Thanks! Unfortunately, it may be hard for me to respond as I believe I've been shadowbanned on this forum. My posts show up for me, but no one else, so I've just ducked out and stopped posting.
I think the main concern it added was gross margins and timeline. These are central to the bear thesis, which assumes that Tesla will run out of cash before it's able to invest in the "big picture" ideas it's been promising. It takes a lot of cash to build an Electric Semi line. It takes a lot of cash to build a Model Y line. It takes a lot of cash to build solar panel lines. It takes a lot of cash to build Roadster 2 lines. It takes a lot of cash to scale with new stores in new locations in new countries. And it takes a lot of cash to pay back their upcoming debts.
The major weakness of the bear thesis are the gross margins of the Model 3 over the next 1-2 years. There's a key assumption built into the bear thesis that Tesla will be unable to achieve high margins, but it's just that: an assumption.
The argument for why this assumption could be valid is "Tesla has never made a profitable car." Due to how Tesla has done the accounting for its vehicles, it's hard to tell the true underlying margins of the Model S and Model X. How much do the Superchargers cost, and how do you model those in a margin formula? What's the lifetime cost of the S/X warranty, and how would you include those in the margin formula? Tesla has been the beneficiaries of huge subsidies and tax credits, which further mask the true underlying gross margin of the cars.
The other argument for that assumption is that making cars is really, really hard. It's a capitally-intense manufacturing process which current automakers have had decades to perfect and iterate on. Consumer quality expectations are extremely high. When Musk came and pronounced "I know how do it better: robots," many industry experts recoiled or laughed. So we assume that Tesla is still very low on the learning curve, and thus their margin aspirations are unrealistic.
The final argument is a bit odd, but it's the turnover. They've lost a lot of people with extremely cushy, well-paying jobs: their corporate controller, their head-of-sales, their CFO, their chief accounting officer, two top engineering leaders, and dozens more. For a company that's promising growth, this is pretty unusual. If we're right, and Tesla isn't achieving profitability on the Model S, X, or 3, then these people would know first and be wise to jump ship.
If this assumption is correct, it would be pretty devastating for Tesla given their current cash position. It will inhibit their ability to get traditional debt financing (and thus reduce their ability to grow quickly). It will inhibit their ability to pursue new aspirations (like the Semi, Roadster, Model Y, or Roof Solar Panels). It will inhibit their ability to fight in the autonomous vehicles space (Google and GM could just start buying all of the industry talent given their bottomless pockets). And without those things, you're left with a small/niche electric car manufacturer that can't possibly justify its current valuation.
Going back to that email, but I'm surprised that the bulls looked at it as positive because of what it does to the gross margins. 24/7 production lowers margins. The vagueness behind "when will Model 3 production hit sustained 5k/month?" is another hit to gross margins. The risk of losing a supplier could delay that production further, again hitting gross margin. "Burst production" feels wasteful; reports suggest that they've shut down other production lines to achieve it (again: hurting gross margin).
Again, it's not about production, it's about gross margin. 24/7 production is more expensive.
Tesla needs its suppliers right now a lot more than they need Tesla. The suppliers aren't facing bankruptcy and investor backlash in the ways that Tesla is.
I don't believe in the genius of Elon Musk. I don't believe he's a God.
I do think he's a true visionary and futurologist, and he's great at marketing that vision. But I don't think he's a great CEO, and I don't think he's a great businessman.
This should be your biggest concern, by far.
I don't think that you have been shadowbanned but of course i don't know for sure. I guess you have tried to view your posts when you logged out and they didn't show up? Anyway now i can see your posts that's all that matters.
Don't you think that Tesla has big pockets like e.g. Fidelity, Tencent backing them? They would never let their investment go bankrupt if it's only about time. If Tesla can't meet margins very longterm they may give up on it. But for now bankruptcy is in my opinion not even a slight possibility. The worst thing that could happen is that they have to do an equity raise at worse conditions. In this case you would of course also have won (if you cover). Additionally there is EM's stake in SpaceX which is now valued at approx. 11 billion if i remember correctly. He could create a new class of shares to maintain control and sell some shares what he would do for sure to safe Tesla. He could also try to sell some Tesla shares but this would create enormous downward pressure on the stock, or he could try to talk to friends like Larry Page. Those are just very far out thought's but in underlines the argument that bankruptcy is not remotely a possibility right now.
Regarding the debts: Most of it is also quite far out and some is convertible. But i understand your case that if Tesla can not deliver and the SP is tanking they could face additional downward pressure when the first junk in 2019 isn't converted and comes due and Tesla has to raise equity or debt at unfavorable conditions. On the other side: If Model 3 can ramp up & achieve the promised margins Investors will happily fund further expansion and Model 3 will produce substantial operating cash flows.
Those arguments concerning the S/X margins and additional costs are obviously somewhat valid but i would never go as far as saying they never produced a car profitably. It's important to understand that Tesla's business Model didn't really aim for profits but for expansion. Sure there are additional SGA costs for direct sales but those costs were to built a global infrastructure which can support more than the current vehicles (but they still have to increase the infrastructure for Model 3, especially if they expect 500k a year production at some point in 2019). As Model 3 owners are going to pay for Supercharging the actual supercharging cost per S/X is going to decrease (a lot of Supercharging stations are already built and not fully utilized ). In their latest 10-K Tesla says regarding Supercharging and Warranty:
"Cost of automotive revenue includes direct parts, material and labor costs, manufacturing overhead (including amortized tooling costs), shipping and logistic costs, vehicle internet connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network and reserves for estimated warranty expenses. Cost of automotive revenue also includes adjustments to warranty expense and charges to write-down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for on-hand inventory that is either obsolete or in excess of forecasted demand."
This is not in line with your Thesis. Do you think they are lying about it or what exactly is your argument here?
ZEV credits are for sure a point but they are not going away but have some political risk/opportunity and tax credits is a good point. It's going to be interesting to see how the vehicles sell without them but i don't think Tesla has to decreases prices as much as those credits (maybe just a bit or not at all). It really depends how much costumers love the cars and how much demand is going to be created. Like you said people admire EM that's great for the brand value. (and EV's are the future, the car is great and so on) In the near term the facing out of the credits is going to push demand.
Yeah manufacturing is quite hard and i have to admit that i have been naive to believe EM promise of exceptional automation without having background knowledge. But you would certainly agree that it's impressive to create a new auto manufacturer and that Tesla and EM in general have been quite innovative? Tesla is now catching up in car manufacturing and is leading in battery technology. Longterm i am still optimistic that they can innovate faster than the rest of the industry as they have the right mindset and attract the best talents from around the world (people admire EM) Some advanced automation lines may actually work right now (e.g. grohman line) and their hard push forward on the automation front may left them with some valuable experiences, insights and some industry leading systems.
I don't know how unusually the turnover is. But Tesla is for sure an "Academy" for future forms of transportations. (EV, self driving)
Some may see it as a steppingstone as many former Tesla employees got great jobs at other employers or creating their own businesses. The argument that those people who leave do this because they know that Tesla is going to go bankrupt is in my opinion non sense. Not even the Top Management including EM knows how profitable Tesla is going to be in the future. They only reason for this argument to be true would be if you believe Tesla is a total scam and they even planed it as a scam.
Of course Tesla's current valuation could never be justified without expansion planes. It come's all down to it. Model 3 and it's margins are going to be critical. While i am worried about it i still believe they are going to be quite positive. This is because
1) Tesla planed it's production, has prices from suppliers and so on.
2) Knew that automation was risky and some of it will fail. e.g.
Tesla's Future Hinges On Reinventing Auto Manufacturing. Can It Pull It Off?
3) The way i read it 24/7 is only part of the burst strategy. Even if it is not 400 (or even meaningful more) additional workers are not that expensive if they can achieve 5k/wk production. You can calculate it for your own.
4) They reaffirmed good gross margins in the Q1 Delivery Report and EM tweeting that Tesla would be profitable and cashflow+
Again if you think Tesla is all a scam and they lie until the last point (why should they do this, this would only hurt their credibility) than you could think margins can actually be negative or near zero. Otherwise i feel that setbacks on automation are going to hurt margins a bit but there is no way they could be negative, near zero, not even around 10% and i am still hoping for around 20% or better on about longterm 45k ASP. (shortterm higher ASP)
Your points regarding margins are interesting and may be valid but only short term. Short term is only really interesting if you think Tesla could go bankrupt near term but as i described this possibility equals zero in my opinion. Even the possibility that Tesla needs cash short term (next 6 month) is quite slim. It has nothing to do with longterm expansion plans.
I think if Tesla succeeds it's very valuable for suppliers (orders and also learning) and that Top Tier suppliers want to work for Tesla is a good sign in this regard. In my opinion EM is also a businessman (even if he says he's not). E.g. he took over Tesla when they had problems with supply chain and manufacturing and turned it into a big success.
What's your price target btw and how big is your short position? I would advise you to be really careful. Not believing in a company is one thing, shorting it is another. For sure you know all the risks associated with shorting. Another point to consider is that a lot of rich and powerful people want tesla to fail (probably part of your short thesis) but those people spread a lot of misinformation like the story that Tesla could soon go bankrupt or is a scam. This may create a certain short term downward pressure but if it turns out that this is fundamentally not true believing such "information" could really backfire.
