Tag Archives: Tesla
(Reuters) – Tesla Inc Chief Executive Elon Musk was filmed smoking marijuana and wielding a sword on a webcast, just hours before the automaker said its recently-appointed accounting chief would leave, the latest in a string of unusual behavior and executive departures that have stunned investors.
Shares of the electric carmaker tumbled more than 6 percent on Friday to $ 263.24, with investors on edge after a tumultuous August during which Musk proposed and then abruptly pulled the plug on a go-private deal.
Chief Accounting Officer Dave Morton resigned after just one month in the job because of discomfort with the attention on the company and pace of work during that time, Tesla said in a filing on Friday. It later said that Chief People Officer Gaby Toledano would not return from a leave of absence, just over a year after joining.
Later on Friday, Tesla named a new president of automotive operations, promoting eight-year Tesla employee and former Daimler truck exec Jerome Guillen into the role overseeing all automotive operations and reporting to Musk.
That move, described in a company blog with several other promotions as a result of board and management discussions, gives Musk a seasoned auto industry veteran to lean on at a time when some investors have called for a new chief operating officer. Shares barely moved after hours, when the promotions were announced.
Morton and Toledano, whose departures come shortly after the U.S. Securities and Exchange Commission opened an inquiry into Musk’s aborted privatization plan, join dozens of senior executives who have left Tesla.
“Since I joined Tesla on August 6th, the level of public attention placed on the company, as well as the pace within the company, have exceeded my expectations. As a result, this caused me to reconsider my future,” Morton said in the filing.
Late on Thursday, Musk was filmed drinking whiskey, briefly smoking marijuana and wielding a Samurai sword during a 2-1/2-hour live Web show with comedian Joe Rogan that swiftly spread across social media.
Taking a puff from a joint, which Rogan said was a blend of tobacco and marijuana and legal in California, Musk said he “almost never” smoked.
“I’m not a regular smoker of weed,” Musk said. “I don’t actually notice any effect … I don’t find that it is very good for productivity.”
It was the latest in a string of unconventional behavior by the billionaire South African native who is also CEO of rocket startup SpaceX.
Even before Musk’s surprise Aug. 7 tweet that he had funding “secured” for a go-private deal, Tesla had been under scrutiny from investors, analysts and short-sellers as it works to hit production targets and slow its cash burn.
Morton, who is walking away from a $ 350,000 base salary and a $ 10 million new-hire stock grant that would vest over four years, said he believed “strongly” in Tesla and that he had no disagreements with the company’s leadership or its financial reporting.
Analysts on Friday reiterated their call for Tesla to bring in another senior leader.
“We have been calling for a co-CEO or COO to assist to codifying the leadership structure and in so doing, the culture at Tesla,” said James Albertine, analyst at brokerage Consumer Edge, speaking before the promotions were announced.
“We think this is further evidence that the time is now for management and the board to address these issues.”
SOBERING EFFECT ON INVESTORS
Tesla’s $ 1.8 billion junk bond maturing in August 2025 plunged as much as 4 cents on the dollar to below 82 cents, a record low, in Friday trading, pushing the yield above 8.8 percent.
Coupled with an upfront cost of 21 percent of insured value, it now costs an investor around $ 280,000 to insure $ 1 million of Tesla debt for a year.
With Tesla’s stock falling to its lowest level since April, short sellers added 810,000 shares to their positions, bringing the total as of Thursday to about 32.6 million shares, according to S3 Partners, a financial technology and analytics firm.
Tesla has told investors it expects to turn a profit in the second half of this year, a forecast the company’s head of investor relations, Martin Viecha, reiterated at a conference earlier this week sponsored by RBC Capital Markets, RBC analyst Joseph Spak wrote in a note on Thursday.
Viecha also restated Tesla’s forecast that it will build 50,000 to 55,000 of its Model 3 sedans in the current quarter, and indicated the company’s working capital will improve as production increases, Spak wrote.
Prominent short-seller Andrew Left has sued Tesla and Musk, saying in his proposed class-action complaint on Thursday that Musk’s issuance of materially false and misleading information related to his abandoned plan harmed both short-sellers and those hoping the stock would rise.
Reporting by Nivedita Balu and Ismail Shakil in Bengaluru, additional reporting by Noel Randewich in San Francisco, Joe White in Detroit and Dan Burns in New York; Writing by Meredith Mazzilli; Editing by Matthew Lewis and Rosalba O’Brien
WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission has sent subpoenas to Tesla Inc (TSLA.O) regarding Chief Executive Elon Musk’s plan to take the company private and his statement that funding was “secured,” Fox Business Network reported on Wednesday, citing sources.
The electric carmaker’s shares fell as much as 4 percent but cut their losses after Goldman Sachs Group Inc (GS.N) said it was dropping equity coverage of Tesla because it is acting as a financial adviser on a matter related to the automaker.
Investors viewed the Goldman statement as confirming a tweet from Elon Musk on Monday about working with Goldman, even as the reported subpoenas indicated the SEC has opened a formal investigation into a matter.
The latest news extended the roller-coaster ride for Tesla investors in recent days, adding to uncertainty about the future course of the company and whether a deal can be done amid growing regulatory complications.
Tesla and the SEC declined to comment.
Musk stunned investors and sent Tesla’s shares soaring 11 percent when he tweeted early last week that he was considering taking Tesla private at $ 420 per share and that he had secured funding for the potential deal.
The shares fell 2.6 percent to $ 338.69 on Wednesday, below $ 341.99, their closing price the day before Musk tweeted his plan to take Tesla private.
The Tesla CEO provided no details of his funding until Monday, when he said in a blog on Tesla’s website that he was in discussions with Saudi Arabia’s sovereign wealth fund and other potential backers but that financing was not yet nailed down.
Musk also tweeted late Monday night he was working with Goldman Sachs and private equity firm Silver Lake as financial advisers. However, as of Tuesday, Goldman was still negotiating its terms of engagement with Musk, according to a person familiar with the matter.
The 47-year old billionaire’s tweet about secured funding may have violated U.S. securities law if he misled investors. On Monday, lawyers told Reuters Musk’s statement indicated he had good reason to believe he had funding but seemed to have overstated its status by saying it was secured.
The SEC has opened an inquiry into Musk’s tweets, according to one person with direct knowledge of the matter. Reuters was not immediately able to ascertain if this had escalated into a full-blown investigation on Wednesday.
This source said Tesla’s independent board members had hired law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP to help handle the SEC inquiry and other fiduciary duties with respect to a potential deal.
The Wall Street Journal said the SEC was seeking information from each Tesla director.
Reporting by Sonam Rai, Michelle Price and Supantha Mukherjee; Editing by Anil D’Silva, Nick Zieminski and Cynthia Osterman
(Reuters) – Tesla Inc and Chief Executive Elon Musk were sued on Friday by an investor who said they committed securities fraud in a scheme to “completely decimate” short-sellers that included Musk’s proposal to take the electric car company private.
FILE PHOTO: Elon Musk, founder, CEO and lead designer at SpaceX and co-founder of Tesla, speaks at the International Space Station Research and Development Conference in Washington, U.S., July 19, 2017. REUTERS/Aaron P. Bernstein/File Photo
The proposed class-action complaint filed by Kalman Isaacs in San Francisco federal court accused Tesla and Musk of trying to artificially manipulate the company’s stock price.
It said this occurred largely through a series of tweets by Musk on Aug. 7, including when he said he might take Tesla private and that there was “funding secured.”
Musk’s tweets helped push Tesla’s stock price more than 13 percent above the previous day’s close.
The stock has since retreated, in part following reports that the U.S. Securities and Exchange Commission had begun inquiring about Musk’s activity.
Tesla did not respond to a request for comment.
Isaacs accused Musk of making false and misleading statements to inflate Tesla’s stock price, and that Tesla “doubled-down” on those statements by failing to correct them.
According to the complaint, Isaacs bought 3,000 Tesla shares on Aug. 8 to cover his short position, or bet that the price would decline, in the company.
The complaint said the class period begins on the afternoon of Aug. 7, when the defendants launched their “nuclear attack” on short-sellers, and ends the next day.
Reporting by Jonathan Stempel in New York; Editing by Rosalba O’Brien
SAN FRANCISCO (Reuters) – Chief Executive Elon Musk said on Tuesday he is considering taking Tesla Inc private in what would be the largest deal of its type, moving the electric car maker out of the glare of Wall Street as it goes through a period of rapid growth under tight financial constraints.
“Am considering taking Tesla private at $ 420. Funding secured,” Musk said on Twitter bit.ly/2Om3gn3. At $ 420 per share, a deal would be worth $ 72 billion overall.
In a letter to Tesla employees published more than an hour later on the company’s blog here, Musk explained that going private would be “the best path forward.” Such a move – over which no final decision had been made – would let Tesla “operate at its best, free from as much distraction and short-term thinking as possible,” he wrote.
Tesla shares closed up 11 percent at $ 379.57, slightly below their all-time high.
Asked on Twitter whether Musk would continue to be CEO under such a scenario, he replied there would be “no change.”
Musk has been under intense pressure this year to turn his money-losing, debt-laden company into a profitable higher-volume manufacturer, a prospect that has sent Tesla’s valuation higher than that of General Motors Co.
The company is still working its way out of what Musk called “production hell” at its home factory in Fremont, California, where a series of manufacturing challenges delayed the ramp-up of production of its new Model 3 sedan, on which the company’s profitability rests.
The Silicon Valley company faces a make-or-break moment in its eight-year history as a public company as competition from European automakers is poised to intensify with new electric vehicles from Audi and Jaguar, with more rivals to follow suit next year.
Meanwhile, Tesla has announced plans to build a factory in Shanghai, China, and another in Europe, but details are scarce and funding unknown.
Going private is one way to avoid close scrutiny by the public market as Musk and the company face those challenges. Musk has feuded publicly with regulators, critics, short sellers and reporters, and some analysts suggested that less transparency would be welcomed by Musk.
“Musk does not want to run a public company,” said Gene Munster of Loup Ventures, as Tesla’s ambitious mission makes it “difficult to accommodate investors’ quarterly expectations.”
Musk owns nearly 20 percent of the company. He said in his letter to employees he did not seek to expand his ownership.
A price of $ 420 per share would represent a nearly 23 percent premium to Tesla’s closing price on Monday, which gave the company a market value of about $ 58 billion.
In his letter, Musk suggested a choice for shareholders of selling their shares for $ 420 each or remaining investors in a private Tesla. He said he hoped all current investors would remain were the company to go private.
He made no mention in his tweets nor his letter where the funding for a deal would come from, and the letter did not discuss funding for the plan.
Like any other investor, Musk is beholden to securities laws and several securities attorneys told Reuters he potentially could face lawsuits if it was proven he did not have secure financing at the time of his tweet.
(GRAPHIC-Market value of Tesla, Ford, GM: tmsnrt.rs/2n4mFjh)
BIGGEST GO-PRIVATE DEAL
If Musk were to succeed in taking Tesla private, it would be the largest leveraged buyout of all time, beating the record set by the $ 45 billion deal for Texas power utility Energy Future Holdings, which ended in bankruptcy in 2014.
Raising both the debt and equity required for such a deal would be a challenge. Many major Wall Street bankers contacted by Reuters said on condition of anonymity they were not aware of Musk’s plans ahead of his tweets, and several expressed skepticism that a leveraged buyout of Tesla could be financed given the company’s negative cash flow.
“It’s unfathomable to me that anyone would finance the acquisition of such a liability-laden company that is losing so much money and have massive capex requirements going forward,” said Mark Spiegel, portfolio manager of hedge fund Stanphyl Capital Partners, who holds a short position in Tesla and has been a vocal critic of Musk on Twitter.
The most obvious equity partners for Musk would be a sovereign wealth fund such as Saudi Arabia’s Public Investment Fund (PIF) or major technology investment funds such as SoftBank Group Corp’s Vision Fund, bankers said.
China’s Tencent Holdings, which took a 5 percent stake in Tesla last year, is another possible partner.
Such foreign sources of capital would be subject to scrutiny by the Committee on Foreign Investment in the United States (CFIUS), which looks closely at deals for potential national security risks.
Earlier on Tuesday, a source familiar with the matter said Saudi Arabia’s PIF had bought a minority stake of just below 5 percent in Tesla.
The U.S. Securities and Exchange Commission declined to comment on Musk’s tweet, but the agency allows companies to use social media outlets like Twitter to announce key information in compliance with its fair disclosure rules if investors are alerted about which social media outlets will be used.
Tesla alerted investors in a 2013 SEC filing that they should follow Musk’s Twitter feed for “additional information” about the company. There is no reference to Musk’s Twitter account on the company’s investor relation page under “investor communication,” although Tesla’s Twitter feed is included.
In his letter to employees, Musk wrote that, “as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
A short squeeze is a trading scenario that occurs from time to time in heavily shorted stocks, when bearish traders are forced to buy shares to avoid big losses – something that ends up pushing the stock only higher.
Short interest in Tesla on Tuesday stood at nearly $ 13 billion, according to S3 Partners, a financial analytics firm.
(GRAPHIC-Tesla shares jump 10 percent, near record high: tmsnrt.rs/2MbzJin)
Reporting by Sonam Rai in Bengaluru, Alexandria Sage in San Francisco, Carl O’Donnell, Liana Baker, David Randall in New York and Pete Schroeder in Washington; editing by Saumyadeb Chakrabarty, Bill Rigby and Chris Reese
Bullish expectations for Q3
This article explores the bullish projection that Tesla (NASDAQ:TSLA) is about to become profitable in Q3.
Among the expectations discussed below are that Tesla Model 3 sales in Q2 will be 20,000 cars fewer than production due to federal tax credit rules. This will appear to be poor sales, but in reality will be due to stockpiling cars for sale in Q3 due to the way the tax rules are written.
While this means Q2 revenue will be reduced, it also means Q3 revenue will be increased. As a result, Model 3 should become a top 20 selling vehicle in the US in Q3 with a potential of 80,000 units sold into the US.
This is an average per month sales of about 27,000 Model 3 cars, making it the 12th best selling vehicle in the US ahead of the Nissan Altima (see list below).
Tesla Q3 sales will match the total number of cars sold by Tesla in all of 2017.
Elon Musk has adopted “profits” as his current goal. This replaces his previous goal of fast expansion of the product lineup. The former goal required capital input to fund rapid expansion. The new goal will flip the losses upside down and generate profits now that the bottlenecks are being eliminated one after another.
Most authors write that Tesla is shutting the production line down to “fix problems”. I suggest that Tesla is shutting the production line down to install new machinery that will increase the production speed. Increased production speed means increased gross margin, and if the increase is large enough, net profits.
Showing profits will potentially increase stock price and eliminate the potential for bankruptcy. This in turn will eliminate the bear thesis that Tesla is about to go under and is therefore a good stock to short.
With the short thesis proven wrong, I expect the stock to increase to a new plateau above $ 400 per share. This was my expectation a year ago, but the bottlenecks delayed the realization until now.
However, sales will likely remain low for May and June. I don’t expect this share price increase to be realized until after a barrage of sales in July make what I’m suggesting here obvious.
Let’s now explore why I’ve come to the above conclusions.
Model 3 may enter top 20 selling US cars in Q3
This week, Tesla has reached 500 cars per day, or, 3,500 cars per week. Bloomberg just increased their production estimate to 3,523/wk.
According to Electrek, Tesla is well on its way to reaching 5,000 cars per week by the start of Q3 in July.
If Tesla reaches this target for next quarter, the Model 3 will enter the top 20 list of US vehicles sold. A rate of 5,000 cars per week means an annual rate of 250,000 cars and a monthly rate around 20,000 cars. I expect Tesla will sell 80,000 Model 3 cars in Q3 so look for 27,000 or so cars per month on the list below.
That rate is between the Jeep Grand Cherokee and the Toyota Tacoma. If realized, the Model 3 will become a top 20 selling car in the US, next quarter.
This data was published by Focus2move here:
Today, the Model 3 is the best selling EV, but it isn’t on the top 100 list. Neither is any other EV. Every one of the top 100 selling cars in the US have an internal combustion engine. And while Tesla is now projected to be building more than 3,000 cars per week, which is to say over 12,000 cars per month (which would place the Model 3 around the #40 position of vehicles sold in the US), I expect this will not happen in May or June.
The reason? The federal tax credit.
It is beneficial for any company to cross the 200,000th car sold into the US threshold, early in a new quarter. Doing so wins that company an extra quarter of sales where customers receive the full tax credit.
Tesla would likely cross that mark this quarter if it sold all the cars it builds, as soon as they are built. To avoid this, Tesla is likely already stockpiling vehicles for a blow out delivery rush starting in July.
Several authors have noticed that the production figures are higher than reported sales figures. Tesla should have built over 6,500 cars in April, but sold fewer than 4,000. That’s a 2,500 or so discrepancy.
There are articles projecting that the discrepancy results from poor build quality and cars piling up for re-work and being stored in parking lots until Tesla can get around to fixing them.
I contend that thesis is wrong, and instead, Tesla is piling up a tsunami of cars for sale in Q3. Here’s why.
How the Federal Tax Credit works
The federal tax credit phases out over a 4-quarter (1-year) period beginning the second quarter after a company sells their 200,000th car.
If Tesla actually sold the cars produced, I expect the company would cross the threshold this quarter. By delaying the 200,000th US sale until after July 1, Tesla adds nearly an entire extra quarter of sales to the program, benefiting their customers. Tesla will sell nearly 60,000 more cars under full tax credit.
For this reason, I think one should expect sales to be flat this month and next (in Q2), while a 20,000 car stockpile ready for Q3 sales is accumulated.
Musk’s Increased Confidence
Elon Musk has stated several times that Tesla will not need to raise money this year. During the recent earnings call, he explicitly stated Tesla will not raise money this year.
Much was written about Musk’s behavior on that call. Most articles in one fashion or another, assert that Musk is cracking under the pressure. If so, Tesla may be headed for a crash near term.
So many people bought into that notion that 400,000 new shares sold short overnight after the earnings call. The stock price dropped 10% in one day.
Since then, however, the stock price has fully recovered and the divide between the bullish and bearish theses has widened.
Listening to the call, it made perfect sense to me that Elon was annoyed by the callers who had read the release and yet asked questions about things specifically stated in that paper. It was as if the callers were saying they knew the paper said they would be profitable, but they don’t believe it and so are trying to figure out what Elon is lying about. Feeling like he was being called a liar, I believe, is why he lost his cool.
But that isn’t what’s interesting. What’s interesting is that he is so confident that he will not need to raise funds that he didn’t bite his tongue.
What this means is that for the first time, Musk is placing profits ahead of expansion and rapid growth. And what’s more, he fully expects to reach profitability.
Bloomberg’s Model 3 Tracker diverging from reality
Bloomberg’s Model 3 Tracker website has been excellent at following the ramp up in Model 3, until April. The analysis has a flaw that doesn’t account for the federal tax credit deviation from business as usual.
The Tracker assumes that when a car is built and ready for sale, that Tesla will sell it as quickly as possible. This has been true, until this past month. Now, and until the end of June, Tesla can benefit its customers best by holding back about 20,000 (total) cars built in Q2 and then selling them in Q3.
Here’s the VIN data from the wild, plotted as yellow dots. Notice the gap in the numbers from about 23,000 to 25,500 representing about 2,500 cars that are absent from the public. Where did they go? Were they built?
Tesla should have built around 6,500 Model 3 cars in April. This is based on Tesla statements that they built 2,000+ cars per week for 3 weeks in a row (2 in April), and then shut down the line to add improvements and further speed the line production. April production should have been ~6,500 cars.
Instead of 6,500 Model 3 cars sold in April, Tesla only sold 3,875 M3 cars according to InsideEVs here.
We know Tesla built over 4,000 Model 3 cars in the first 2 weeks of April and would have needed to shut the line down for the rest of the month if cars produced were the same as cars sold. That makes no sense.
One logical explanation is that Tesla “sold” fewer cars than it “produced” by around 2,500. If these cars are being stockpiled, then in May and June this discrepancy should get much worse.
Tesla should build around 10,000 Model 3 cars in May and around 18,000 cars in June. But Tesla will likely sell just 5,000 per month for those two months to remain below 200,000 cars sold into the US. That means Tesla may accumulate 2,500 + 5,000 + 13,000 = 20,500 cars more than it sells in Q2.
Bloomberg’s model averages the estimates of cars produced with cars sold. But that’s averaging apples and oranges, it doesn’t work.
Last week the production estimate was 1,752 and this week it is 3,523.
Bloomberg needs to separate the sales and production projections into two different values. Otherwise they are trying to average apples and oranges. This would be fine any other time except now, where unusual strategy makes sense to benefit customers who desire to receive the federal tax credit.
Potential Q3 Sales
This brings us to estimate potential Q3 sales based on these optimistic expectations.
First, if Tesla succeeds at ramping to 5k/wk by the beginning of Q3, then it should have produced about 30,000 M3 cars in May and June. If it sells 10k of those to hold #1 BEV position for those months, there would remain 20,000 cars in stock.
Second, Tesla should pass 5k/wk build rate and increase to higher than that during the middle of Q3. That means Tesla should build more than 60,000 cars in Q3. VIN filings must significantly increase to meet that pace, and those filings will be public information.
For the past month, VIN filings are about 3,800 cars per week. This is well on its way to 5,000 per week by the end of the quarter. Tesla should also build about 25,000 of Models S and X in Q3.
Tesla will be coming out with the dual motor and possibly also ludicrous mode variants of the Model 3 in Q3. Tesla is taking orders for the higher cost variants of Model 3 first, so I expect the average price to remain high and will use $ 50k for these estimates.
The total M3 cars sold in Q2 should be around (20k + 60k) * $ 50k = $ 4B.
The total MS and MX sold should be around 25k * $ 100k = $ 2.5B.
The total revenue from cars should be in the range of $ 6.5B with a gross profit of $ 1.3B if they make the 20% margin figure claimed. I’ll ignore the energy side for this treatise as small by comparison.
Given that Musk has firmly asserted the company will not need cash, and also that it will be profitable and cash flow positive, I suspect that Musk is thinking Tesla will manage something like the above.
Model 3 is about to enter the US Top 20 list
The Model 3 is about to climb the ranks of other vehicles, and if the above figures are met, it will pass Toyota Corolla and Honda Accord, landing in a tie with the Jeep Grand Cherokee for top selling vehicles in the US for Q3.
I admit that this comparison is, and isn’t, fair. The Model 3 is an EV whereas all of the top 100 cars sold in the US today have internal combustion engines, ICE.
The Model 3 is the best selling EV and the only mass produced EV. In this regard, the comparison is NOT fair since it is different from all of the rest of the cars on that top 100 list.
However, any other car company could have launched an EV instead of their ICE models. And, they could have built their own equivalent of the Supercharger Network instead of relying on other businesses to do so for them. So in this regard, the comparison IS fair and demonstrates that people want electric cars with good range and a fast charging system that is already deployed.
That this is so is confirmed by a recent Consumer Reports article about a AAA survey showing that 20% of Americans expect their next vehicle purchase to be an EV. US car sales dropped by 2% in 2017 according to JDPowers. That marked the end of a 7-year run of steady sales growth. Given the AAA survey of intentions combined with blooming sales of Model 3, I expect we will see US sales of internal combustion engine cars drop by a larger figure in 2018.
There are not enough good EVs to replace the drop in ICE vehicle sales.
Jaguar I-Pace, for example, claims 350kW charging capability. But the claim is a farce. Today, no 350kW chargers exist out on the open road and it will likely be several years (if ever) before a network of charging stations is built. It isn’t clear yet that the 350kW charging standard will even work.
Upon introduction this summer, anyone that purchases an I-Pace will be forced to use the only chargers actually deployed… the same ones used by the Bolt and Leaf that only charge at 50kW instead of Tesla’s 120kW. Charging an I-Pace will take more than double the time to charge a Tesla.
What this means is that counter to claims that Tesla is about to face a swarm of new contenders, the fact is that none of them can hold a candle to the charging speed of the Supercharger Network. Ironically, all of the contenders should increase Tesla sales, as once anyone reviews charging infrastructure, Tesla is the only logical brand choice.
Introduction of the competition should further increase Model 3 sales until such time as a new charging infrastructure is actually in place, and, assuming Tesla is unable to use that new infrastructure. If Tesla CAN use that new infrastructure, then Tesla remains the best EV choice bar none, simply for its enhanced number of charging stations.
Tesla is building more cars than it is selling. This may indicate that Tesla is accumulating cars to be sold in Q3 due to tax phase out rules.
If Tesla makes the production targets it has disclosed, it would generate approximately $ 6.5B in Q3 gross sales with around $ 1.3B in gross margin. Even without cutting back on spending, that much extra gross margin should yield net profits.
The Model 3 may rise from below rank #100 for sales into the US now, to above position #20 next quarter. That is, the Model 3 appears poised to jump 80 positions in the US top 100 vehicle sales list, beginning in July.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
BOSTON (Reuters) – Proxy adviser Institutional Shareholder Services (ISS) recommended on Friday that investors vote against Tesla Inc (TSLA.O) directors Antonio Gracias and James Murdoch, increasing pressure on the car maker over their roles on its board.
ISS also backed two shareholder proposals to be voted on at the company’s annual meeting set for June 5, including one that would require it to separate the current chairman and CEO roles of founder Elon Musk.
“The complexity of large-scale manufacturing and the challenges of successfully commercializing new technologies and new manufacturing and marketing techniques suggest that shareholders would be better served by having Musk focus on running the company, and allowing an independent director to run the board,” according to a copy of ISS’ recommendations seen by Reuters.
The recommendations by the top proxy adviser echo those made earlier this week by rival Glass Lewis, although ISS did side with Tesla and recommend investors vote for Musk’s brother and current director Kimbal Musk.
Union-affiliated activist CtW Investment Group has criticized the three Tesla directors up for election this year as being too close to Elon Musk or unqualified.
In its report, ISS wrote that Gracias, CEO of Valor Management Corp, is not sufficiently independent for key board committees. It also cited concerns regarding the lack of performance-based elements in Tesla’s pay plan in recommending the vote against Gracias, a compensation committee member.
ISS wrote that Murdoch is “overboarded” since he serves as the CEO of Twenty-First Century Fox Inc (FOXA.O) and on other boards.
A Tesla director not up for election this year because of the board’s staggered election schedule is Steve Jurvetson. He has been on leave from Tesla’s board since November when he also resigned from venture capital firm Draper Fisher Jurvetson (DFJ) amid an internal DFJ probe into sexual harassment allegations made against him, which he denied.
ISS wrote Tesla’s proxy notes Jurvetson’s leave but not the background, and said that Tesla “shareholders should expect a greater degree of transparency from the company as to the reason he remains on leave” and about his future status.
Reporting by Ross Kerber; Editing by Muralikumar Anantharaman
A large number of parts intended for the Tesla Model 3, along with parts for the Model S and Model X, have been spotted outside a machine shop in San Jose. Such third parties are sometimes used to fix flawed parts after manufacturing, and previous reports suggest Tesla has struggled with an unusually high rate of flaws in parts coming from suppliers and its own production line.
The parts were spotted by CNBC outside a shop called JL Precision, not far from Tesla’s Fremont factory. They included door frames and a variety of other components shipped from suppliers in China and Ohio. Tesla told CNBC they use JL Precision to add a coating to some parts, but sources within the company said the same shop was used to rework designs or correct flaws in components.
Outsourcing the fixing of flawed parts is common practice in the auto industry, according to a former GM plant manager who spoke to CNBC. But Tesla appears to be dealing with a higher than average ratio of problems, with one engineer there estimating that as many as 40 percent of parts manufactured by Tesla or its suppliers required fixes.
Multiple current and former Tesla employees told CNBC that Tesla spent less time vetting suppliers than is standard in the auto industry, and that some of those responsible for the screening were not experienced with ISO standards and other quality assurance methods normally used in that process.
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A Tesla spokesperson said that parts fixes aren’t adding to delays in Model 3 production, but the reports add to an evolving picture of Tesla’s manufacturing issues. The company has continued to fall far short of production targets, particularly for the new Model 3 sedan. When Model 3 production officially began in July of 2017, Tesla predicted it would be producing 20,000 vehicles per month by December of that year.
But that target has been revised downard repeatedly, and in the entire first quarter of 2018, Tesla produced only about 10,000 Model 3s.
Tesla CEO Elon Musk recently admitted that part of the problem was his over-commitment to automating the production process. But the reports of supplier issues, along with reports last year of battery pack production shortfalls, suggest an interconnected array of challenges facing the carmaker.
Tesla stock had declined in recent weeks on production worries, but rallied Friday after Musk claimed the company would be profitable by the second half of 2018.
Tesla’s (TSLA) Q1 production update had me singing and dancing with joy. I encourage you to read the whole thing. Or if you prefer, watch this video from HyperChange covering the update:
The top three updates are on Model 3 production, Tesla’s cash flow, and Model 3 quality.
Model 3 production is at a burst rate of 2,000/week
After six months of delays, Model 3 production is finally on track:
In the past seven days, Tesla produced 2,020 Model 3 vehicles. In the next seven days, we expect to produce 2,000 Model S and X vehicles and 2,000 Model 3 vehicles.
If this rate can indeed be sustained into April and even increased, then Tesla is just shy of its goal to produce 2,500 Model 3s/week by the end of March. Bloomberg’s independent model has production about a month behind that target. For Tesla, a month late is basically on time! Moreover, in light of this update, Tesla might only be a few weeks behind.
As always, it bears reminding that this is an arbitrary, self-imposed goal largely designed around motivating employees. It’s not required for any financial, competitive, or technological purpose. A line in the sand just has to be drawn somewhere.
Model 3. Photo by Carl Quinn.
Tesla says it doesn’t need to raise cash this year
Recent alarm about Tesla’s solvency seems to be misplaced:
Tesla continues to target a production rate of approximately 5,000 units per week in about three months, laying the groundwork for Q3 to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow. As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines.
Boom! That’s what I love to hear! Barring further delays, Tesla is about six months out from achieving massive positive cash flow from Model 3 sales. If targets are met, Model 3 will generate quarterly revenue on the order of $ 3.25 billion and quarterly gross profit on the order of $ 810 million. (That’s assuming a $ 50,000 ASP and 25% gross margin about a quarter after a 5,000/week production rate is achieved.) Previously, Tesla has guided that it will post sustained operating profits starting by the end of 2018, with a possibility of net profit before 2019 as well.
Based on my own review of the numbers, I think that Tesla’s cash “crunch” is being exaggerated. There are aspects of Tesla’s finances that are opaque to outsiders (such as the composition of accounts payable), however, so it is encouraging to get confirmation from Tesla on this. Here’s the basic math: As of the end of Q4 2017, Tesla had a cash balance of $ 3.37 billion. In Q4, it burned $ 277 million. At that rate of cash burn, it wouldn’t run out of cash until the beginning of 2021.
Several one-time factors contributed to cash burn for Q4 being so low, such as customer deposits for the Tesla Semi and next-gen Roadster. However, there were repeatable factors as well, perhaps most notably slowing discretionary capex. Tesla can slow expansionary spending to be in line with growth in revenue and gross profit. This makes particular sense when it comes to the sales, service, and charging infrastructure for the Model 3 fleet. We’ll have more hard data in about a month when Tesla releases its Q1 earnings.
The key here is the threshold beyond which Model 3 production goes from a net cash incinerator to a net cash generator. If all goes according to plan, by the end of this year, Tesla will likely have the ability to have positive free cash flow. However, that doesn’t seem to be the plan.
From the sounds of it, Tesla wants to finance capex for Model Y, Semi, Roadster, Solar Roof, Powerwall, Powerpack, and future products with debt and perhaps even equity, plus other sources of cash like customer deposits and securitizing leases. Note that Tesla says raising cash this year isn’t “required.” That doesn’t rule out raising discretionary cash to fund faster expansion.
Tesla has a total of $ 330 million in debt coming due in 2018. Given Tesla’s end of Q4 cash balance of $ 3.37 billion and ramping Model 3 production, $ 330 million is a manageable amount to repay. Heck, Tesla could probably wipe that debt away by collecting Model Y deposits. Because Elon Musk is a rock star.
Some convertible bonds to the tune of $ 920 million are set to mature in March 2019. The conversion price is $ 359.87. I can’t predict the ebb and flow of the markets, but it seems well within the realm of possibility that Tesla’s share price will exceed that $ 360 a year from now. If not, with approximately $ 810 million in quarterly gross profit from the Model 3, repayment will be no problem.
Tesla Semi. Photo by Korbitr.
Tesla’s internal data shows high Model 3 owner satisfaction
Finally, Tesla again shared internal survey data of Model 3 owners:
The quality of Model 3 coming out of production is at the highest level we have seen across all our products. This is reflected in the overwhelming delight experienced by our customers with their Model 3s. Our initial customer satisfaction score for Model 3 quality is above 93%, which is the highest score in Tesla’s history.
Although this is somewhat encouraging, Tesla is of course incentivized to present the Model 3 in the best possible light. Before I consider this matter settled, I want to see data from an independent source like Consumer Reports. Consumer Reports has yet to publish survey data on the Model 3. So, for now, we wait.
What is not particularly informative are anecdotes about Model 3 quality. If you, like me, believe in the Enlightenment values of science and logically rigorous thought, then you’ll agree that anecdotes plucked from large samples seldom reveal the truth and often mislead. Statistics reveal the truth. It is surprising and disconcerting to me that so much investment and media analysis — particularly of Tesla — seems to exist in a pre-scientific, pre-Enlightenment mode of thinking in which fact and conjecture are haphazardly mixed, cherry-picked anecdotes are held up as representative, and rumour and hearsay are credulously accepted. So much of what you’ll read and hear about Tesla is either essentially made up or grossly exaggerated because there is little to no application of Enlightenment criteria of truth.
The way I think about companies is to try to approximate as best I can the scientific method. Any way I can remove my own subjective bias is a relief. Hard data is always a breath of fresh air. So is any other empirical test that can serve to falsify an idea. Without scientific discipline, we will inevitably fool ourselves, and wander around in the darkness.
So, I don’t consider a photo of a Model 3 with egregious panel gaps to be informative. A photo of a Model 3 with seamless panels is equally uninformative. Ignore anecdotes. Find statistics. For now, we simply don’t know the level of quality of the Model 3.
Panic and doomsaying about Tesla may never stop entirely. However, it has taken another step toward demonstrating that it has a sustainable business model capable of long-term growth and profits. A year from now, we will probably be having a very different conversation about this company. I look forward to it.
Disclosure: I am/we are long TSLA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
(Reuters) – Tesla Inc sought to squash any speculation it might need to raise more capital this year on Tuesday, driving the company’s battered shares higher as it announced it built 2,020 of its cheaper Model 3 sedans in the last seven days.
The company’s reassurance that it does not need extra cash sent a wave of relief through investors who sold shares of the electric carmaker through a week of bad news about its credit rating and semi-autonomous driving technology.
In early trade on Tuesday, Tesla shares jumped as much as 6.9 percent, recouping a third of the past week’s losses. They were up 3.2 percent at $ 260 in midday trade.
Musk’s $ 50-billion dollar venture said it would also churn out 2,000 of the Model 3 cars next week and promised output would climb rapidly through the second quarter.
“Tesla continues to target a production rate of approximately 5,000 units per week in about three months, laying the groundwork for Q3 to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow,” the company said in a filing.
“As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines.”
Jefferies analysts had estimated that Tesla needed $ 2.5 billion to $ 3 billion of fresh equity to fund the Model 3 rampup and several other Wall Street brokerages have predicted the company would need more funds this year.
Some analysts said there were signs that the company might have prioritized the cheaper car, seen as crucial to its profitability, over its Model X SUV and more-established and expensive Model S sedan.
Tesla said first-quarter deliveries totaled 29,980 vehicles, out of which 11,730 were Model S and 10,070 were Model X.
Both were lower from the previous quarter and the first quarter a year ago.
“Maybe Elon Musk switched staff from Model S and X to Model 3 to get better production numbers for Model 3,” said analyst Frank Schwope from NORD/LB.
Musk himself has taken direct control of Model 3 production and the company says it already has about 500,000 advance reservations from customers for the car.
The Model 3 is the most affordable of Tesla’s cars to date and is the only one capable of transforming the niche automaker into a mass producer amid a sea of rivals entering the nascent electric vehicle market.
Tesla’s consistent failure to meet its production targets – it had promised 2,500 Model 3s would roll off its assembly lines per week by the end of March – has made Wall Street broadly more skeptical about Musk’s promises.
Several criticized as “tone deaf” an April Fool’s tweet from the billionaire that joked his company, which has $ 10 billion in debt, was “totally bankrupt”.
Tesla shares peaked at $ 389 last September and have been declining steadily since.
Analysts, however, are giving the company the benefit of the doubt as a big bet on the future of high-tech electric and self-driving vehicles.
The production numbers, while short of Tesla’s own target, are far above the 793 Model 3s built in the final week of last year.
“The company appears to be near the point of turning the corner on meeting guidance and production performance,” said William Selesky from Argus Research.
(Corrects to show production was for last seven days, not last seven days of March, in paragraph one)
Reporting By Alexandria Sage and Sonam Rai; Additional reporting by Munsif Vengattil; Editing by Patrick Graham, Bernard Orr
(Reuters) – Tesla Inc (TSLA.O) was reported to be making 2,000 of its Model 3 sedans per week, enough to ease stock market nerves around billionaire Elon Musk’s electric carmaker on Monday after a week dominated by news of a crash involving its semi-autonomous autopilot.
Musk told employees in a company-wide email on Monday that Tesla had just passed the 2,000 per week rate, according to auto website Jalopnik.
That was short of its 2,500 per week target but a big increase on the 793 Model 3s that the company built in the final week of last year. It produced 2,425 of the cars in the whole fourth quarter. [nL4N1OY42A
Tesla shares recovered from an 8 percent loss before the Jalopnik report filtered into markets to trade down 3.5 percent on the day. bit.ly/2uFdEBr
The company did not immediately respond to requests for comment.
Jalopnik also quoted Musk in the email to employees as saying: “If things go as planned today, we will comfortably exceed that number over a seven day period!”
Reporting by Sonam Rai in Bengaluru, Editing by Peter Henderson and Patrick Graham