Tesla's Q3 Results Show That It Is Just An Average-Margin Car Company - Shortseller

News November 01, 2023

An excerpt from Stanphyl Capital's October 2023 letter, discussing their short position in Tesla Inc (NASDAQ:TSLA). The full letter is available on HedgeFundAlpha.com.

In October Tesla reported a disastrous Q3, with sequentially declining deliveries despite continual price-cutting (and it kicked off Q4 with yet more price-cutting!) and diluted GAAP earnings of just .53/share—down 44% (!) from the year-ago quarter. (And around .08 of that .53 came from interest on Tesla’s cash balance, not the business itself!) Operating margin declined to an auto industry-average of just 7.6% vs. 17.2% a year ago, and that 7.6% included massive regulatory credit sales—without them it was only around 5.2%! Tesla is undeniably now just an average-margin car company* forced to continually cut prices to maintain delivery volume, and with annualized earnings of just $2.12/share in an industry with PE ratios of 4x to 8x, it’s generously a $20 stock.*(Tesla’s nearly irrelevant “energy business” accounts for less than 7% of revenue.)

To make matters worse, Tesla recently announced that it will open its U.S. charging stations to cars from most other manufacturers which, in turn, will adopt Tesla’s connector and charging protocol. (Those competitors are building their own networks, too.) Seeing as many people only buy a Tesla instead of a competing EV in order to access those chargers, and seeing as all the competing charging networks will also adopt this protocol while paying Tesla nothing (Tesla open-sourced it), this will cost Tesla far more in lost auto sale profits than the pennies per share it may gain from charging profits.

Meanwhile, Tesla has objectively lost its “product edge,” with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. In fact, Tesla ranks near the bottom of both Consumer Reports’ reliability survey and the 2023 JD Power survey:

teslas q3 results show that it is just an average margin car company shortseller

Tesla’s poorly-built Model Y faces competition from the much better made (and often just better) electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Chevrolet Blazer EV & Equinox EV, Volvo XC-40 Recharge, Honda Prologue and Polestar 3, as well as multiple Chinese models in Europe and Asia. And Tesla’s Model 3 has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, BMW’s i4, Hyundai’s Ioniq 6 and Volkswagen’s ID.7, as well as many local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan outsells the Model S, while the spectacular new BMW i7 and i5, Mercedes EQS and EQE, Audi e-Tron GT and Lucid Air make the Tesla look like a fast Yugo, while the BMW iX, Mercedes EQS SUV and Audi Q8 eTron do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla first previewed in 2019 won’t be much of “growth engine” either, as by the time it’s in meaningful mass-production in 2024 that grotesque-looking kluge will enter a dogfight of a market vs. Ford’s F-150 Lightning, GM’s electric Silverado, the Dodge Ram REV and Rivian’s R1T.

Meanwhile, in August Tesla’s CFO suddenly quit (or was fired) on no notice, the latest in a series of sudden and unexplained Tesla CFO departures. This may be tied into the possibility that the DOJ is close to criminally indicting Elon Musk following the revelation of a massive & systemic Musk-directed consumer fraud regarding the range of Tesla’s cars, his alleged attempted theft of company assets to build himself a house, and Handelsblatt’s story about a massive & systemic Tesla safety cover-up while people continue to die in (or because of) Teslas at an astounding pace. In fact, Tesla’s Q3 10-Q confirmed that the company has received multiple subpoenas regarding all these transgressions. Whether from these crimes or something else, Musk will go down because fraudsters like him always do… even if he thinks he has an “airtight strategy” (blackmail?) to combat these regulators:

Meanwhile, the NHTSA has initiated the first of what will likely be multiple recalls of Tesla’s fraudulently named “Full Self Driving” (even before the aforementioned safety cover-up revealed by Handelsblatt), and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck). The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of “full self-driving.” And, of course, there will be a massive “valuation reappraisal” for Tesla’s stock as the world wakes up to the fact that its so-called “autonomy technology” is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors’ systems (behind Ford, GM, Mercedes, BMW, Toyota and Volkswagen) and Guidehouse Insights now rates dead last:

Yet Tesla has sold this trashy software for seven years now…

…and still promotes it on its website via the aforementioned completely fraudulent video!

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, even if Tesla makes some of its own, other manufacturers will gladly sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

Meanwhile, here is Tesla’s competition in cars...

(note: these links are regularly updated)

And in China...

Here's Tesla's competition in autonomous driving; the independents all have deals with major OEMs...

Here's where Tesla's competition will get its battery cells...

And here's Tesla's competition in storage batteries...

Thanks,

Mark Spiegel

Authored by Valuewalk via ZeroHedge November 1st 2023