Tesla Bonds Are in Free Fall(bloomberg.com)
bloomberg.com
Tesla Bonds Are in Free Fall
https://www.bloomberg.com/news/articles/2018-03-28/tesla-bonds-down-to-86-cents-start-to-flash-warning-signals
145 comments
I mean, this attitude is alright for a dog-walker app. But when Uber (and possibly Tesla) kills a person, it kinda changes the whole conversation, don't you think?
It will sound terribly insensitive, but many, many more people die in "regular" car accidents every single day.
The number of deaths in envelope-pushing, new tech, accidents, compared to regular traffic deaths, is minuscule.
The number of deaths in envelope-pushing, new tech, accidents, compared to regular traffic deaths, is minuscule.
I mean, yeah, that's really insensitive.
It's not about the number in this situation, it's about the stats. Uber's cars kill at a higher rate than the average driver. Granted, that stat is based on 1 data point, so it's not really a stat at all. Still, like, a ton more testing is obviously needed before these should be allowed anywhere near a school.
Like, you wanna test a jet-pack? Be my guest. I'll grab a fire extinguisher when/if it fails.
You wanna test a jet-pack near with dog in your arms? Dude, no way.
It's not about the number in this situation, it's about the stats. Uber's cars kill at a higher rate than the average driver. Granted, that stat is based on 1 data point, so it's not really a stat at all. Still, like, a ton more testing is obviously needed before these should be allowed anywhere near a school.
Like, you wanna test a jet-pack? Be my guest. I'll grab a fire extinguisher when/if it fails.
You wanna test a jet-pack near with dog in your arms? Dude, no way.
But we don't know how much of that is due to regular cars usage being much larger in volume compared to electric. Only way we'd know is if electric car usage ramps up to comparative levels, which seems quite far away given the current climate
How do you mean? How do you think the risks (which are expected given the very high stakes here) should change the parent's perspective?
Like EVs, yeah great, love it. Great job by the engineers there. Good stuff.
But it's the auto-driving that seems to be sub-par thus far. Though the data isn't public (mostly), it seems like the auto-driving software is worse than the average driver. Again, seems.
But it's the auto-driving that seems to be sub-par thus far. Though the data isn't public (mostly), it seems like the auto-driving software is worse than the average driver. Again, seems.
Probably is really not, just people believe they are better drivers than they really are. It is a well documented Wobegon Lake effect.
That said, the failure modes are really different.
And technically someone Coyle design a smoke test for self driving cars that would put in some confidence into their abilities.
We do that for human drivers, it is called a driving exam. Could be extended as much as we want it.
That said, the failure modes are really different.
And technically someone Coyle design a smoke test for self driving cars that would put in some confidence into their abilities.
We do that for human drivers, it is called a driving exam. Could be extended as much as we want it.
Um, no. Uber has to intervene in their self-driving car every 13 miles, on average. And they killed a person at 1/4th the mileage of an average person. Again, it's one data point, but a cause for concern nonetheless. That's not a Keillorism, that's plain bad.
I agree that the cars need certs though, each and every one.
I agree that the cars need certs though, each and every one.
Production is up a bit this week, according to Bloomberg.[1]
1076 units of the Model 3 last week. The plant is supposed to produce 5,000 units a week. Costs are at the level for 5,000 units, while revenue is a fifth of that. That's what's killing Tesla financially.
When Musk first announced the proposed Model 3 production schedule, his two top manufacturing executives quit. They knew that the shortcuts Musk wanted to take, like skipping debugging of the assembly automation at the supplier's factory, wouldn't work. They were right.
[1] https://www.bloomberg.com/graphics/2018-tesla-tracker/
When Musk first announced the proposed Model 3 production schedule, his two top manufacturing executives quit. They knew that the shortcuts Musk wanted to take, like skipping debugging of the assembly automation at the supplier's factory, wouldn't work. They were right.
[1] https://www.bloomberg.com/graphics/2018-tesla-tracker/
Somehow I foresee the billionaire class of technical experts will step in and prevent the downfall of Tesla.
Too many people believe in the vision of Elon to let this fall apart because of short term production issues.
If anything, this could be a good thing for Tesla as it might attract other owner/operator expertise to the firm.
Too many people believe in the vision of Elon to let this fall apart because of short term production issues.
If anything, this could be a good thing for Tesla as it might attract other owner/operator expertise to the firm.
Except that Tesla is not failing. There is so much demand for their cars that they cannot make enough of them. A Tesla car fatality is breaking news but a Ford Focus crash is ignored. Any shred of bad news pertaining to Tesla is amplified by the media.
> There is so much demand for their cars that they cannot make enough of them.
You mean, because they have priced them below the price that would clear their ability to produce, and have either inadequate resources or inadequate competence to scale production to meet the quantity demanded at the current price. So, they are failing at either production or pricing or both, and losing money because of it.
You mean, because they have priced them below the price that would clear their ability to produce, and have either inadequate resources or inadequate competence to scale production to meet the quantity demanded at the current price. So, they are failing at either production or pricing or both, and losing money because of it.
The losses are due to the capital outlays for factories, bot because the car business is unprofitable. Tesla has 20% margins on their sales, which is twice that of GM and Ford.
GM and Ford happen to make (lots of) money even after they pay for the cost of building/selling/supporting their products. That said, Tesla's gross margin in the latest quarter was 13.34%[1], GM's was 13.29%[2] and Ford led the pack at 15.34%[3].
[1] https://ycharts.com/companies/TSLA/gross_profit_margin
[2] https://ycharts.com/companies/GM/gross_profit_margin
[3] https://ycharts.com/companies/F/gross_profit_margin
[1] https://ycharts.com/companies/TSLA/gross_profit_margin
[2] https://ycharts.com/companies/GM/gross_profit_margin
[3] https://ycharts.com/companies/F/gross_profit_margin
The real question is, would Teslas still sell well enough at a higher margin...
They're not meeting production goals and at the same time have been losing more money as production has increased. Both of those things are company killers that need to change ASAP.
Moody's downgraded their debt and it has indeed been plummeting, that's not a creation of the media at all. It's actually the opposite of your claim. If this were any other auto company other than Tesla the stock would be nearly worthless, the media has hyped this thing to the stratosphere.
Moody's downgraded their debt and it has indeed been plummeting, that's not a creation of the media at all. It's actually the opposite of your claim. If this were any other auto company other than Tesla the stock would be nearly worthless, the media has hyped this thing to the stratosphere.
Live by the sword, die by the sword. Tesla is a product of media hype. Nobody is dropping deposits for the opportunity to buy a new Ford Focus either — that’s hype.
When things are good, hype is great. Not so much when things start to implode.
When things are good, hype is great. Not so much when things start to implode.
We're losing on every deal but we'll make it up in volume.
Except they cannot make the volume.
There's that. But the line theoretically does have the appropriate capacity. It's a race against time, if they can't get the volume up significantly in the next 90 days they are in very hot water.
Maybe Warren Buffet or another investor with the long view would be a solution?
Maybe Warren Buffet or another investor with the long view would be a solution?
> There is so much demand for their cars that they cannot make enough of them.
Tesla cannot make enough of them because Tesla cannot make enough of them.
Everyone knows Tesla can sell those cars instantly if their production lines are up to snuff. But the production targets are laughably behind. 5000 cars/week by Dec2017 ?? Yeah right. Its March2018 and they haven't even hit 5000/week yet.
Tesla cannot make enough of them because Tesla cannot make enough of them.
Everyone knows Tesla can sell those cars instantly if their production lines are up to snuff. But the production targets are laughably behind. 5000 cars/week by Dec2017 ?? Yeah right. Its March2018 and they haven't even hit 5000/week yet.
The bloomberg tracker predicts a rate of around 2000 https://www.bloomberg.com/graphics/2018-tesla-tracker/
I wouldn't say they are laughably behind. Projects do get delayed. My own projects got delayed by multiple months. The California high speed rail is 3 years delayed ! Its better to do it right than to just hurry things.
I wouldn't say they are laughably behind. Projects do get delayed. My own projects got delayed by multiple months. The California high speed rail is 3 years delayed ! Its better to do it right than to just hurry things.
Their most recent estimates are around ~1,076 a week. Those numbers are horribly behind their production targets. And that's a tiny fraction of the 500,000 cars annually that was the initial target for 2018 as of two years ago.[0]
Tesla bet the farm on revolutionizing auto manufacturing while seemingly ignoring much of what other manufacturers have learned over the years.[1] Long-term, elements of that bet could pay pay off. But right now? They're still struggling to scale up Model 3 production. And that's for a car that was literally designed to be less complex to manufacturer, with fewer, simpler parts relative to the Model S and X. It doesn't matter that their manufacturing approach might be more efficient in the future when everything is working perfectly if they can't meet their bills this year.
No other manufacturer has these kinds of prolonged production problems. They meet significantly higher production targets and with fewer quality control issues. If Tesla doesn't show significant progress this year (both on production targets and lowering their burn rate), they're going to be in serious trouble. Most likely, we'll end up seeing Tesla have to hire contract manufacturers like Magna Steyr to build complete cars.
Personally, I'd be fine with that. It'd give Tesla its best chance to entrench itself in the EV market before the traditional automakers step get involved. They, for one, won't have similar problems. I genuinely want Tesla to succeed, but it's become abundantly clear that they don't know how to find a way out of "production hell."
0. https://www.reuters.com/article/us-tesla-results/tesla-puts-...
1. https://www.forbes.com/sites/joannmuller/2016/08/04/tesla-mo...
Tesla bet the farm on revolutionizing auto manufacturing while seemingly ignoring much of what other manufacturers have learned over the years.[1] Long-term, elements of that bet could pay pay off. But right now? They're still struggling to scale up Model 3 production. And that's for a car that was literally designed to be less complex to manufacturer, with fewer, simpler parts relative to the Model S and X. It doesn't matter that their manufacturing approach might be more efficient in the future when everything is working perfectly if they can't meet their bills this year.
No other manufacturer has these kinds of prolonged production problems. They meet significantly higher production targets and with fewer quality control issues. If Tesla doesn't show significant progress this year (both on production targets and lowering their burn rate), they're going to be in serious trouble. Most likely, we'll end up seeing Tesla have to hire contract manufacturers like Magna Steyr to build complete cars.
Personally, I'd be fine with that. It'd give Tesla its best chance to entrench itself in the EV market before the traditional automakers step get involved. They, for one, won't have similar problems. I genuinely want Tesla to succeed, but it's become abundantly clear that they don't know how to find a way out of "production hell."
0. https://www.reuters.com/article/us-tesla-results/tesla-puts-...
1. https://www.forbes.com/sites/joannmuller/2016/08/04/tesla-mo...
I once heard a truism that projects slip by the units in which they're measured. If the due date is in weeks, it will slip by weeks. Months, months. Etc. I think HSR is being measured in years, Tesla seems to be less (I don't follow them). Point being: "slipping" by itself does not necessarily set up an apples to apples basis between different kinds of projects.
Man, that graph of "Tesla's Production vs Tesla’s Targets" is damning. Either they are completely unable to predict their own manufacturing progress, or they're telling the same lie over and over. Even at 2000/week, it will take them a few years to work through the people who have given them (refundable) deposits.
> My own projects got delayed by multiple months.
Do you have $230 million dollars payment due in half-a-year, and $920 million due in a few months after that?
> Its better to do it right than to just hurry things.
Sure it is. But the CEO has to keep the bills paid, and the bill is about to come due. I think its reasonable for people to feel worried right now.
Elon has managed to scrounge up money out of nowhere before. The Model 3 reservation system raised $300 million nearly instantly for instance. So these aren't unfathomable numbers at all.
But its a risk.
Do you have $230 million dollars payment due in half-a-year, and $920 million due in a few months after that?
> Its better to do it right than to just hurry things.
Sure it is. But the CEO has to keep the bills paid, and the bill is about to come due. I think its reasonable for people to feel worried right now.
Elon has managed to scrounge up money out of nowhere before. The Model 3 reservation system raised $300 million nearly instantly for instance. So these aren't unfathomable numbers at all.
But its a risk.
Selling 40,000 or 50,000 units in the first year for a new electric car, would be a solid accomplishment.
Infiniti sold something like 60,000 Q50s globally in 2017 by comparison, for a sedan line they've been selling for decades (the G37 & G35 prior).
Nissan only sold 27,000 Leafs in the US + Europe in 2017, after seven years of availability.
Infiniti sold something like 60,000 Q50s globally in 2017 by comparison, for a sedan line they've been selling for decades (the G37 & G35 prior).
Nissan only sold 27,000 Leafs in the US + Europe in 2017, after seven years of availability.
If they can sell them instantly, then why they have such a large inventory?
Tesla is inventing "the machine that builds the machine".
They don't have the bugs worked out yet, so production is behind schedule.
Ultimately it's a big engineering problem.
I've learned not to bet against Musk solving difficult engineering problems.
They don't have the bugs worked out yet, so production is behind schedule.
Ultimately it's a big engineering problem.
I've learned not to bet against Musk solving difficult engineering problems.
It seems like making cars is different from making rockets. Perhaps making rockets reusable provides a larger competitive moat than making cars electric. The car business is probably substantially more mature than the rocket business, because of the larger amount of iteration.
I fully agree that too many people believe in the "vision of Elon" but the thing is that I can get reliable fully electrical vehicles from Nissan, volkswagen or Hundai. And while it used to be that the only "cool" electrical cars you saw on the road were early adopter Teslas, that's just not the case anymore.
Tesla isn't failing because of lack of belief in the vision (Which in absolutely no way belongs to Elon btw). Tesla is failing because they took a huge bet on being able to set up a car manufacturer faster than the established market could adopt the technology.
Tesla still has a great brand to it, but it seems unlikely that they will be able to compete on price, so they might end up only having a high-end electric niche which cant justify their current inflated valuation.
Tesla isn't failing because of lack of belief in the vision (Which in absolutely no way belongs to Elon btw). Tesla is failing because they took a huge bet on being able to set up a car manufacturer faster than the established market could adopt the technology.
Tesla still has a great brand to it, but it seems unlikely that they will be able to compete on price, so they might end up only having a high-end electric niche which cant justify their current inflated valuation.
If Tesla collapses then it would negatively affect the price of a lot of other SV stocks. I bet SoftBank or the Saudis would just throw them a billion dollars before they let that happen.
> Somehow I foresee the billionaire class of technical experts will step in and prevent the downfall of Tesla.
Billionaires don't get to be billionaires by throwing money at things with no reasonable expectation of return (well, except Trump, but that's a different story). If Tesla can't figure out how to make money, they're not going to come running. If they were, they'd already be snapping up Telsa's underpriced bonds and stock.
> If anything, this could be a good thing for Tesla
"This is actually good for Bitc^H^H^H^HTesla"
Billionaires don't get to be billionaires by throwing money at things with no reasonable expectation of return (well, except Trump, but that's a different story). If Tesla can't figure out how to make money, they're not going to come running. If they were, they'd already be snapping up Telsa's underpriced bonds and stock.
> If anything, this could be a good thing for Tesla
"This is actually good for Bitc^H^H^H^HTesla"
>Too many people believe in the vision of Elon to let this fall apart because of short term production issues.
Most people don't know throw billions of dollars around on infirm beliefs, they do it on an expectation of return. If Tesla is getting to the point where the finances no longer support the dream you shouldn't expect billionaires to behave much differently from the markets.
>If anything, this could be a good thing for Tesla as it might attract other owner/operator expertise to the firm.
Oh please, surely techies have seen this 'this is good for bitcoin' enough that they're not going to fall for the same dumb scam with Tesla.
Most people don't know throw billions of dollars around on infirm beliefs, they do it on an expectation of return. If Tesla is getting to the point where the finances no longer support the dream you shouldn't expect billionaires to behave much differently from the markets.
>If anything, this could be a good thing for Tesla as it might attract other owner/operator expertise to the firm.
Oh please, surely techies have seen this 'this is good for bitcoin' enough that they're not going to fall for the same dumb scam with Tesla.
> If anything, this could be a good thing for Tesla as it might attract other owner/operator expertise to the firm.
Would another owner/operator really be successful? Musk is probably the only person who could have received so much investment and goodwill over so many years without becoming profitable. And Tesla is going to need to continue to raise money for a while.
If a boring guy from an established car company had been in charge, investors would have run out of patience years ago.
Would another owner/operator really be successful? Musk is probably the only person who could have received so much investment and goodwill over so many years without becoming profitable. And Tesla is going to need to continue to raise money for a while.
If a boring guy from an established car company had been in charge, investors would have run out of patience years ago.
Not even close. Certain software start-ups and Uber put Tesla to shame.
How can an electric car company be in a bear market the week after a fusion device was patented?
If Lockheed really believes in their device, they ought to buy Tesla.
If Lockheed really believes in their device, they ought to buy Tesla.
It's about battery, not about electricity. You will need 20-40% of additional electricity production to convert all ICE cars to electric, it can be done today. But the battery can't compete with ICE on equal terms.
I mean, they already are?
https://www.cnbc.com/video/2017/12/12/social-capitals-chamat...
https://www.cnbc.com/video/2017/12/12/social-capitals-chamat...
This.
Tesla became too big to fail and Musk became too hype to fail.
Tesla became too big to fail and Musk became too hype to fail.
On this site maybe, not in reality. Most people want a return on investment, not a shine job about living on Mars next week.
The possibility of financial collapse is very real, they start losing the ability to keep the lights on at that fancy plant in Nevada this year.
They need to raise some serious money in a new equity offering, guess we'll see if the market will tolerate that or not.
They need to raise some serious money in a new equity offering, guess we'll see if the market will tolerate that or not.
> The possibility of financial collapse is very real, they start losing the ability to keep the lights on at that fancy plant in Nevada this year.
I disagree. They have a $230 million bond payment due this year but that seems survivable to me.
The $920 million payment due March2019 is the difficult one.
Even if the company were to collapse, I wouldn't expect it to collapse until 2019 at the earliest.
I disagree. They have a $230 million bond payment due this year but that seems survivable to me.
The $920 million payment due March2019 is the difficult one.
Even if the company were to collapse, I wouldn't expect it to collapse until 2019 at the earliest.
That order of things isn't correct. They'll slash spending big time before they get near that.
They can raise $2 billion tomorrow morning in an equity dilution. They're not going to collapse in 2019 either.
The $230 million is trivial. They have ~$2.8-$3 billion in cash as of end of Q1.
The issue isn't the next year or two. They still have a lot of market cap available to abuse if they absolutely have to. You can chop their market cap in half right now and they could still raise $2 billion just the same via equity.
The big question is whether the Model 3 gets up to a scale in the next year that pushes their burn rate down toward something a lot more manageable. If not, then investors will probably pummel their valuation and their debt costs will continue to climb, forcing very difficult spending decisions to substantially cut their quarterly losses.
They can raise $2 billion tomorrow morning in an equity dilution. They're not going to collapse in 2019 either.
The $230 million is trivial. They have ~$2.8-$3 billion in cash as of end of Q1.
The issue isn't the next year or two. They still have a lot of market cap available to abuse if they absolutely have to. You can chop their market cap in half right now and they could still raise $2 billion just the same via equity.
The big question is whether the Model 3 gets up to a scale in the next year that pushes their burn rate down toward something a lot more manageable. If not, then investors will probably pummel their valuation and their debt costs will continue to climb, forcing very difficult spending decisions to substantially cut their quarterly losses.
> The $230 million is trivial. They have ~$2.8-$3 billion in cash as of end of Q1.
And they're losing $408 million per quarter, on the average. (a loss of 1,632,086 thousands of dollars in 2017, according to their 10K)
At the current rate, Tesla is going to be forced to raise more capital within the next year.
Tesla definitely can survive till 2019 by my math. They can probably survive longer than that if they cut costs. But once Tesla cuts costs, they stop R&D and other "luxury" projects. Cutting costs implies cutting growth.
Tesla is still very much in the growth stage for some reason. They can't afford to cut costs yet.
And they're losing $408 million per quarter, on the average. (a loss of 1,632,086 thousands of dollars in 2017, according to their 10K)
At the current rate, Tesla is going to be forced to raise more capital within the next year.
Tesla definitely can survive till 2019 by my math. They can probably survive longer than that if they cut costs. But once Tesla cuts costs, they stop R&D and other "luxury" projects. Cutting costs implies cutting growth.
Tesla is still very much in the growth stage for some reason. They can't afford to cut costs yet.
The worse problem is that manufacturing is capital intensive. They do not have the billions of dollars to even come close to challenging established players there.
Steady growth could work by that's make the company a boring "luxury car maker"... at the time scales investors look into.
Steady growth could work by that's make the company a boring "luxury car maker"... at the time scales investors look into.
> I wouldn't expect it to collapse until 2019 at the earliest.
Part of the function of financial cash markets (options are another matter) is to discount future profits into present prices. An expectation of a 2019 collapse is nearly as good, in terms of present asset price discovery information, as an expectation of a 2018 collapse.
These solvency expectations feed forward to the present, driving prices lower, which makes raising money to avert the expected collapse anywhere from expensive to impossible. It's a . . . "fun" cycle to be caught in.
Part of the function of financial cash markets (options are another matter) is to discount future profits into present prices. An expectation of a 2019 collapse is nearly as good, in terms of present asset price discovery information, as an expectation of a 2018 collapse.
These solvency expectations feed forward to the present, driving prices lower, which makes raising money to avert the expected collapse anywhere from expensive to impossible. It's a . . . "fun" cycle to be caught in.
If pressed they can probably knock on Google's door, given the relationship there. Sell Google 10% of the company for $4 or $5 billion depending. Throw some kind of deal with Waymo into the mix. Google currently has $100 billion burning a hole in its pocket, adding several billion per quarter.
> They need to raise some serious money in a new equity offering, guess we'll see if the market will tolerate that or not.
At $260 / share, I don't think so. Tesla's stock is also in freefall.
At $260 / share, I don't think so. Tesla's stock is also in freefall.
John Thompson, Hedge Fund dude:
. . . As a reality check, Tesla is worth twice as much as Ford* yet Ford made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss.
Further, Ford has $12 billion in cash held for “a rainy day” while Tesla will likely run out of money in the next 3 months.
. . . As a reality check, Tesla is worth twice as much as Ford* yet Ford made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss.
Further, Ford has $12 billion in cash held for “a rainy day” while Tesla will likely run out of money in the next 3 months.
That dude is also shorting Tesla, of course, he's going to try to influence public opinion in this way. He'll make a shit ton of cash if Tesla goes southwards.
In 2004, Google was valued at $23 billion.
Other advertising companies made far more profit than Google, had more cash in the bank than Google, yet had lower valuations than Google.
On that evidence, many "experts" and "analysts" said Google was grossly overvalued.
Today it's easy to see that their analysis was dead wrong. If you can figure out why the conventional wisdom then was wrong, you'll understand why Tesla stock has value today.
Other advertising companies made far more profit than Google, had more cash in the bank than Google, yet had lower valuations than Google.
On that evidence, many "experts" and "analysts" said Google was grossly overvalued.
Today it's easy to see that their analysis was dead wrong. If you can figure out why the conventional wisdom then was wrong, you'll understand why Tesla stock has value today.
> Other advertising companies made far more profit than Google
Your argument fails at that. Considering Google strictly an "advertising" company is a narrow view, even in 2004.
Your argument fails at that. Considering Google strictly an "advertising" company is a narrow view, even in 2004.
It's not my argument, it's an argument from analysts who said Google was overvalued in 2004.
Apparently they couldn't imagine the future, so they measured Google against its contemporaries.
Comparing Tesla to Ford is a similar failure of the imagination.
Apparently they couldn't imagine the future, so they measured Google against its contemporaries.
Comparing Tesla to Ford is a similar failure of the imagination.
Really? Why? Is Tesla not a car company?
Google was already profitable in 2004, and more than doubling revenues. Tesla is none of those things, and you're paying way more for it.
Jim Chanos: We think Tesla is worth zero [1]
I've never understood why Tesla raised debt. They should have been issuing equity and nothing else, capitalizing on the insane valuation its had for the past 3-4 years. Debt would have been fine if they executed well, but they haven't.
[1] https://www.cnbc.com/2017/12/14/jim-chanos-we-think-tesla-is...
I've never understood why Tesla raised debt. They should have been issuing equity and nothing else, capitalizing on the insane valuation its had for the past 3-4 years. Debt would have been fine if they executed well, but they haven't.
[1] https://www.cnbc.com/2017/12/14/jim-chanos-we-think-tesla-is...
Yeah, clearly that $1.5 billion in capex equipment is worthless /s
Jim has been trying to make a profit short selling TSLA forever. I can’t take anything he says seriously, crying wolf and all that (although Tesla is going to have liquidity issues at the end of the year if they can’t get their debt refinanced).
TLDR Capital intensive business facing challenges in rising interest rate environment.
Jim has been trying to make a profit short selling TSLA forever. I can’t take anything he says seriously, crying wolf and all that (although Tesla is going to have liquidity issues at the end of the year if they can’t get their debt refinanced).
TLDR Capital intensive business facing challenges in rising interest rate environment.
> $1.5 billion in capex equipment
Liquidation of specialized, heavy hardware is pennies if not fractions thereof on the dollar. I have my standard-issue Swiss bias against debt, but it seems--with the benefit of hindsight--that issuing debt was a bad call by Tesla.
Liquidation of specialized, heavy hardware is pennies if not fractions thereof on the dollar. I have my standard-issue Swiss bias against debt, but it seems--with the benefit of hindsight--that issuing debt was a bad call by Tesla.
If he means the equity is worth 0, then the point still stands. The bond holders would get it.
A broken clock is right twice a day.
This guy has been negative about tesla for years. he needs to be held accountable for being wrong.
Is there a service out there that does rate market/tech prognosticators like this? I agree it'd be useful. There are similar ones for, say, politicians or media in general, but I'd like to see an industry-specific one.
https://www.cxoadvisory.com/gurus/
There are various services (e.g. StarMine) that seek to rate actual (e.g. professional) analyst firms.
But generally speaking, nobody's abnormally right over the long term.
There are various services (e.g. StarMine) that seek to rate actual (e.g. professional) analyst firms.
But generally speaking, nobody's abnormally right over the long term.
Thanks! Do you happen to know one related to tech predictions? I'm thinking of non-stock related predictions, like "X is working on Y feature to be released by Z".
tipranks.com
I think a service like that misunderstands investing. The old Druckenmiller quote goes, "it doesn't matter how often you are right or wrong; what matters is how much money you make when you're right, and how much money you make when you are wrong."
Has Tesla's stock price defied gravity up until this point? Sure. But eventually it's going to need some real reason why it's the most valuable car company in America. And, as it's bond prices are showing, there are some serious existential risks to its business.
A short still makes way much more sense here.
Has Tesla's stock price defied gravity up until this point? Sure. But eventually it's going to need some real reason why it's the most valuable car company in America. And, as it's bond prices are showing, there are some serious existential risks to its business.
A short still makes way much more sense here.
I think it's fair to take that into account as well, but it's a different measure. One can be interested in accuracy independent of payoff (which of course would be important in investing). A key piece that's missing is the number of failures. People pay attention to the successes.
True, but valuations and predictions don't always follow a simple "right vs wrong" paradigm.
if he's wrong, he's going to lose a lot of money.
i think that's about as accountable as it can get. at least this guy puts his money where his mouth is.
i think that's about as accountable as it can get. at least this guy puts his money where his mouth is.
Why? Is being pessimistic a crime? Or just negative opinion about some companies should be forbidden?
Jim is clearly wrong, and trying to sell you something. Even if Tesla as you know it today goes bankrupt, their assets are worth a lot more together then broken up and sold for parts. The worse case scenario is that tesla is sold off to private equity firm for a fraction of todays market cap, but to say 0 is to make up a story to get a price dip so he can make money on his short positions.
Your opinion makes me think of the things people were saying about SunEdison before it went bankrupt, and how many people utterly refused to believe the stock was worth zero afterwards.
n.b. I own a very small amount of Tesla stock, and I have no particular opinion of Chanos.
n.b. I own a very small amount of Tesla stock, and I have no particular opinion of Chanos.
As of last quarter they reported $3.8B of net tangible assets, though the bulk of that is inventory (not worth so much if the company goes away!). Depending on how the next quarterly report looks like it's not hard to imagine negative worth.
In the case of a bankruptcy, the assets will be sold to reimburse employee wages, contractors, suppliers and banks first. Only what's left will go back to the stakeholders.
Right, but they have 11b in revenue. They claim to be operating today with a 27% margin on the model S, if an investor dropped the model 3 and focused on producing just the S an investor would easily pay more then the 20b they have in outstanding dept to get that revenue. To claim that a company with that much revenue and that much equipment and investment is worth 0 is so far from being rational.
I don't want Tesla to fail because I like what Elon Musk is doing for the world.
However, the production timeline issues combined with the poor quality of Model 3 cars which have already been released is a big concern of mine, to the point where my confidence is lowered in the company. I really want to believe he'll find a way out of this but it's not hard to see why investors are worried.
However, the production timeline issues combined with the poor quality of Model 3 cars which have already been released is a big concern of mine, to the point where my confidence is lowered in the company. I really want to believe he'll find a way out of this but it's not hard to see why investors are worried.
I've never understood what long-term value people see in Tesla. There is no major technical advantage in their motor or battery technology. Autopilot is nowhere near full self-driving and Tesla is not any further ahead on that than other players in the market (they're just more willing to hype it and ship unfinished products). Their cars are nice, but not amazing compared to other manufacturers in the same price range (in fact, build quality is notably worse in many ways).
Yes, Tesla was a bit ahead of everyone else to market, but how are they going to compete when they're not the only one in the "luxury electric car" space?
Yes, Tesla was a bit ahead of everyone else to market, but how are they going to compete when they're not the only one in the "luxury electric car" space?
when asked: "tesla is an infrastructure company" or "tesla is a battery company" (well no panasonic is...) or "tesla is an energy company" (slightly more realistic since they bailed out solarcity) or "tesla is a self driving car company" (which as you point out: they're not any further than anyone else).
Where are Panasonic’s utility scale batteries?
Sure, Panasonic manufactures the 2170 cells, but they aren’t in the same game as Tesla.
Sure, Panasonic manufactures the 2170 cells, but they aren’t in the same game as Tesla.
>>Where are Panasonic’s utility scale batteries?
where ever somebody wants them.
>>Sure, Panasonic manufactures the 2170 cells, but they aren’t in the same game as Tesla.
While true Tesla is a value-add on those cells, but like 99% a value add for themselves. The quick question is if one of them died would the other survive...
where ever somebody wants them.
>>Sure, Panasonic manufactures the 2170 cells, but they aren’t in the same game as Tesla.
While true Tesla is a value-add on those cells, but like 99% a value add for themselves. The quick question is if one of them died would the other survive...
Tesla wasn't just ahead of everyone else to market, they forced everybody else to market. If tesla gets everybody else to make great electric cars, that's a success to me, even if tesla itself implodes.
I think if not for tesla, other car companies would not be scrambling to make better Evs.
I think if not for tesla, other car companies would not be scrambling to make better Evs.
Toyota forced a change in the car industry, and buyers' willingness to consider electric options, with the Prius in 1997.
Tesla was founded in 2003 to design hybrids. By 2008 the company had been taken-over by Mr Musk and changed focus to all-electic drivetrains and released the Roadster.
Nissan launched the Leaf in 2010 as the first mass-produced all-electric car.
EVs were coming regardless of Tesla. I'm sure they have helped promote the option and accelerated adoption within their target demographic but to 90%+ of the market they're irrelevant.
Tesla was founded in 2003 to design hybrids. By 2008 the company had been taken-over by Mr Musk and changed focus to all-electic drivetrains and released the Roadster.
Nissan launched the Leaf in 2010 as the first mass-produced all-electric car.
EVs were coming regardless of Tesla. I'm sure they have helped promote the option and accelerated adoption within their target demographic but to 90%+ of the market they're irrelevant.
Nobody would be in the market if not for moronic politicians pushing failed AGW theory...
>because of short term production issues
I agree with ironjunkie that Tesla is too hype to fail; Tesla has had production issues since the start of the Model S... 6 years is no longer 'short term'
I agree with ironjunkie that Tesla is too hype to fail; Tesla has had production issues since the start of the Model S... 6 years is no longer 'short term'
How much money does spaceX have? And ___hypothetically___, would it be possible to merge tesla into spaceX.
SpaceX seems to have plenty of money on hand, but I really doubt that Elon would do that, no matter how bad things looked for Tesla. It seems like SpaceX is starting to move all of their resources into BFR development/production and wouldn’t want a car company with production issues eating into said resources.
I think Tesla going to Google or SoftBank or another group and asking for an infusion of money (and maybe a Waymo collaboration if it’s Google) would be much more likely.
I think Tesla going to Google or SoftBank or another group and asking for an infusion of money (and maybe a Waymo collaboration if it’s Google) would be much more likely.
They already pulled that trick with Solar City for which there were at least some plausible reasons. I see no such plausibility for any SpaceX / Tesla merger.
If Tesla can't make it SpaceX will not come to the rescue.
If Tesla can't make it SpaceX will not come to the rescue.
I don't want them to, even though I own a tiny amount of TSLA so it would technically be in my interest. SpaceX is doing things nobody else can, and it would be a shame if they were dragged down. Batteries and electric cars will continue to be worked on by many regardless of whether Tesla were to vanish tomorrow.
Totally agreed. I already think what Musk did with Solar City and Tesla was a distraction he didn't need. Let's hope that Tesla survives, it would be a damn shame to see them pave the way for everybody else. On the other hand, it's not as if they invented electric cars at Tesla, that's how the industry started out and after a 100 year detour of the ICE we're back to square one.
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Tesla: A Disruptive Force with a Debt Problem?
https://youtu.be/HxkbUrNYvmY
https://youtu.be/HxkbUrNYvmY
They should have taken this market bubble opportunity, pre recent drop, to pull the trigger on a $5 billion raise via equity dilution. Might have bought them into 2021. They had a solid 10-11 months at the recent ~$320 level to do it.
This market and their own situation combined, can easily be one of those cases where you wake up in May or June with 1/2 the market cap you had in January or February.
This market and their own situation combined, can easily be one of those cases where you wake up in May or June with 1/2 the market cap you had in January or February.
8% in this market? Wow. That's... that's pretty bad. Interest rates have been rising steadily, but a spike to 8% can only mean that bond investors have begun to lost faith in Tesla.
The market however, is reacting to Moody's credit rating. Moody's downgraded Tesla to B3 and Caa1 earlier this week, which is well into junk-bond status.
The TL;DR about it is that Telsa's Model 3 production isn't ramping up fast enough. Tesla's current debt deadlines are:
* $230 million due in November 2018
* $920 million due in March 2019
Tesla is running out of time, and the Model 3 isn't being made fast enough. There's plenty of demand. Tesla is most likely going to be forced to borrow money to pay off its last debts.
The market however, is reacting to Moody's credit rating. Moody's downgraded Tesla to B3 and Caa1 earlier this week, which is well into junk-bond status.
The TL;DR about it is that Telsa's Model 3 production isn't ramping up fast enough. Tesla's current debt deadlines are:
* $230 million due in November 2018
* $920 million due in March 2019
Tesla is running out of time, and the Model 3 isn't being made fast enough. There's plenty of demand. Tesla is most likely going to be forced to borrow money to pay off its last debts.
$230M means about 45k Model 3 sales assuming no other income. Or about 25k Model S/X sales assuming no other income. Or two dozen big battery installations assuming no other income.
But since Tesla is manufacturing Model S, Model X, Model 3, Powerpack and Powerwall, it’s a safe bet that $230M will be covered with expected sales even if Model 3 production stalls at this week’s peak.
$920M next year means Tesla have to reach 50k Model 3 a month with no other income.
If they start rolling out Solar Roof before then, and sell any Model S or X, or raise the rate of big battery installations, they will make that payment too.
Tesla doesn’t only sell cars.
But since Tesla is manufacturing Model S, Model X, Model 3, Powerpack and Powerwall, it’s a safe bet that $230M will be covered with expected sales even if Model 3 production stalls at this week’s peak.
$920M next year means Tesla have to reach 50k Model 3 a month with no other income.
If they start rolling out Solar Roof before then, and sell any Model S or X, or raise the rate of big battery installations, they will make that payment too.
Tesla doesn’t only sell cars.
You're quite the optimist. There's a reason Tesla's credit was just degraded to Caa1.
https://si.wsj.net/public/resources/images/OG-AX813_TESLA1_F...
Tesla lost $1.6 Billion dollars in 2017. Tesla is going to lose money in 2018 AND it has bills due.
https://si.wsj.net/public/resources/images/OG-AX813_TESLA1_F...
Tesla lost $1.6 Billion dollars in 2017. Tesla is going to lose money in 2018 AND it has bills due.
With all the money they are borrowing, some lender is eventually going to say “no”. A reduced credit rating just means, “we don’t think they can service more debt.” The credit rating doesn’t mean that there is significant risk to current creditors.
Moody’s rating is also based on naive fresh faced belief in aspirational targets as accurate forecasts.
We will see if Tesla meets their revised targets. My interest in the company is as a reservation holder, and all I really care about is that they stay afloat. I am not an investor looking for incredible returns on overvalued stock.
Moody’s rating is also based on naive fresh faced belief in aspirational targets as accurate forecasts.
We will see if Tesla meets their revised targets. My interest in the company is as a reservation holder, and all I really care about is that they stay afloat. I am not an investor looking for incredible returns on overvalued stock.
> Tesla is most likely going to be forced to borrow money to pay off its last debts.
Rolling debt, totally unheard of.
Rolling debt, totally unheard of.
Rolling debt from 5.6% to 8% is killer.
The question is what prices does Tesla get on its new debt? And is it sustainable?
The question is what prices does Tesla get on its new debt? And is it sustainable?
If insolvency were a concern the stock would be much lower. Seems like more fud by journalists who want to see Tesla fail.
> If insolvency were a concern the stock would be much lower.
TSLA is down 28% this month. How much lower would it have to go before you were convinced that the market is "actually" worried about insolvency?
And frankly, even if it weren't down, your position would still make no sense. People trade bonds on the expectation of whether or not they'll be paid back. Are you trying to claim stock prices represent what the market really thinks, but bond prices are just posturing?
TSLA is down 28% this month. How much lower would it have to go before you were convinced that the market is "actually" worried about insolvency?
And frankly, even if it weren't down, your position would still make no sense. People trade bonds on the expectation of whether or not they'll be paid back. Are you trying to claim stock prices represent what the market really thinks, but bond prices are just posturing?
Yeah but Tesla is very volatile though. A 30% one-day decline on capital crisis would be a cause for concern, but that has not happened. Rather, Tesla is mirroring the market but with a higher beta.
The way I look at things is, every numerical quantity in science has an uncertainty +/- applied to it, right? Well, the market price of something has a significant amount of uncertainty because it's based on future expectations. But we don't know what that uncertainty is. So if something declines 15% or 30% or whatever, it could be fluctuating entirely within the band of uncertainty and not reflecting any meaningful change in expectations, but not reflecting any error by the market either. Or it could mean something or be an error. Fundamentally we don't and can't know by looking at the price chart.
Bloomberg has an entire page to track Model 3 production. The production ramp is there: https://www.bloomberg.com/graphics/2018-tesla-tracker/
Credit rating agencies have defined rules and many institutions have policies on what mix of bonds they have. Investors do over-react to short term news.
Credit rating agencies have defined rules and many institutions have policies on what mix of bonds they have. Investors do over-react to short term news.
If you can't defend the company on its own merits, instead of accusing journalists of wanting it to fail, then maybe you should consider that the journalists are correct and the company really does have some problems.
By the way, the stock is much lower. It's down over 15% since Monday. You can blame general stock market volatility for some of that, but even so it's a much larger drop than the overall market experienced.
By the way, the stock is much lower. It's down over 15% since Monday. You can blame general stock market volatility for some of that, but even so it's a much larger drop than the overall market experienced.
Tesla stock is a roller coaster, with the market reacting hyperbolically to any Tesla news. Attempting to treat the stock market as a rational entity is a fool’s gambit.
If you have to pretend that a Tesla shorter is a journalist you should consider that maybe your world view has some problems.
If you have to pretend that a Tesla shorter is a journalist you should consider that maybe your world view has some problems.
You’re probably witnessing a prelude to a correction later this year.
Debt markets are tightening up and junk companies will not survive. They need to raise north a billion this year. It’s reasonable to be a bear, unfortunately.
If you like Tesla cars, the best investment in them is to see which automaker is best positioned to pick up what’s left.
Debt markets are tightening up and junk companies will not survive. They need to raise north a billion this year. It’s reasonable to be a bear, unfortunately.
If you like Tesla cars, the best investment in them is to see which automaker is best positioned to pick up what’s left.
You could have said the same thing about Lehman Brothers too. Debt can help hide the inevitable right up until it can't.
journalists want to create controversy to get views; they likely don't care if it fails or not
8% yield doesn't sound like free fall.
Yields on bonds go up when when bond price goes down. You can think of it this way: Tesla bond would have to pay 8% for investors just to be on par (break even), given the current interest rate regime. Of course, bond pays the fixed rate agreed at the issuance, so if you are bondholder, your bond is now worth less, and - if you sell it now - you realize the loss. Put another way, if Tesla to issue new bonds, they have to issue them _at least_ with 8% coupon, because investors will demand premium for risk.
thanks for the intuitive explanation
When your yield moves from 6 to 8% and your debt is rated junk (seven levels below investment grade) yes it is free fall.
The bond price/yield chart appears to be going parabolic in the past few days.
The bond price/yield chart appears to be going parabolic in the past few days.
Its amazing your getting downvoted. Anyone who even looked at bond pricing in the last few years would be shocked by an 8% yield, and a 2% short term move. Those numbers are simply not normal for any healthy company post 2008.
It's only relevant if they need to issue more bonds, though, I would think. Couldn't they issue stock? As we see with ICOs, and Tesla's soliciting of deposit money, and other companies issuing stock with no voting rights, there seems to be a vast ocean of capital floating around that people can be sweet-talked out of for almost nothing. Heck, maybe they could start a GoFundMe.
> Couldn't they issue stock?
They could, but with TSLA down almost 30% in a month and shareholders already grumbling, they are fast approaching the limits of what they can tap in the equity market.
> Heck, maybe they could start a GoFundMe.
Please be serious. Tesla is losing $400 million every month and has over a $1 billion in debt payments due over the next year. We’re talking about big person money here.
They could, but with TSLA down almost 30% in a month and shareholders already grumbling, they are fast approaching the limits of what they can tap in the equity market.
> Heck, maybe they could start a GoFundMe.
Please be serious. Tesla is losing $400 million every month and has over a $1 billion in debt payments due over the next year. We’re talking about big person money here.
$400 million every month? What is your source? The latest official financial filing says they lost an average of $163 million per month in 2017.
See https://www.sec.gov/Archives/edgar/data/1318605/000156459018...
See https://www.sec.gov/Archives/edgar/data/1318605/000156459018...
Bonds fall up, and rise downwards. Its a bit confusing if you aren't used to bonds, but that's the terminology.
Its because if you have $950 in bonds, and interest rates rise, then your $950 is worth less (maybe $930 now). Similarly, if interest rates fall, then your $950 is worth closer to $1000.
Its because if you have $950 in bonds, and interest rates rise, then your $950 is worth less (maybe $930 now). Similarly, if interest rates fall, then your $950 is worth closer to $1000.
It sounds like you don't trade bonds.
Is it a purposeful tactic to undermine Tesla and slow the inevitsbile domination of electric vehicles?
Is Tesla still being propped by US taxpayers? If so looks like you folks are up for another round of "private profits, social losses" again.
Truly, a financial news feed about financial news of the intraday trading of a financial instrument will affect the technology I select this year.
Can you restate that? I'm not sure what you're saying tbh. You want intraday news on bonds or some other security?
I think they're saying it won't affect whether they want to buy a tesla or not.
It should affect buying decisions. What would a Tesla owner do if their car broke down and the company did not exist anymore? It's not like you can just go to an auto parts store or an ordinary mechanic.
Being a startup is like being a gladiator. Every day is another war. Every day other startups die. Every day of survival doesn't fill you with relief; you just think of tomorrow's doom.
The general public only sees the sausages that come out of the factory. They only see the glory of massively successful companies like Dropbox. They would be horrified if they saw inside. The blood dripping through the grated floor. The graveyard of bones ground up and spit out as meal for the next "lucky" founder.
This week the public has gotten a taste of how Tesla's sausage is made. Truth is; every day for Tesla has been like this. The truth is, every day in Tesla's life has been the closest it has ever come to death.
Those in HN who've built a company know this. But they also know _why_ they suffer this pain.
A mere two months ago SpaceX launched humanity's dreams into the outer reaches. Meanwhile Tesla is single-handedly altering the course of ground transportation.
Last weekend we took a trip to San Diego in a Tesla. An all electric trip, charged up using the solar panels at our home, with most of the travel time driven by autopilot. The future drove us there and back again. That's why Tesla does what it does.
I don't see the point in discussing Tesla's financials and their "impending" doom. Instead, I think the only appropriate thing to say is...
Nos morituri te salutamus