Elon Musk Knows That Tesla Is “The Next Netflix”; Here Is What Happens Next

Stanphyl Capital’s commentary for the month ended May 31, 2022, discussing their short position in Tesla Inc (NASDAQ:TSLA).

The latest on Tesla…

In May Business Insider published a heretofore unknown story about Elon Musk paying $250,000 to settle a sexual harassment case brought by a flight attendant on one of his “global warming-fighting” private jets. Yes, the same Musk who soon after the story broke tweeted this:

Q1 2022 hedge fund letters, conferences and more

In fact, following that story’s publication Musk had a complete “Twitter legal meltdown”:

What’s behind THAT??? Could it be that there’s rarely “just one cockroach”???

My comment to any investor who still owns this bubble-fraud with that guy in charge: Have fun staying long!

More “fundamentally” we remain short Tesla, the biggest bubble-stock in modern market history, because:

It has a flat-to-sliding share of the world’s EV market and a share of the overall auto market that’s only around 1.5%, yet a market cap roughly equal to the next 9 largest automakers combined despite selling fewer than 3% of the cars they do. It has no “moat” of any kind; i.e., nothing meaningfully proprietary in terms of its electric car technology (which has now been equaled or surpassed by numerous competitors), while existing automakers—unlike Tesla­—have a decades-long “experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably. Meanwhile, its previously proprietary Superchargers are being opened to everyone. Excluding working capital benefits and sunsetting emission credit sales Tesla generates only minimal free cash flow. Growth in sequential unit demand for Tesla’s cars is at a crawl relative to expectations. Elon Musk is a pathological liar.

Tesla Is Netflix

For years I’ve said “Tesla is Blackberry”—the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions; now I can provide a much more recent analogy: Tesla is Netflix. For years Netflix had an absurd valuation based on its pioneering position in streaming media, but once it proved that such a market existed myriad competitors swarmed all over it, and in April the stock collapsed when we learned that not only is Netflix no longer in “hypergrowth” mode but for the first time since 2011 (when it transitioned from physical DVDs) it actually lost subscribers. I believe Musk knows that Tesla is “the next Netflix” (hence his recent “Twitter buying distraction”), with VW, Hyundai/Kia, Ford, GM, BMW, Mercedes, BYD & other Chinese competitors and, in a few years, Toyota & Honda, being the Disney, HBO Max, Amazon Prime, Peacock, Hulu, Paramount +, etc., of the electric car market, stealing Tesla’s share and eventually pounding its stock price down 95% or so from today’s, into the valuation of “just another car company.”

In fact, Tesla’s Q1 deliveries were sequentially nearly flat (just 1398 additional cars, a gain of just 0.45%) vs. the previous quarter, and even that was only “achieved” by a sneaky redefinition by Tesla of what “a delivery” is. Yes, the company is chip-constrained, but its competitors (who, unlike Tesla, are unwilling to delete safety equipment or use untested chips to maintain production) are even more constrained, and in fact waiting times are longer for Tesla’s direct EV competitors than they are for a Tesla; for instance, Ford’s Mustang Mach-E is so in demand that it has even halted additional orders for the 2022 model year. (Current annual Mach-E production capacity is around 65,000 for the U.S. & Europe and tens of thousands more for China, but in 2023 U.S. & European capacity will expand to 200,000.) The worst thing that can possibly happen to “the Tesla story” will be when its German and Texas plants are fully operational and the subsequent excess capacity stares the world right in the face, thereby ending its myth of “unlimited demand” (especially at current, drastically-raised prices, where the cheapest Model 3 now starts at $47,000 and the cheapest Model Y begins at $63,000); in fact, look for margin-destroying price cuts by late this year or early 2023.

Meanwhile, the “record” profits that accompanied Q1’s nearly flat delivery number were obtained via myriad one-time items, including $679 million of emission credit sales that will disappear over the next year or two as every automaker ramps up its EV sales, a mysterious $502 million reduction in SG&A expense (of which only $140 million was due to reduced stock comp) despite opening new factories in Germany and Texas (what is Tesla capitalizing instead of expensing???) and a combination of FIFO accounting and multiple sticker price increases that allowed Tesla to expense rapidly rising raw materials costs at older, lower prices while selling cars built from those materials at new, considerably higher prices. Adjusting for these factors, Tesla had GAAP earnings for the quarter that were at least $1/share lower than the posted $2.86, and annualizing that realistic $1.86/share to $7.44 means that at May’s closing price Tesla (on a no-growth quarter) had a PE ratio of around 102 vs. an industry-wide figure of less than 10.

Meanwhile, excluding growth in net payables and $993 million in sunsetting emission credit sales, Tesla’s free cash for Q1 2022 and Q4 2021 combined was just $950 million, which annualizes to only around $1.9 billion*. A 15x multiple on this (roughly a 100% premium to BMW’s multiple) would make TSLA stock worth only around $28/share!

*And I’m not even backing out Tesla’s massively dilutive stock comp

And for those of you who think that Tesla is “really an energy company,” in Q1 “Tesla Energy” had revenue of just $616 million (down 10.5% sequentially) and cost of revenue of $688 million, meaning it had a negative gross margin. So if Tesla is “really an energy company,” it’s even more screwed than if it’s just a car company!

Meanwhile, many Tesla bulls sincerely believe that ten years from now the company will be twice the size of Volkswagen or Toyota, thereby selling around 20 million cars a year (up from the current run-rate of around 1.3 million); in fact in March Musk himself even raised this as a possibility. To illustrate how utterly absurd this is, going from 1.3 million cars a year today to 20 million in ten years means that in addition to one million cars a year of eventual production from the new German and Texas factories, Tesla would have to add 35 more brand new 500,000 car/year factories with sold out production; i.e., a new factory nearly every single quarter for ten years! And what then? Well, then you’d have a car company approximately twice the size of Toyota (current market cap: $229 billion) or Volkswagen (current market cap: $111 billion). If that would make Tesla worth, say, $500 billion in 10 years, discounting that back at 15%/year and allowing for enough share dilution to pay for all those factories, Tesla—in that absurdly optimistic scenario—would be worth just $100/share today, down almost 90% from its current price. (To be clear, I think it’s going much lower than that!)

The China Market

Another favorite hype story from Tesla bulls has been “the China market,” but Tesla’s Q1 2022 domestic China sales sequentially declined by approximately 8000 units vs. Q4 2021, and it had only around 1.9% of the overall Chinese passenger vehicle market and has flatlined at only around 10% of the BEV market. In other words, “Tesla China” is no longer “a growth story”:

Meanwhile,  as Tesla continues to sell its fraudulent & dangerous so-called “Full Self Driving” the head of that program recently took a four-month sabbatical; the last major Tesla executive who did that never returned. In a sane regulatory environment Tesla, having sold this garbage software for over 5  years now…

…would be prosecuted for “consumer fraud,” and Guidehouse Insights continues to rate Tesla dead last among autonomous competitors.

In fact, as of May the NHTSA had investigated 39 crashes involving “automated driver assistance” systems and Tesla’s “Autopilot” was involved in 14x as many fatalities as all other systems combined:

Is this deadly product about to be banned, with massive write-downs and refunds to follow? Stay tuned! (And for all Tesla deaths cited in the media—which is likely only a small fraction of those that have occurred—see TeslaDeaths.com.)

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market some time in 2024 (as is now expected), even if Tesla makes some of its own,  other manufacturers will gladly sell them to anyone.

Tesla Build Quality Remains Awful

Meanwhile, Tesla build quality remains awful (it ranks second-to-last in the latest Consumer Reports reliability survey) while the latest survey from British consumer organization Which? found it to be one of the least reliable cars in existence. And Tesla’s worst-rated Model Y faces current (or imminent) competition from the much better built electric Audi Q4 e-tron, BMW iX3, Mercedes EQB, Volvo XC40 Recharge, Volkswagen ID.4, Ford Mustang Mach E, Nissan Ariya, Hyundai Ioniq 5, Kia EV6 and Polestar 3. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, the great new BMW i4 and the premium version of Volkswagen’s ID.3 (and upcoming Volkswagen Aero B, plus multiple local competitors in China.

And in the high-end electric car segment worldwide the Audi e-tron (substantially improved for 2022) and Porsche Taycan outsell the Models S & X (and the newly updated Tesla models with their dated exteriors and idiotic shifters & steering wheels won’t change this), while the spectacular new Mercedes EQS, Audi e-Tron GT and Lucid Air make the Tesla Model S look like a fast Yugo, while the extremely well reviewed new BMW iX and Mercedes EQS SUV do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as it will enter a dogfight of a market; in fact, Ford’s terrific 2022 all-electric F-150 Lightning now has over 200,000 retail reservations (plus many more fleet reservations), GM has introduced its fantastic 2023 electric Silverado which already has nearly 200,000 reservations and Rivian’s pick-up has gotten excellent early reviews.

Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called “Autopilot” system, which Consumer Reports has completely eviscerated; God only knows how many more people this monstrosity unleashed on public roads will kill despite the NTSB condemning it. Elsewhere in safety, the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and now Tesla has been hit by a class-action lawsuit in the U.S. for the same defect. Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen. In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate.

So Here Is Tesla’s Competition In Cars…

(note: these links are regularly updated)

Porsche Taycan Porsche Taycan Cross Turismo Porsche Macan Electric SUV Officially Coming in 2023 Volkswagen ID.3 Volkswagen ID.4 Electric SUV Volkswagen unveils ID.6 SUV EV in China Volkswagen ID.Buzz Electric Van Volkswagen Aero B saloon to rival Tesla Model 3 - could come with up to 435 miles of range  New sketch of 2025 Volkswagen ID.1 unveiled VW’s Cupra Born Volkswagen unveils $7.1B commitment to boost product line-up, R&D, mfg in N. America Audi e-tron Audi e-tron Sportback Audi E-tron GT Audi Q4 e-tron Audi Q6 e-tron confirmed for 2022 launch 2022 Audi A6 e-tron set to take on Tesla Audi will expand EV lineup with electric A6 wagon Audi TT to be axed in 2023 for 'emotional', electric replacement Hyundai Ioniq 5 Hyundai Ioniq 6 Will Be a Slick-Looking EV Sedan Hyundai Kona Electric Genesis reveals their first EV on the E-GMP platform, the electric GV60 crossover Genesis Electrified GV70 Revealed With 483 Horsepower And AWD Kia Niro Electric: 239-mile range & $39,000 before subsidies Kia EV6: Charging towards the future Kia EV9 to land in US in 2023 with 300-miles range, $50,000 price Kia EV4 on course to grow electric SUV range Jaguar’s All-Electric i-Pace Jaguar to become all-electric brand; Land Rover to Get 6 electric models Daimler will invest more than $47B in EVs and be all-electric ready by 2030 Mercedes EQS: the first electric vehicle in the luxury class 2023 Mercedes EQS SUV Is a Seven-Seat EV Flagship with up to 536 HP 2023 Mercedes EQE Electric Sedan Mercedes EQE SUV to rival BMW iX and Tesla Model X Mercedes EQC electric SUV available now in Europe & China Mercedes-Benz Launches the EQV, its First Fully-Electric Passenger Van Mercedes-Benz EQB Makes Its European Debut, US Sales Confirmed Mercedes-Benz unveils EQA electric SUV with 265 miles of range and ~$46,000 price Ford Mustang Mach-E Available Now Ford F-150 Lightning electric pick-up available 2022 Ford set to launch ‘mini Mustang Mach-E’ electric SUV in 2023 Ford to launch 7 EVs in Europe in big electric push Ford unveils Lincoln Star electric SUV concept as it readies to add four new EVs by 2026 Polestar 2 sedan Polestar 3 SUV to debut in October 2022 Volvo XC40 Recharge Volvo C40 Recharge Polestar 3 will be an electric SUV that shares its all-new platform with next Volvo XC90 Chevrolet Bolt sedan, 259-mile range starting at $31,000 Chevrolet Bolt EUV electric crossover Cadillac All-Electric Lyriq Available Spring 2022 GMC 2022 ALL-ELECTRIC SUPERTRUCK HUMMER EV GM’s 2023 electric Silverado pickup truck GMC to launch electric Hummer SUV in 2023 GM announces electric versions of the 2023 Chevy Equinox & Blazer SUVs starting @ $30,000 GM Launches BrightDrop to Electrify the Delivery of Goods and Services GM & Honda Will Codevelop Affordable EVs Targeting Most Popular Vehicle Segments Honda pours $40 billion into electrification, targets 2 million EV production by 2030 BMW leads off EV offensive with iX3 BMW expands EV offerings with iX tech flagship and i4 sedan BMW i7 EV, with 600 hp, will be most powerful variant of new 7 Series flagship BMW iX1 testing photos released and 272-mile range confirmed Renault-Nissan alliance plows $26B into EV blitz- will jointly launch 35 new EVs Nissan vows to hop back on EV podium with Ariya Nissan LEAF e+ with 226-mile range is available now Nissan Unveils $18 Billion Electric-Vehicle Strategy Renault upgrades Zoe electric car as competition intensifies Renault Dacia Spring Electric SUV Renault to boost low-volume Alpine brand with 3 EVs Renault's electric Megane will debut new digital cockpit Stellantis promises 'heart-of-the-market SUV' from new, 8-vehicle EV platform Chrysler to go all-EV by 2028 Alfa Romeo's First Electric Car Will Arrive in 2024 Peugeot e-208 PEUGEOT E-2008: THE ELECTRIC AND VERSATILE SUV Peugeot 308 will get full-electric version Subaru shows off its first electric vehicle, the Solterra SUV Citroen compact EV challenges VW ID3 on price Rivian R1T Is the Most Remarkable Pickup We’ve Ever Driven Maserati going fully electric by 2030 -all vehicles will offer a BEV version by 2025 Mini Cooper SE Electric Toyota’s Electric bZ4X Goes On Sale in Spring 2022 Toyota will have lineup of 30 full EVs by 2030; Lexus will be all-electric brand Honda and Sony to build, sell EVs by 2025 Opel sees electric Corsa as key EV entry 2021 Vauxhall Mokka revealed as EV with sharp looks, massive changes Skoda Enyaq iV electric SUV offers range of power, battery sizes Electric Skoda Enyaq coupe to muscle-in on Tesla Model 3 Skoda plans small EV, cheaper variants to take on French, Korean rivals Nio to launch in five more European countries after Norway BYD will launch electric SUV in Europe The Lucid Air Achieves an Estimated EPA Range of 517 Miles on a Single Charge Bentley will start output of first full EV in 2025 All-electric Rolls-Royce Spectre to launch in 2023 – firm to be EV-only by 2030 Aston Martin will build electric vehicles in UK from 2025 Meet the Canoo, a Subscription-Only EV Pod Coming in 2021 Two new electric cars from Mahindra in India; Global Tesla rival e-car soon Former Saab factory gets new life building solar-powered Sono Sion electric cars Foxconn aims for 10% of electric car platform market by 2025

And In China, Where Tesla’s EV Market Share Is Stuck At 10% And Not Growing…

BYD is #1 in Chinese EVs, selling FAR more than Tesla Volkswagen to boost Chinese EV capacity to 1m by 2023 Audi-FAW's $3.3 billion electric vehicle venture Nio Xpeng Motors Hozon/Neta Li Auto GAC Aion Leap Motors GM launches Ultium EV production platform in China Ford Mustang Mach-E Rolls Off Assembly Line in China Cheaper than Tesla: Honda takes aim at China's middle class BMW i3 Debuts As All-Electric 3 Series Only For China Hongqi Geely Zeekr Premium EVs by Geely Baidu and Geely put nearly $400 million more into their electric car venture Mercedes-Benz Said To Build EV In China From 2024 BAIC Hyundai, BAIC Motor to inject $942 mn in China JV for EVs Toyota partners with BYD to build affordable $30,000 electric car Lexus RZ 450e Steers For China Dongfeng SAIC Renault launches sales of first EV in China Nissan expects 40% of sales in China to be electrified by 2026 Changan forms subsidiary Avatar Technology to develop smart EVs with Huawei, CATL WM Motors/Weimar Chery Seres Enovate Singulato JAC Motors Iconiq Motors Aiways Skyworth Auto Youxia Human Horizons Xiaomi announces plans for four electric vehicle models

Here’s Tesla’s Competition In Autonomous Driving; The Independents All Have Deals With Major OEMs…

Waymo ranked top & Tesla last in Guidehouse leaderboard on automated driving systems Tesla has a self-driving strategy other companies abandoned years ago Waymo operates robotaxis NOW GM’s Cruise operates robotaxis NOW Argo AI (owned by Ford & VW) Begins Driverless Vehicle Operations in Miami & Austin Mobileye operates driverless test fleets in Europe and the U.S. Cadillac Super Cruise Sets the Standard for Hands-Free Highway Driving Ford’s hands-free “Blue Cruise” Mercedes Launches SAE Level 3 Drive Pilot System Honda Legend Sedan with Level 3 Autonomy Now Available in Japan Hyundai + Motional Bringing IONIQ 5 robotaxis to the streets from 2023 Amazon’s Zoox will test its autonomous vehicles on Seattle’s rainy streets Baidu Apollo’s autonomous driving service is now inclusive to all the megacities in China Alibaba-backed AutoX unveils first driverless RoboTaxi production line in China Pony.ai approved for public driverless robotaxi service in Beijing

Here’s Where Tesla’s Competition Will Get Its Battery Cells…

Panasonic (making deals with multiple automakers) LG Samsung SK Innovation Toshiba CATL BYD Sweden’s Northvolt begins shipments Volkswagen to Build Six Electric-Vehicle Battery Factories in Europe How GM's Ultium Battery Will Help It Commit to an Electric Future GM to develop lithium-metal batteries with SolidEnergy Systems Ford, SK Innovation announce EV battery joint venture BMW & Ford Invest in Solid Power to Secure All Solid-State Batteries for Future Electric Vehicles Stellantis affirms commitment to build battery factory in Italy with Mercedes, TotalEnergies Stellantis and Samsung SDI to Invest Over $2.5B in Battery Production Plant in United States Stellantis and LG to Invest Over $5 Billion CAD in Joint Venture for Li-Ion Battery Plant in Canada Stellantis and Factorial Energy to Jointly Develop Solid-State Batteries for Electric Vehicles Mercedes-Benz to build 8 battery factories in push to become electric-only automaker Mercedes-Benz and Sila achieve breakthrough with high silicon automotive battery Toyota to build plant in N.C. capable of making up to 1.2M batteries a year Toyota Outlines Solid-State Battery Tech, $13.6 Billion Investment Nissan Announces Proprietary Solid-State Batteries Daimler joins Stellantis as partner in European battery cell venture ACC Renault signs EV battery deals with Envision, Verkor for French plants Nissan to build $1.4bn EV battery plant in UK with Chinese partner UK companies AMTE Power and Britishvolt plan $4.9 billion investment in battery plants Freyr Verkor Farasis Microvast Akasol Cenat Wanxiang Eve Energy Svolt Romeo Power ProLogium Hyundai Motor developing solid-state EV batteries Morrow

Here’s Tesla’s Competition In Charging Networks…

Infrastructure Bill: $7.5 billion Towards Nationwide Network of 500,000 EV Chargers Electrify America EVgo Chargepoint Ionity Europe Shell 51 U.S. electric companies commit to build nationwide EV fast charging network by end of 2023 GM to Expand Access to EV Charging with More than 40,000 Charging Stations
Volkswagen powers up the grid to take on Tesla Circle K begins North American EV fast charger rollout, plans 200-site network by 2024 Porsche to build out its own network of EV charging stations Petro-Canada Coast-to-Coast Canadian Charging Network Volta E.On BP Volkswagen and BP partner to deploy up to 8,000 EV chargers across EU/UK Smatric Allego Podpoint Instavolt Fastned Total Nio Battery Swap Stations BMW to Build 360,000 Charging Points in China to Juice Electric Car Sales Evie

And Here’s Tesla’s Competition In Storage Batteries…

Panasonic Samsung LG Energy Solutions CATL BYD AES + Siemens (Fluence) Hitachi ABB Toshiba Saft Johnson Contols EnerSys SOLARWATT Sonnen Generac Kokam Eaton Tesvolt Leclanche Lockheed Martin Honeywell EOS Energy Storage ESS Electriq Power Redflow Primus Power Simpliphi Power Invinity Murata Bollore Adara Blue Planet Aggreko Orison Powin Energy Nidec Powervault Kore Power Shanghai Electric LithiumWerks Natron Energy Energy Vault Ambri Voltstorage Cadenza Innovation Morrow Gridtential Villara Elestor SolarEdge Q-Cells Huawei ADS-TEC Form Energy Enphase Sumitomo Electric Stryten Energy Freyr Growatt Polarium

Thanks,

Mark Spiegel

Updated on Jun 1, 2022, 10:40 am

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