The Hype is No Longer with Tesla: Suppliers & Creditors Start to Fret

18 of 22 suppliers believe Tesla is now a financial risk to their companies.

Suppliers are getting nervous about their exposure to Tesla. That’s what a survey by the Original Equipment Suppliers Association (OESA), which represents automotive suppliers, revealed. The survey was sent to members of its council, all of them top North American sales executives representing about 100 suppliers. Of the 35 respondents, 23 were current or past Tesla suppliers. The survey was conducted between July 26 and August 8, the day after Elon Musk’s infamous and ludicrous tweet of taking the company private at $420 a share – “funding secured.” And that tweet did not soothe their nerves:

  • 18 of 22 respondents believe Tesla is now a financial risk to their companies.
  • 13 of 23 respondents said Tesla requested a “large” price reduction on current business and/or retroactive rebates. This is an issue that became public on July 23.
  • 11 of 23 respondents said Tesla had asked them to extend payment terms.
  • 8 of 22 respondents said they were worried that Tesla might file for bankruptcy.
  • But all of the respondents said they wanted to continue or grow their business with Tesla – which is logical, as long as they’re getting paid.

“Regarding Tesla, any time there is uncertainty in the marketplace, it causes concerns for suppliers,“ OESA CEO Julie Fream told The Wall Street Journal, which had reviewed a document with the survey results.

“The current dialogue about Tesla ‘going private,’ the well-publicized Model 3 manufacturing ramp-up challenges, as well as recently reported contentious purchasing tactics raise concerns for our members,” she said.

These suppliers are only a small sample of the suppliers around the globe that Tesla deals with. Nevertheless, there have been other indications about hand-wringing among suppliers, including persistent indications that Tesla is trying to stretch out payment terms, squeeze out additional discounts, and in some cases obtain retroactive rebates. Some of these practices are industry standard, but Tesla has pushed them to an extreme.

The Wall Street Journal also found:

Tesla had asked one tooling supplier recently to stretch the terms from the current 60-day payment schedule to a 90-day payment schedule, “according to a review of a proposed contract and a person familiar with the matter.”

Tesla had asked another parts supplier for a 10% across-the-board price cut going forward, according to “a person familiar with the matter.” While other automakers often ask for price cuts of 1% or 2% on certain parts or programs, Tesla’s request was extreme, that person said. If these price cuts didn’t materialize, Tesla would try to stretch the current 60-day payment terms to 120 days, the person said.

Tesla had stopped making payments altogether since the spring despite numerous promises, another supplier said, adding, as the Journal put it, that he fears “insolvency for his own company if he continues to ship products to Tesla and not get paid.”

They’re all seeing what everyone else is seeing: An erratic CEO with at best a reckless Twitter habit, a company that is being kept afloat only by its sky-high market cap that, in theory, would allow the company to sell more shares to raise more money to pay the suppliers, assuming that the shares don’t collapse. That’s not a great security for a supplier operating in the real world.

And they’re seeing this:

In the first half of 2018, Tesla (TSLA) burned $1.9 billion in cash, according to its own reports: $1.13 billion in Q1 and another $812 million in Q2.

The company also raised some cash during that time, in various ways, including via deposits from its customers, but “cash and cash equivalent” was down to $2.2 billion as of June 30, and it doesn’t take a genius to figure out that Tesla would have to raise cash soon – or it’s all over for the suppliers.

Accounts Payables, the amounts that Tesla owes its suppliers and vendors, has jumped 26% year-over-year, to $3.0 billion at the end of Q2 2018.

Inventories have jumped by nearly 50% year-over-year, or by over $1 billion, to $3.3 billion at the end of Q2 2018. This might explain what happened to the 17,000 Model 3 cars that Tesla claimed to have “produced in the first half but did not “deliver” – as documented by endless photographic and video evidence of huge parking lots full of these cars.

For suppliers who’re owed a lot of money, these are tidbits that make up a potential nightmare.

Bondholders are getting nervous too.

In August 2017, Tesla sold $1.8 billion in junk bonds with a 5.3% coupon, due in 2025, to an enthusiastic market willingly blinded by the hype around the Model 3. Moody’s rates those bonds Caa1; S&P rates them B-. Since then, the proceeds from the bond sale have been burned by Tesla’s infamous cash-burn machine. Model 3 production is a mess. Tesla’s financials have deteriorated. But the debt remains.

Today, these bonds fell further, last trading at 87.75 cents on the dollar, close to all-time lows, giving them a yield of 7.6%. Investors that had bought them at issuance are over 12% in the hole.

The “funding secured” claim has totally collapsed, and the market knows it: Tesla shares, currently at around $308, are trading $112 below the take-private amount of $420 a share.

Saudi Arabia’s Public Investment Fund, instead of coming to Musk’s rescue, is contemplating investing in a Tesla chaser, Lucid Motors. This morning, JPMorgan Chase cut its price target for Tesla to $195, from $308 a share, clearly indicating that Wall Street sees exactly zero chance of any kind of take-private or other buyout at $420 a share. And there have been numerous reports that the SEC has finally woken up and is seriously investigating various aspects of Tesla’s stock-hype schemes, including the “funding secured” announcement.

The hype is no longer with Tesla. And that would be the creditors’ greatest fear because Tesla’s fabulous hype had assured them in the past that there would be new funding to burn at every step along the way. But that assurance isn’t so credible any longer. 
 

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  82 comments for “The Hype is No Longer with Tesla: Suppliers & Creditors Start to Fret

  1. CIT
    Aug 20, 2018 at 7:02 pm

    Latest Tesla Twitter threads:

    Rapper Azealia Banks Says Elon Musk Was Tweeting While On Acid (Full Text):

    http://www.invtots.com/tsla/full-text-of-rapper-azealia-banks-instagram-posts-on-her-experience-of-staying-at-elon-musks-house-grimes/

    Controlling The Float Of Tesla Stock:

    http://www.invtots.com/tsla/controlling-the-float-of-tesla-stock-elon-musk/

    • nick kelly
      Aug 22, 2018 at 2:31 pm

      Bloomberg today (22) has a headline (approx) : Will the SEC face blow back if Musk is vindicated?

      This seems ludicrous. How can you be vindicated for announcing publicly ‘Funding secured’ when Musk himself has admitted it wasn’t.

    • Rudolf
      Aug 27, 2018 at 1:13 pm

      WOW! ‘They’re sure keeping THIS hushed up.

  2. roddy6667
    Aug 20, 2018 at 7:11 pm

    Such a focus on one EV manufacturer. They make $108,000 (average “S” price) toys for rich jerks with self esteem issues. They lose money on every one. The make a “mid priced” EV that is too expensive for most Americans and they lose an ever larger amount of money on each one.
    There are a lot of companies in the world making better electric cars at better prices. In China, at least ten companies are now manufacturing EV’s on a large scale.

    • Aug 20, 2018 at 11:18 pm

      The only reason why anyone even talks about Tesla — and why it is such an important phenomenon — is its totally ludicrous market cap of $58 billion. That’s why this is important. How can a company like this have such a market cap? This says an enormous amount about the current market conditions.

      • Prairies
        Aug 20, 2018 at 11:58 pm

        I’m starting to think the government subsidies are as influential as the free money from the fed(I thought before they must just be some gravy). Likely backs loans on those programs, which would explain his anger with the province of Ontario. If P45 pulls that funding that might just be the pin for the bubble.

        • Ambrose Bierce
          Aug 21, 2018 at 12:02 pm

          and those subsidies were put in place by P44 and P45 has a special dislike of him.

      • JZ
        Aug 21, 2018 at 12:38 am

        Wolf, just ask yourself, for such a ridiculously priced company, do you DARE to short it? Right. That’s why it has such a ridiculous valuations.
        If Farari is building cars with 200K cost and sell for 150K, the market will laugh at it. But if Telsla does it the same way, market has a cult like followers. Because it is EV, the “future”, and “disruptive” and “potentially wipe out the entire gasoline car industry”, and it is “fun to drive”. Investors got drugged up by the “hype of future” and “sexiness” of the product , they refuse to ask the question of “is this a company that earns money?”
        All of Elon’s projects are like these huge investment, poor return government kind of projects, digging tunnels, sending rockets to space, he even talks about cleaning up Flint’s water system.

        • intosh
          Aug 21, 2018 at 1:48 am

          “Disruption”

          The cult followers’ mistake is that they used the now popular blueprint of the Web/digital economy and transposed it to the automobilie industry. In the web economy, the cost of users/customers acquisition is extremely low. The cost is in building the software infrastructure. After that, supplies is unlimited at virtually zero cost. That’s not true with cars. Bill Gates explains:

          https://www.gatesnotes.com/Books/Capitalism-Without-Capital?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top-stories

        • Dave
          Aug 21, 2018 at 7:08 am

          Amazon didnt make money for years and was a cash burner. I dont know if they burn cash like Tesla but they burned for years and now they dominate and burn competitiors.

          I am not defending Tesla. I could careless. Lots of people have made tons of cash off of Tesla but a bunch may get burned too.

          It should be fun to watch!

        • JZ
          Aug 22, 2018 at 12:22 am

          I has been obvious that Amazon kept killing competitors step by step. Tesla is like building farari with 200K cost and sell it for 150K, and even that they can NOT “compete” without government subsidies.

      • illumined
        Aug 21, 2018 at 3:10 pm

        I think we’ll see a paradigm shift the next few years. Cash burning machines like Tesla will be reigned in, most will disappear. Meanwhile real businesses that have viable business models that aren’t investor fueled ponzi schemes will thrive. I liken it to the end of the dot com boom. Tons of vastly overvalued and unviable unicorn companies crashed and burned while real businesses in that space like Google rose up and become extremely successful.

        • BridgetownBeast
          Aug 22, 2018 at 3:53 pm

          It’s cyclical. Google “South Seas Trading Company” and chuckle at the folly of speculators. Or heck, just look at beanie babies.

          Everyone wants the tremendous get-rich growth from the newest thing.

    • intosh
      Aug 21, 2018 at 1:28 am

      I’m more convinced than ever that the Model 3 is practically dead-on-arrival. Saw one up close and it is very forgettable. Not a good sign for a car priced as a luxury sedan. It definitely does not have the same halo effect as the Model S.

      The NA market is going SUV and Crossover full steam ahead and Tesla is betting on a small sedan priced like a full-sized luxury sedan. (And no, the Model X is not an SUV, despite what Tesla may claim — it is more van than SUV. Most SUVs have higher clearance and some offroad capabilities; the Model X has practically zero offroad capability.)

      Tesla’s next model is a roadster. Terrible strategy. Maybe they are throwing in the towel at becoming a mass-market car manufacturer and stay niche niche instead.

      • Bobber
        Aug 21, 2018 at 10:54 am

        When I first saw the Model 3 on the road, I thought somebody took the door handles off and put some nice paint on their Saturn. And the goofy wheels looked a little desperate and out of place.

    • Michael Fiorillo
      Aug 21, 2018 at 11:34 am

      Yes, and The Rest Of Us get to feel that surge of pride in knowing that we’ve helped subsidize the cost of supplying toys for rich boys…

  3. Michael
    Aug 20, 2018 at 7:16 pm

    Unfortunately for Musk and Tesla gravity and GAAP have not been suspended. The cracks are clearly forming

  4. 2banana
    Aug 20, 2018 at 7:16 pm

    Lots o’spinning plates.

    When one crashes….most of the rest do too.

  5. Rates
    Aug 20, 2018 at 7:25 pm

    Lawsuit(s) secured!!!

    • Les Francis
      Aug 21, 2018 at 12:15 am

      Good luck getting paid even if you do win your lawsuit.

      • Tom
        Aug 21, 2018 at 8:41 am

        The light is seen in the funnel : To paraphrase a former president “You won’t have Tesla to kick around anymore”

  6. Kaz Augustin
    Aug 20, 2018 at 7:29 pm

    What are these suppliers? Idiots? They must be to have let the stars in their eyes cloud actual business judgement. Serves ’em right.
    Anyone knows what the Tesla fanbois are saying now?
    * This is all a right-wing Trump-led conspiracy?
    * The Russians did it?
    * This is an Elon head-fake?
    As a new hobby, I’m collecting delusions, the shriller the better.

    • roddy6667
      Aug 21, 2018 at 12:20 am

      Back in the Eighties we had a company called Colonial Realty in CT. They financed many huge real estate investments. The three principals, Sisti, Googl, and Shuch were very wealthy. An entire industry grew around this company selling them luxury homes, cars, yachts, private planes, estates in Florida, and elaborate social events for their families. When they went to jail (Shuch killed himself), dozens of companies went out of business. I knew the family that did all the decorating and furnishing of their homes. They went broke overnight.

  7. a, bona, m.d.
    Aug 20, 2018 at 7:38 pm

    I read they loose some money on every car. so if you increase production you will loose more. stock goes up. ceo gets caught in a lie [funding secured- past tense] by board of directors and goldman sachs, and the stock goes up. something the other day about drugs? or ceo meltdown [crying?], and stock up today. batteries exploding or catching fire and killing people like ford pinto– stock goes up. I suspect this charade will collapse soon enough.

    • Nat
      Aug 21, 2018 at 12:49 pm

      “so if you increase production you will loose more. stock goes up.”

      Yes, you have honed in on the key Tesla “profitability” and general business strategy equivalently outlined in this comic:

      http://www.giantitp.com/comics/oots0135.html

  8. Bookdoc
    Aug 20, 2018 at 7:48 pm

    I have been waiting for tesla to collapse for a couple of years. I may not be an accounting genius but the numbers never added up and the profitability was never around the corner. I wonder how many of the suppliers are single customer suppliers and how many will musk take down with him when the inevitable finally happens.

  9. andy
    Aug 20, 2018 at 9:04 pm

    Theranos to Tesla is what Tesla is to FAANG.

  10. gary franklin
    Aug 20, 2018 at 9:23 pm

    didn’t anyone get musk’s joke. $420 a share, 4/20 meaning someone would have to be smoking dope to buy tesla, LOL

  11. jb
    Aug 20, 2018 at 9:32 pm

    “Bankwupt!”

  12. Tom Stone
    Aug 20, 2018 at 9:50 pm

    It’s a valuable brand, whoever (Mercedes?) picks it up after the BK is likely to do well.

    • Jules Vergne
      Aug 22, 2018 at 9:10 pm

      Mercedes has their own E-cars. They are going Formula E racing this season, presumably to get PR for them.

      Notice you don’t see Tesla on the race track. The track is where the BS drops away and can’t be covered. A race team who could never build the car in time for race day would be a very public disgrace.

      Mercedes may pick up a few pieces they need for their own program, but I’d doubt they’d just buy Tesla to get the brand name. Mercedes already has a much better brand name associated with quality cars.

  13. Lou Mannheim
    Aug 20, 2018 at 9:53 pm

    Once again, The Onion:

    https://www.theonion.com/emotional-elon-musk-recalls-spending-entire-birthday-wo-1828475558

    “Sure, I miss cake and candles; I’m not a monster. But if I don’t spend hours removing that ugly, restrictive yellow caution tape from the factory floor, or improvise a workstation ergonomics layout that encourages repetitive stress injuries, who will?”

  14. IronForge
    Aug 20, 2018 at 9:54 pm

    Can TSLA Suppliers, now unpaid for Months, be Legally able to Give Due Notice of Non-Shipment AND Short the TSLA Stock by Margin or Longed Puts?

    IMHO, they should not be able to as long as they’re being paid; but since they are not being paid – and Bankruptcy Courts won’t recompense quickly – would this be an Exit Strategy for Suppliers?

    I figure that once several critical Suppliers Walk Away, there may be a Supplier Rush Out the Door and Production Stoppage.

    Don’t mean to fan the Flames; but this is such a situation…

    • alex in san jose AKA digital Detroit
      Aug 20, 2018 at 11:06 pm

      I Don’t Know Much About The Markets, But Present Trends Say: Invest, And Invest Big, In Capital Letters.

      You Can’t “Loose!”

    • fajensen
      Aug 21, 2018 at 10:10 am

      I am quite sure that would be both “Market Manipulation” and “Insider Trading”. Suppliers normally do not have the skills / access in money laundering systems and off-shore entities that the average drug-lord or Russian SPAM-Lord’s possess. Being amateurs, they would get nailed for sure (and ripped off by the people setting this up first, since “who are they gonna send round when they find out? The po-lice! Bwhahahaha!”.

      Maybe shorting / PUT’ing selected elements from the TSLA supply chain is better than trying anything with TSLA stock?

      • IronForge
        Aug 21, 2018 at 8:37 pm

        But most of these Suppliers have gone Public; and TSLA’s Non-payment and Blackmail Term Adjustments have been addressed.

        Guess my question is, now that everyone knows that things are looking bad enough, with little or no means of getting paid, can Suppliers Short the Stock and/or Long Puts (for the argument, buying equal Calls and Puts may be the loophole)?

        Most are not being paid, so would Shorting act as an Insurance Policy?

        Thank you?

        • fajensen
          Aug 22, 2018 at 4:56 am

          I think it they can but is a risky strategy. Legally, someone like the SEC could always argue that The Market only have General information and the vendors have Privileged (more accurate, secret information) and they are trading unfairly on that. The SEC of today has generally not been up to much more than a wet-noodle lashing, but, there is always a risk that they have such a low institutional credibility that they really need to show “strength” and now there is an opportunity.

          Given the volatility of TSLA, the premium paid for Puts and Calls will be very high. One has to pick strike prices a good bit down the slopes of the normal distribution of the stock price to get the premium down and of course the probability of hitting the strike price goes down also.

          The option traders are very good at winning most of their bets. Sometimes options will works out well when one bets against a combination of trend and media frenzy, but, the fundamentals have to be there. Right now, the trend is down and everyone knows that everyone knows that it is down, the “machine god” running the options market will price the options so that they net out, so the “cheap” options are probably on the Call side.

          I made an indecent amount of money on Ericsson Calls at strike SEK 6.00 in the naughties when Ericsson was going down to 3.2 SEK a share on large losses during the dot.bomb period. What was special was that Ericsson at that time had enough capital to sustain the same quarterly losses for 10 years or thereabout. It is a big company. Eventually they get their shit sorted out, the new story organised and they recover. Wouldn’t do it again today though, the ERIC stock is too “peaky” (and they did some reverse splits also, which is always a bad sign).

          Tesla … meh.

          Too much of the Tesla story are hanging on the shoulders of Elon Musk. He is the man who can visualise the future and pull it into the Now, so to speak. If that magic is broken then The Story will end in a depressing way. TSLA will rapidly go below 100, maybe all the way to 20 USD. So if one was betting, I’d look at the LEAP puts below 100 USD strike. But, it’s a long shot. Not insurance any more than a lottery ticket is.

          If Elon Musk is replaced it might even go the other way, like with Steve Ballmer’s departure from Microsoft, worth about 4 billion USD to The Market :). Depends on where we are in The Story.


          Usually, industrial suppliers have some sort of non-payment insurance on goods ordered or they will use factoring so the factoring agent pays the loss insurance (for a mere 2-5% fee!). Doesn’t help for goods not manufactured yet, which they might have tooled up for and planned production slots for.

    • Aug 21, 2018 at 1:09 pm

      Here’s a better idea: Tesla suppliers should consider going public and marketing their stocks as linked to Tesla.

      They’ll become rich overnight, and they’ll no longer be expected to make money!

    • illumined
      Aug 21, 2018 at 2:30 pm

      Theoretically they can call off the deal at any time, but then that gets into breach of contract territory if they are getting paid. The suppliers that bail out first will be the ones who take the least losses when the Tesla house of cards comes crashing down.

  15. Mean Chicken
    Aug 20, 2018 at 10:32 pm

    Ha, maybe Elon will offer the vendors stock shares in lieu of payment?

    Iococca would be proud.

  16. nick kelly
    Aug 20, 2018 at 10:32 pm

    I’m a Musk fan and a huge Model 3 skeptic. I think it’s a tragedy that an inventor is bogged down in ‘manufacturing hell’

    The fact that making autos is hell is common knowledge. The late Sergio M of FCA was open about what a lousy biz it is. Why is Apple the first trillion dollar co? It doesn’t manufacture. It designs and Foxxcon builds.

    What is different about a Tesla?

    The power train! Not the glove compartment , or the windows, or the body panels etc.

    Many of us will look at our computers and see ‘Intel Inside’

    Intel doesn’t do key boards, screens, power supply, etc.

    It supplies the processor (or the power train) to whoever wants to build a computer.

    Musk could be supplying drive trains and batteries to other outfits with a logo: Power By Tesla

    • SlimJimWins
      Aug 20, 2018 at 11:05 pm

      The problem is that Musk thought he would be so much better at manufacturing than those old dinosaurs like GM, Ford, Toyota, etc. He was going to come in with “first principles” thinking and show them how to do breakthrough 21st century manufacturing. He claimed that his manufacturing lines would be so automated, so fast, that you’d need a strobe light to see the components moving around- that parts would move so fast that they should be designed to reduce air resistance as they’re moving down the assembly line. He talked of “alien dreadnought” factories and spoke of “volumetric efficiency” as one of the most important criteria in “the machine that makes the machine”.

      All fantasy. The problem is that he saddled Tesla with ludicrous costs to implement these failed concepts. So now to meet his production goals he has to hire far more people than the old dinosaur manufacturers (per vehicle), in addition to paying far more overhead to create his failed fully automated production line. It’s a real train wreck and the bills are now coming due. All because Musk has immense hubris and thought he was so much smarter than the competition.

      • wkevinw
        Aug 21, 2018 at 10:20 am

        Software vs. Hardware. Hardware (widget engineering; a car, for example), is a lot harder in a business sense. You can’t just change software/code and fix everything.

        I was pretty sure Tesla would crash. I work in a “hardware” industry, and have published (scientific/academic) code (many moons ago). Making things work in the physical/hardware world for a profit is a lot harder than when software was (and is?) being built out.

        Apple is a combination of hardware and software. They have done pretty well at both. But remember, Apple has come a hair’s breadth from bankruptcy more than once.

        I like Musk’s rockets.

    • Lenz
      Aug 20, 2018 at 11:14 pm

      Tesla doesn’t own the battery tech, Panasonic does.
      Most of the other components are imported from Germany and Japan.

      You need to own the IP to provide “power trains”

      Tesla is just an assembly line atm and a design brand.

      The concept they can make money like Intel or Apple i think its very stretched.

      • Lenz
        Aug 20, 2018 at 11:27 pm

        Some of the main reasons people here in the states support Tesla and are fans of Elon can be divied up in two camps.

        Patriotic pride that Tesla builds in the USA and ecological green crowd. Hypothetically, assume the Saudis were to be interested in Tesla and bought it. Wouldn’t you lose the first group of supporters? Not to mention the irony of having a major oil producer back an electric car company.

        I can also think of a lot of places where manufacturing could be done much cheaper without direct gov subsidies, like south of the boarder in Mexico just like all the other car manufacturers.

        Maybe Tesla has secretly reinvented battery tech, maybe this last scandal is being used to drop the price low enough to truly go private but my gut feeling and logic tells me Elon is in real trouble.

        We’ll know soon.

      • WSKJ
        Aug 21, 2018 at 2:37 pm

        Everything I’m reading here suggests that the only parts of Tesla that may be of value to real EV manufacturers would be those parted out in a bankruptcy, and sold very cheap.
        …….
        am wondering about the status of plans for the giant EV-battery factory….

        Elon Musk is looking like a guy who dreamed of building Rome in a day.

  17. William Smith
    Aug 20, 2018 at 10:40 pm

    I feel sorry for him as he is a victim of the system as much as himself. The “investors” demand steroid driven massively inflated egos who promise sky high delusions. Those with realistic and more modest propositions don’t even get a look in these days. He is obviously under a great deal of stress as the wheels start to come off the cart that he might have even sold to himself. He is probably a very good salesman. The reason that good salesmen are so good is that they believe their own hype. It is up to the VCs to have a proper and independent due diligence department as a safety valve to all this silliness. That is the way capitalism is supposed to work. There was never “meant” to have been a hose spraying out money in all directions. This is a ludicrous and dangerous modern development which can be traced directly to certain money printing criminals. I like to think that local cottage industries (eg. Tesla) can still thrive in the modern age where people want (and are willing to pay for) higher quality and unique products which are not mass produced in some ugly corrupt asian country. Bespoke goods and services is where everything will have to head if people are still to be able to have jobs in the face of technology which renders *everything* (goods and services) as a mere disposable ultra cheap commodity. 3D printing (especially sintered metal) is still in its infancy but will be a major disruptor when it becomes fully mature. The only hope most of us have is that people will eventually eschew the blandness of items produced in the millions and will go to a local cottage producer (who uses technology) to get a semi-unique item (or service: music etc) of much higher quality. They will have the wherewithal to do so because others will come to the local cottage industry where they are employed. If this does not happen, enjoying some guilty shadenfreude about the crash of some poor deluded victim CEO will be irrelevant compared to the massive systemic shock about to be imposed on all of us in very very short order indeed: https://www.bbc.com/news/business-45240758

  18. Paulo
    Aug 20, 2018 at 10:57 pm

    I read several accounts on the DoLorean failure. There are parallels.

    https://www.quora.com/Why-did-the-DeLorean-Motor-Company-fail

    I didn’t work for Elon Musk, but I worked for someone just as delusional. He rode his dream build project right into the ground, and the only thing that saved his ass was the chief pilot crashing the proto-type. Insurance paid out 30 cents on the dollar, or so I’ve been told. My boss got so far gone into the project he had to lay off staff, delayed paying bills, and we watched him slowly go nuts. I knew we were in big trouble when he started to buy bulk paper towels for the washrooms instead of using the usual supplier. Elon Musk will ride this one all the way down and I don’t see any payoffs unless some other company buys him out for, let’s say 30 cents on the dollar? It’s sad, really.

    The end is clear, but lots of variables still out there. You ever watch those old WW2 documentaries about the end of the war? After awhile there’s no going back and no way out.

  19. Todd H.
    Aug 20, 2018 at 11:27 pm

    The smart suppliers will start requiring pre-payment from Tesla. None of this Net 90 “maybe we’ll pay you if you act nicely” B.S.

  20. WestCoast
    Aug 20, 2018 at 11:32 pm

    Tesla is like Amazon and is backed by a 3 letter agency. Ok Tin Foil Hat back on.

  21. Truth
    Aug 21, 2018 at 12:18 am

    Tesla is the Bear Sterns or Lehman Brothers for 2018.

    Will this be the first card to bring the house down? And spread contagion?

  22. J.M.Keynes
    Aug 21, 2018 at 12:21 am

    – R.I.P. Tesla. I won’t shed a tear (at all).

  23. Willy2
    Aug 21, 2018 at 12:24 am

    – Tesla: Good riddance !!!!!

  24. MD
    Aug 21, 2018 at 2:24 am

    So the cost of a single stock in a company losing $10 million per day is over $300 dollars..?

    Rationality certainly has been suspended – but then I guess a lot of this ludicrous trading is done by machines running algorithms, no rational thought involved.

    But it certainly shows how ridiculously laughable it is when politicians point to soaring stockmarket indexes as a marker of economic prosperity, when the reality is that all they are is a marker of rampant financial speculation (often fueled by mountains of borrowed cash).

    • MC01
      Aug 21, 2018 at 3:28 am

      The more I see this fiasco unfold, the more I am convinced Ellon Musk must have the same mind control ability as Jim Jones and Marshall Applewhite.

      Leaving the financials aside there’s no way any company would be able to justify a $300+ valuation after the CEO lied (because that’s what Musk did) about his own company in front of millions. The fact his shareholders allowed him to get away with what I can only call an amateurish sob show is even more baffling.

      As an enterpreneur I am appalled by this whole show, but the Fortean in me is eager to see how this drama will eventually unfold.

      • Aug 21, 2018 at 2:48 pm

        Stock pricing isn’t affected by things like whether the CEO is trustworthy or not – you’re thinking in value investing terms for a market that has eschewed active management and due diligence for the perceived safety of diversification based on market cap.

        The logic here may be circular, but it’s the way things work in the modern QE-driven financial system: Tesla is worth investing in simply because the valuation is high. The passive funds flowing in make the stock go higher, thereby proving (for now) that the stock is a good investment.

        You know why it pays so much to get trendy terms like “internet” or “blockchain” in a company prospectus? Because ETF’s looking for those key words will pick it up.

        ETF’s are viewed by investors the same way as active managers … if they produce good recent returns, they must be doing things right. No one looks at the actual underlying holdings or questions them, that is the managers job. If an ETF were viewed as a “stock” instead of a “diversified portfolio” it would make more sense, but it just isn’t perceived that way.

      • fajensen
        Aug 22, 2018 at 5:14 am

        Leaving the financials aside there’s no way any company would be able to justify a $300+ valuation after the CEO lied (

        What about Uber, then?

        Burning through 4 Billion US a year for a decade on what is really a business consisting of a rendevous-app and a franchising operation.

        Then add: Widely publicised management douchebaggery, Skirting the laws on every occasion, Using algorithms for the undermining of regulators, Crap self driving cars*, and probably Uber will be unable to provide audited accounts for the IPO in 2019. Nevertheless, the way things are going, that trash stock will sell in “The Market” netting 100 Billion – dat is the plan.

        *)
        Which will only transfer the costs of: “Training” / Development, Procurement, Feeding, Maintenance, Life-Cycle management, Legal responsibility and therefore Insurance onto the Uber Mothership – whereas when using human drivers all of these can be rubbed of on Society and The Drivers for a smal nominal fee.

        Yuuge understanding of e-con-me on display right there /sarc.

  25. Laughing Eagle
    Aug 21, 2018 at 6:18 am

    Elon Musk is the idea guy, but he lacks business savy to keep his ideas going. Two friends of mine own the Model S and love it. But I question the cost of replacing those four electric engines and how many miles they will go before needed an overhaul. With synthetic oils one can get 300,000 miles from a combustion engine. No way his electric engines get 100,000.
    And one electric motor per wheel will be expensive and his warranty is only on the batteries.
    Todays combustion engine has changed over the past 20 years that a 4 cylinder engine is as powerful as older 6 cylinder engines and they get better gas milage. The old big block V-8 is replaced with multi-valve timing, 4 valves per cyclinder, direct fuel injection, and multi-compression ratio changes allowing 6 cylinders the same power with better gas milage.
    Electric engines have the most torque but for transportation I am not convinced electric will dominate in the decades ahead.
    Tesla is finally going away, because Elon needs a manger who knows how to run a company and mostly because Wall Street cannot hype it any longer. Too many bridges to overcome and the biggest has been Elon.

    • Joe Banks
      Aug 21, 2018 at 2:27 pm

      Great post. I think most people miss the point about EVs. We went through this over 100 years ago. This is old technology that was beat soundly by ICE technology. EVs are about governments trying to control us and tell us how to live. Central planning. They want us to live a certain way, a way that they are exempt from. In San Diego they are trying to get us out of our cars and into public transportation or ride a bike. Cars = freedom. Never forget that. In many ways more important than gun ownership.

  26. mark
    Aug 21, 2018 at 6:21 am

    Lose it’s spelled lose (even spell-check can’t save losers …)

  27. Bruce H
    Aug 21, 2018 at 6:43 am

    Tesla’s stock prices have been long on hype and short on financial facts for years now. A company that hemorrhages money the way Tesla does is sooner or later going to pay the price.

  28. Augusto
    Aug 21, 2018 at 7:30 am

    And yet after all the bad news on the weekend, and the previous week, the stock rose on Monday….

  29. Sneaky Pete
    Aug 21, 2018 at 7:35 am

    Musk’s brand of hucksterism and showmanship reminds me of the greats of the past like PT Barnum. Enjoy the show but know you’re going to be fleeced.

  30. Begbie
    Aug 21, 2018 at 9:07 am

    Humans evolve-except when it comes to cars-for some strange reason.

    Had a lady tell me the other day that my car was “pretty”. A gray Honda.

    WTF?! Its a hunk of metal with four wheels that will hopefully start and get me to where I want to go.

    I personally don’t understand the dopey Car commercials that dominate the morning TV time

  31. ft
    Aug 21, 2018 at 10:34 am

    I don’t know what it’s like other places, but Teslas are a common sight on the streets and highways in the SF Bay Area. It’s fun to bash Mr. Musk and I believe he deserves it. But I can’t remember any other upstart auto company that managed to put so many cars on the road. Tesla will probably fail, and we’ll forget to give them credit for what, in spite of all the hype and scandal, they have accomplished.

    • jon
      Aug 21, 2018 at 12:56 pm

      Elon Musk would make lot of money on tax payer’s back.
      I don’t think Tesla offers a lot in terms of new technology or IPs but it has a lot of brand cachet which would be worth some money.
      In terms of IPs/technologies, Tesla is a high end assembler with shoddy quality cars ( Model 3 ) struggling with manufacturing woes.

      Model 3 quality is pretty bad if you look at it costing at-least $50K and compare with other $50K luxury cars.

      BTW: In San Diego, I see tons of Teslas.

    • michael
      Aug 21, 2018 at 4:56 pm

      The pet rock and Beanie Babies were popular too…..

  32. Bobber
    Aug 21, 2018 at 10:42 am

    We all know there are some die hard Tesla fans out there, and they aren’t too dissimilar from Apple fans. These people like to show off with high priced technology. Deep down, they like the fact that the products cost twice as much as valid comparables because it promises some prestige.

    This model has worked well for Apple, the most profitable company in the world. The problem for Tesla is that most everybody can afford a $500 to $1000 iphone if they prioritize it. But who has the financial ability to scratch that itch with a $50,000 to $150,000 car, and then keep upgrading to the new model like an iphone user. Obviously, it won’t work in Tesla’s case. People will forced to buy the equivalent of the android phone (ie., the BMW, Volt/Bolt, etc.) at half the price. Tesla’s growth is severely limited for this reason.

    I heard the Model 3’s are going for $50,000 to $60,000. At this price, the mass market will never be able to own them. The best Tesla can do is steal market share from other luxury car makers that have prices of $50,000 and up. That market is not very big, and we all know that BMW, Maserati, Lexus, etc., all have fans of their own.

    Further, how many families with kids can put $60,000 into a car that has limited capacity and range? Thus, it seems Tesla can be a primary vehicle only for single people and DINKS. It can be a valid second car only for those that are sustainably wealthy. These are limited markets in the auto world.

    I doesn’t help that the overpriced Model 3 is rated middle of the pack by Consumer Reports. This is the same rating agency that put the Model S at the top of the pack, so it has no bias against Tesla or EVs.

  33. Kent
    Aug 21, 2018 at 11:02 am

    Here’s what I don’t understand. I’ve read that Tesla’s battery packs cost between $6 & $12K dependent upon KWhrs. Regular ICE cost between $2.5k and $8k (for big V8s). So there is probably a built-in $4k cost advantage for ICE . But obviously stuffing in a battery ought to be simpler than installing a gas engine.

    So why are EVs so much more expensive? There’s nothing fancy about a Model 3, but Musk is losing money at $50k a pop. It seems he ought to be making money at $30k a pop.

    Maybe these batteries really cost $25K.

    • Laughing Eagle
      Aug 21, 2018 at 2:52 pm

      Kent- The Model S has four electric motors- one per wheel.
      With the 0-60mph time of about 2.5 secs those motors will not be cheaper than one ICE. All the talk on EVs is about batteries and everyone forgets their motors. Electric motors plus batteries are not cheaper than ICE. That is why gasoline engines have been around for decades.
      Musk sold the S because it is a different luxury car. But he cannot make money only in luxury cars. He needed a affordable car to make money, but the 3 does not have the eye catching appearance of the S and the quality is like the rest of the affordable groups
      The EV until it has some battery capacity is basically just a city car. My buddy just drives around the city. He says Model S has about 180 miles in a charge. If he wants to visit or travel for business to other states he rents a car or flys. If you like to travel by car, the ICE is the only ticket so far.
      And the best way to see this country is by car IMHO.

      • sierra7
        Aug 21, 2018 at 5:44 pm

        “ICE” Internal Combustion Engine….just saying…..

  34. Ambrose Bierce
    Aug 21, 2018 at 12:10 pm

    I see in VF that Amazon will soon be THE Defense contractor with contracts for cloud computing. I understand the military is interested in EVs, and traditionally auto makers have a government role, but I can imagine the DOD buying Chinese made armored EVs, and using the cloud to keep their records, and Musk in the museum of American inventors who contributed a lot but died broke. Talk about stealing intellectual property.

  35. raxadian
    Aug 21, 2018 at 1:26 pm

    Musk is insane.

    He could have got rid of this money sink in 2017 but he blew it because of his ego.

    And now everyone is paying the consequences.

    • jon
      Aug 21, 2018 at 2:51 pm

      The Tesla stock is going up though.

      • Rates
        Aug 21, 2018 at 3:52 pm

        Theranos didn’t go down in a straight line either. If anyone is looking for a good read about a man’s determination to take down a fraudulent operation, I highly recommend the book Bad Blood. It’s like reading Luke Skywalker taking down the Galactic Empire. I mean you take a look at the Theranos’ board of directors and it’s a bunch of people who’ve operated at the highest level of government, etc.

  36. ewmayer
    Aug 21, 2018 at 4:43 pm

    Related – this is a rather stunning stat re. the amount of rework Tesla needed to do to meet its recent much-ballyhooed Model 3 weekly production target:

    Tesla reworked 86 percent of Model 3s to reach production target | AutoBlog

    Wolf, do you have any idea as to rework percentages for the established auto industry players? I’d be shocked if they were even a tenth of the above figure.

    • Rates
      Aug 21, 2018 at 8:11 pm

      I suspect when it comes to Toyota, it’s in the single digits. What’s appalling about Tesla is that the rework rate is so high when the production numbers are that low. What that article is saying is that the true production rate of Tesla is probably somewhere around 1500 to 2000 a month which is PATHETIC.

    • Aug 22, 2018 at 12:41 am

      The article you linked, which is based on a BI article I read earlier today, cited industry averages. It compares Tesla’s 14% of Model 3 cars that do NOT need to be reworked to about 65-80% of the vehicles for the industry that do not need to be reworked.

      Since I’ve been involved in the business, this has gotten a lot better. When I started in 1985, the DEALER had to rework quite a few cars (repainting, replacing parts, straitening out exterior mirrors, fixing leaks around the windshield (make-ready found some of them when they washed the car), etc. This is rare today with the big automakers. The Model 3 manufacturing process is an incredible mess.

      • Rates
        Aug 22, 2018 at 3:49 pm

        Can you blame the Thai guys for not using Elon’s submarine? The man is an egomaniac.

  37. Breamrod
    Aug 21, 2018 at 8:31 pm

    I really believe the feds trading dept. Is propping this stock up. There is no way this piece of garbage should be 300+! Maybe contagion risk? Although maybe it’s not big enough. What say you wolf?

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