absolutely the cash burn is the issue. The main problem people are starting to see is there are negative margins on the model 3 so any production ramp may help their reputation but it will hasten cash burn.

They messed up badly with this rollout and they were in bad financial shape before it.

TennAg said:

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Absolutely the cash burn is the issue. The main problem people are starting to see is there are negative margins on the model 3 so any production ramp may help their reputation but it will hasten cash burn.

They messed up badly with this rollout and they were in bad financial shape before it.

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really? even if they get 5000/wk?

Yes even at that rate. The car is fundamentally underpriced and is extremely expensive to warranty with all its problems. For Tesla, you also have to add in sales and a lot of service cost per car because they don't have the independent dealership structure to carry it.

Add in about 4k of debt service per car currently and you have big problems. The worst part is that their higher margin s/x sales are softening and actually likely declining as of this current quarter (which could lose up to a billion),

Keep in mind that a lean and experienced manufacturer like Ford is basically break-even on sedans.

TennAg said:

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Downgraded yesterday by Moody's. They're pretty much relegated to a stock issue now, which will be more and more dilutive as the price drops. They need several billion just to keep the lights on in the next 18 months.

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Even after the downgrade, the yield is around 7.5%. They will still be able to tap debt if they want.

I don't see a market for billions of dollars with the current financials. And that's how much they must get.

TennAg said:

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I don't see a market for billions of dollars with the current financials. And that's how much they must get.

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At what point in Tesla's existence did you see financials that justified billions of dollars worth of debt. The whole thing is a joke, but they will get debt if they want to. If for no other reason, than the fact that gigafactory is excluded from collateral of past bond issues.

And what value do you put on that, a giant half-built factory in the middle of the desert with a million strings attached to maintain the tax breaks? I don't see that fetching much in a liquidation.

I'm with you that it's all a joke.

It worked for Amazon.

Tesla was great as an innovator and valued more like a tech company for the past few years. Tech valuations are higher because for simplicity's sake they have to be brilliant and spend a lot of money on the development of a product one time. From thereafter costs to produce each additional unit are low and margins are high. Quality of the product is nearly universal, and repairs to flaws can be pushed to all customers with a patch.

Tesla is now a manufacturer of vehicles, which requires a significant initial investment in plants, and ongoing significant working capital demands for labor and inventory. It is inherently a lower margin business. Quality has to meet high standards across the entire supply chain and manufacturing process for every unit every day. Flaws in the product will result in costly recalls. While their innovation largely created the market for electric vehicles, a market that is likely to see very significant sustained growth rates, there are serious competitors entering the space, and that will drive margins lower.

If I were a debt issuer I wouldn't be offering some the sweetheart terms that they've seen in years past, and I definitely would want a lien on the battery factory. The battery factory I see as a going concern, while the car manufacturer may be the Packard of the 21st century.

Because the battery factory is a joint venture with Panasonic, I'm not sure how much, if at all, it can be used as collateral. They also have some $1.5B in contractual obligations to buy batteries as part of that factory.... So I'm guessing that Panasonic owns the plant in the event if BK.

Tesla is a ****show, and it's about time the market start reflecting that instead of hanging around $350 a share. I also wonder if banks aren't interested in another offering in this market, citing Tesla off from capital markets.

Took a quick look... they only have $500mm due this year, but the real problem is 2019. $1.5bn due at a blended rate of under 1%. Treasuries are already working their way higher and I doubt TSLA's credit spread is doing anything good. Plus their subsidies expire this year.

Also they lose tons of money every year. TSLA might still exist in 2020 if they can sell off enough divisions, but they are too far along in the monetization strategy to place a ton of faith in future earnings bailing them out.

A HUGE problem they have is accounts payable approaching 2.5 billion. If suppliers draw the strings even a little having seen the downgrade, then Tesla's cash goes to almost nothing.

Who would have thought a "business" supported by us govt subsidies would be in trouble?

Who is going to fix all these cars if it goes under?

Tesla is going to be fine. I think the feverish excitement in here about their liquidity is probably a bit over zealous.

Having said that I got out at $305 and will wait and see before jumping back in.

Really bad look for Musk to joke about bankruptcy on Twitter. Lots of people's livelihoods at stake, and he's being flippant about it because he is a very rich man either way.

Everybody's looking to get offended a be a victim. Lighten up. It's a joke.

exp said:

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Everybody's looking to get offended a be a victim. Lighten up. It's a joke.

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Then maybe he should have been a clown. Although judging by his comedic timing, he'd fail to turn a profit in that "business" as well.

Mr musk is wearing the emperor's new clothes I'm afraid.

exp said:

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Tesla is going to be fine. I think the feverish excitement in here about their liquidity is probably a bit over zealous.

Having said that I got out at $305 and will wait and see before jumping back in.

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Tesla has MAJOR problems. Their quality control is a total SNAFU and seems to be getting worse as they ramp up Model 3 production (and they're still way behind production targets despite this lemon-generating death march pace). That's bad news for a company that's already burning through cash and no obvious path to stop the bleeding.

Even worse, all of the other major players are jumping into the EV game (and their manufacturing processes are far better). So Tesla has to massively improve quality, reverse its cash burn, and increase its production numbers all before BMW, Porsche, and the like roll out equally cool EVs. I'm not seeing it.

In case you think I'm making this up

http://autoweek.com/article/green-cars/tesla-model-3-walkaround-teardown-engineering-firm-highlights-assembly-issues
(on panel gaps)
"If we look over here I can barely get my fingernail in," Munro says. "And then we look over here, I can almost put my thumb in. This is, this is very unusual; the stackups, the tolerance stackups on this car are just like nothing we've ever seen before. Not since, like I say, the '70s or something. I don't, I don't understand how it got to this point. I mean, these are, these are flaws that we would see on a Kia in the '90s or something."

https://carbuzz.com/news/check-out-these-seriously-bad-tesla-model-3-quality-control-issues
Check Out These Seriously Bad Tesla Model 3 Quality Control Issues

https://www.greencarreports.com/news/1115659_tesla-model-3-quality-is-terrible-but-does-it-matter-to-buyers
Tesla Model 3 quality is terrible, but will it matter to buyers?


Basically, the only thing Tesla has right now is its reputation for sex appeal. If they keep churning out crap and owners have to send their cars to the shop again and again, that reputation will disappear and they'll soon only have a giant battery factory.

Tesla's valuation is silly and absurd considering other individual automakers are taking international and US market share from Tesla, do it at a profit, and do it along with the rest of their car lineup that sells an order of magnitude more than Tesla does.

exp said:

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Everybody's looking to get offended a be a victim. Lighten up. It's a joke.

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He also tweeted "everything's better with fire" just after (same day?) his company admitted their autopilot software got one of their customers burnt to a crisp.

bmks270 said:

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Tesla's valuation is silly and absurd considering other individual automakers are taking international and US market share from Tesla, do it at a profit, and do it along with the rest of their car lineup that sells an order of magnitude more than Tesla does.

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It's not apples to apples.

Other car manufacturers are just that... Car manufacturers. Tesla has the POTENTIAL to become a dominant, fully vertically integrated green energy company whose brand power permeates as much as GE did in the 90s. The potential scope of business for Tesla in 20 years if they can make it puts *car* companies to shame.

I believe in them. Am worried about short term, but less so the long term.

The wolves are snapping at their heels from a tech standpoint in most product lines, which means they might never get to enjoy outsized moat profit margins to offset the first mover R&D costs.

Being vertically integrated isnt the advantage it used to be because computers/ automation have made multi-company supply chains so much cheaper.

They could get out of this, but they don't have that much time to do it.