Tesla's improved Model 3 results keep Elon Musk's balls in the air | RenewEconomy

Tesla’s improved Model 3 results keep Elon Musk’s balls in the air

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Will Tesla’s improved Model 3 production stats keep the professional short-sellers at bay as new competitors loom?

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Tesla produces amazing cars. Generally anyone who has ridden one of their high-end Model S sedans or Model X SUVs walks away with envy for the owner, and perhaps might think of buying one for themself.

The cars have supercar-like (but quiet) acceleration, well thought out features (including extensive over-the-air diagnostics, tracking and updates), long range and compare very favourably with their high-end competitors.

Unfortunately for many, they come with a correspondingly high price (the cheapest available Model S variant lists at $131,00 in NSW, with typical options likely to push the price much higher).

All commentators agree that Tesla’s main game is an affordable but capable mass-market car – enter the Model 3, priced at US$35,000 (A$45,500) for the cheapest configuration plus import costs (although only the expensive configurations are currently being made, and if you are interested the right-hand drive version won’t come before perhaps late 2019).

Announced in March 2016, and originally set for launch by the end of 2017, the Model 3 generated huge interest, with 450,000 (paid) reservation deposits plonked down. Given the average carmaker executive would sell their grandmother for that many cars, the future seemed assured.

The Model 3 production did not go to plan. The launch came with a forecast of production rates of 5,000 per week by now (and even “looks like we can reach 20,000 Model 3 cars per month in December” 2017), but in the words of Elon “production hell” ensued, with gremlins causing a fraught start-up of the highly-automated production line (including the battery module assembly line), and quality problems plaguing early output.

Production was even halted for a week in February The forecast was lowered to 2,500 per week by the end of March 2018, and 5,000 per week by June. Tesla’s production forecasts have been over-optimistic and generally lowered and delayed over time.

Bloomberg even started a “Model 3 tracker” to crowd-source estimated production numbers, and it shows a large jump in rate as the quarter ended. We can safely assume that no-one in the Tesla factory took holidays in the last fortnight.

Although the cars may be highly regarded, that doesn’t always translate into high regard for the company amongst investment analysts. Tesla has become a very unusual share animal – what analysts call a “story stock”.

The bullish focus on the desirability of the cars and the panache of the rock-star CEO Elon Musk; the bears focus on the string of unmet forecasts and deadlines, the cash burn and the corporate manoeuvrings and diversions.

Tesla has not been cash-positive for its 10 year history (with the exception of 2013 when a hoard of government incentive credits pulled it briefly cash-positive), so it has been relying on a series of share and debt issues to keep going.

This is a fascinating battle between the story (longs) and conventional financial valuation (shorts). It’s a “dangerous” short for the bears, because Elon/Tesla has a habit of pulling a rabbit out of the hat regularly (generally a new-product announcement or bullish forecast) and causing the share price to jump.

Many professional shorts (AKA hedge funds) judge it too risky and stay out of the game, but watch intently, and much of the Tesla share register (the longs) are in the “fanboy” classification.

If even hedge funds are cautious, it means it’s not an investment for the faint-hearted.

The outcome of the battle is anyone’s guess. The share price has dropped lately, but so has the amount of short interest.

So all (investor) eyes were on the latest announced production figures last night Australian time, which came in at 2,020 Model 3s in the last week (8,180 delivered for the quarter – only 4 times as many).

The announcement reiterated the 5,000 per week forecast in the current quarter, and that no new debt or equity issues are needed this year – a particular worry for investors given the share price is low (and would have crashed if the production rate missed by a large amount) and the Tesla debt has been downgraded by Moodys (the downgrade specifically mentioned the risk of missing production targets) and is trading lower.

Concerns remain. Having a good week at the end of a good quarter looks good for Tesla when it reports its results, but it’s just the start of making a production line hum reliably, day-in, day-out, and proving that it can produce cars at scale, and make money doing it.

Competition isn’t far behind, with Jaguar’s i-Pace launching in early March at the high end, and the Model 3 facing the Chevrolet Bolt (launched last year), and a large number of similar long-range alternatives (including the Nissan LEAF 230-mile range version, Hyundai Kona EV, Kia Niro EV and Audi eTron) in 2018.

Margins have been questioned but should be fixed once volume increases, and there are worries about the recent cobalt and lithium price surge affecting battery costs.

Quality issues (including a Model S recall, Model 3 panel fit issues) may now be under control, but left-field issues (such as high-profile crashes under autopilot) may still knock Tesla.

Elon is also increasingly under strain as he gets the Model Y into production, builds the Tesla Semi and the second-generation Roadster, completing the Supercharger network, boring tunnels underground, making solar roof tiles, and launching rockets.

In the end, it all comes down to whether Elon can keep all the balls in the air.

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31 Comments
  1. George Darroch 2 years ago

    How many will any of these so-called “competitors” actually sell?

    We’ve seen time and again manufacturers with huge sales and capacity launching an EV, only to have them put out a few thousand a year and restrict them to a couple of US states and other countries. Chinese manufacturers have the numbers, but they don’t have the presence to get their cars to Australians.

    Nissan deserves praise for their efforts so far, but the rest should be given the skepticism they deserve.

    • George Michaelson 2 years ago

      Is this because of the capped subsidy model? ie, the manufacturer is motivated to sell up to, but no more than a defined Federal price support volume, and then cease selling?

    • Eric 2 years ago

      Actually VW has put an order in for $25B of batteries. They are building a line in Germany as we speak set to produce 1000-1500 BEV’s a day in 2020. That will cover several different badged models all built on the same line.

      But we will just have to wait and see how it pans out. VW have history

  2. Robin_Harrison 2 years ago

    As I understand it the M3 production line is optimal at 2.5k/week. 5k/week and the 25% gross margins will require a 2nd line.
    All the time, expense and risk is in the first line and, by comparison, repetition is a piece of cake. So the relevant goal to achieve is 2.5k/week and they’re nearly there.

    • brucelee 2 years ago

      I thought I had read that it was 5k per line to get the 25% margin. Can’t find it though

      • Robin_Harrison 2 years ago

        Somebody here will know.

        • Eric 2 years ago

          It’s 5k a week. But they will sail past 5k a week sometime later this year. Then they are in the money!

          • neroden 2 years ago

            It’s going from 5k/week to 10k/week which requires building a second line. 2.5k to 5k requires duplicating *parts* of the line, but some lines can already handle 5k/week.

            The more important point is that Tesla can make a profit before getting to 5K/week; even at 20% gross margin and 4000 cars/week, Tesla can make a profit.

          • Eric 2 years ago

            Totally agree. Once they push past 5k a week on a sustained basis they are making money without any shadow of a doubt. They then become a high volume car manufacturer without any doubts. This will make a huge difference to the perception of the company at large and they will get there within six months, imo.
            It will dispel any doubts about the future of the company once and for all.

            But like everyone else Tesla has to deal with the Trump factor. I have long suspected that the fossil fuel industry will do everything in its power to bring Tesla down. So it is not over yet!

    • Eric 2 years ago

      This half is about as bad as it will get for Tesla finance wise in medium term and its really not that bad. Sure they are sailing a bit close but it is no different to any business in the high growth phase just before they start turning out product in volume.

  3. Joe 2 years ago

    If the Elon can launch one of his cars into space then surely getting Tesla car production humming along is just a walk in the park.

  4. Cooma Doug 2 years ago

    Balls in the air?
    Is there some ball tamperring here?

    • Ken Dyer 2 years ago

      Better than having them on the line.

    • Ren Stimpy 2 years ago

      He needs air in the ball to get it rolling.

  5. Phil Larkins 2 years ago

    10 billion dollars worth of debt. 3.4 billion cash on hand. Burn through 2.5 billion this year. These numbers don’t lie. Cash raise is necessary but any delay in selling cars and this company is in real trouble.

    • john 2 years ago

      Yes they have debt.
      Yes they are burning money expanding.
      No they are not going to raise money this quarter as they feel that they will be able to finance the company from sales.

    • neroden 2 years ago

      Those numbers do actually lie. I give you a homework exercise: figure out why they lie. Hint: you probably have the amount of debt wrong. If you pass this test, you may be able to do corporate finance analysis.

      It is, of course, true that Tesla needs to get Model 3 production up to its target rate ASAP, and certainly before March 2019.

  6. john 2 years ago

    Shorting TSLA here is a link to the shorting at end of my post.
    25% of available shares have been shorted.
    Yes there has been a plunge in the share market price.
    However it would appear with the Model 3 ramp they are going to be cash positive.
    The problem with the company is that it has been plowing every dollar into expansion to enable build of product not making a profit and then expanding.
    If you’r a start up and need to expand ability to produce then you have to spend on that.

    https://cleantechnica.com/2018/04/04/tesla-short-sellers-have-raised-their-bets-10-since-mid-march-s3-partners-claims/

    • neroden 2 years ago

      25% shorted is completely insanely ridiculous. Nearly everyone involved will lose a great deal of money.

  7. Barry Alternative Fact Covfefe 2 years ago

    Life (or Elon/Tesla) is like loading twice your cargo weight onto your spacecraft. If it’s canaries and you can keep half of them flying all the time, you’re all right.

    • Ruben 2 years ago

      I’m not entirely sure what fluid dynamics model you used to calculate this statement…

      • Barry Alternative Fact Covfefe 2 years ago

        Only the best, the one that always gives the answers i envision and gets me votes.

        • Ruben 2 years ago

          I would have expected nothing less from you!

          • Barry Alternative Fact Covfefe 2 years ago

            I wonder how many people realize both responses are Star Trek quotes?

          • jeffhre 2 years ago

            Huh? Had no idea, and I’ve been watching Star Trek since I was 6 years old! Completely. Over. My. Head.

          • Barry Alternative Fact Covfefe 2 years ago

            You can google the first one, and the second one i left out the part that will let you google it, unfortunately i have no Axonol, Neurozine or Anesthizine handy 😉

          • jeffhre 2 years ago

            Funny – I didn’t remember anything about that episode, except Data trying to be funny. Thanks 🙂

  8. Eric 2 years ago

    The problem Tesla has is that Elon won’t keep his mouth shut and tells the world silly production timelines so it appears like a fail.
    The reality is that the new production line for the model3 was doubled in size after the initial order frenzy on the model3 and, was built sooner than the original plan. It is increasing production rates as fast as any totally new production line.

    As for other EV models and competition, that is a great thing for Tesla because it increases the awareness of electric cars in general. When people start looking into it, they will find that Tesla has a vast fast recharging network far superior to others. And they also offer the best autonomous in car technology and a tech package that improves continually over the life of the car.

    And that is not even mentioning the blistering expansion of the Tesla Energy division
    and the first sales of Tesla roof tiles that look set to be equally humongous.

    There is no fail anywhere on the horizon for Tesla, it will be an absolutely colossal company in ten years time. Its already employing more than 30k people and it has barely got started.

    • jeffhre 2 years ago

      “When people start looking into it, they will find that Tesla has a vast fast recharging network far superior to others.”

      Interesting, I never looked at it that way before…Each manufacturer that announces and begins to build on the billion dollar investment of creating a brand new EV, has unwittingly set aside funds to advertise for Tesla. Hmmm?

      Well, that makes sense though, economists say that market expansion helps all the purveyors of the certain product type not just the company spending the money. Funny how television announcers claim the EV market is only 1% of autos and that big automakers will push Tesla entirely out of that 1% 🙂

  9. neroden 2 years ago

    The short-sellers won’t give up until 2019. Possibly not even then. But definitely not until 2019.

  10. itdoesntaddup 2 years ago

    Musk’s April1st tweets offer a true and fair view of Tesla. His production announcement a few days later was full of the usual spin – promise of a new production target for end June of 5,000 a week that stands as much chance of being badly missed as all his previous “promises”, and just 9,766 vehicles actually completed in Q1 – yet 2,020 of those in just the final week, with a promise of another 2,000 in the first week of Q2 (but no promise that this was now the ongoing production rate). These kind of figures show every sign of being massaged by stockpiling almost complete vehicles for completion in the final week of the quarter. I’ve seen other companies play similar tricks when production or sales were lagging. I’ve looked at the 10-K and it is an art form in obfuscation.

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