Tag Archives: Tesla

The Telsla CyberTruck Event: Elon Musk’s Travelling Burlesque Show

As many of you are aware by now, Tesla’s roll-out of its Cybertruck, an event which pushed the stock price irrationally higher ahead of time, was a complete disaster. The vehicle itself, which one commentator said “looks like the product of a DeLorean that had sex with a triangle,” was visually quite unappealing. Morgan Stanley conducted a snap poll of its email distribution list to determine viewers’ impression of the Cybertruck.  Zero percent (0%) of those surveyed thought the truck would be a success.

Whether or not the claims by Musk & Co are true that over 250k people have plunked down a $C-note to “reserve” a Cybertruck, at this point it’s unclear whether not the vehicle will ever make it to production. Notwithstanding inconvenient realities, Musk fraudulently refers to the refundable reservations as “orders.”  Electrek.co and Musk’s Twitter pimps behave as if Tesla has already pre-booked $10 billion in revenues.

But Tesla has several hurdles to overcome before this electrified Lego block on wheels ever rolls off the production line, not the least of which includes addressing a technically insolvent balance sheet and raising the $100’s of millions of capex required. Notwithstanding this, the entire auto industry, including Tesla, faces gale force economic headwinds as the sector globally plunges into recession.

Based on YTD sales through October – plus estimates for November and December – data published by EV-Volumes, a service that provides a database of sales statistics for EVs, shows that total EV sales in the U.S. will decline 4% from 2018. After 10 years of EV availability, the market penetration rate for EVs is just 2% – and ex-California it’s 1%. Think about this in the context that the Government has provided enormous subsidies for EV/hybrids, thereby lowering the all-in cost for the buyer. As the largest EV seller in the U.S. (currently but not for long), Tesla is by far the most affected by the negative trend in EV sales.

Finally, because of plunging EV sales (along with plunging sales for the entire Chinese auto market), the Chinese Government is implementing major cuts to its EV sales subsidy program. The Chinese Association of Automobile Manufactures said that weak demand for the vehicles is one of the reasons for the pullback in the subsidy program.

Eric Peter’s Autos blog captured the essence of Musk’s farcical CyberTruck burlesque show:

Thousands of affluent marks have already put down deposits, unsightliness seen. And in spite of one of Elon’s many promises about the Cybertruck revealed to be a blatant lie right in front of their very eyes – the “shatterproof” door glass that wasn’t. It’s wondrous, baffling. Elon’s mesmeritic powers are so puissant he could probably get his followers – this includes the press – to bark like dogs if he asked them to.

You can read Peter’s entire commentary here:    And So They Drooled

Tesla Is A GAAP Accounting Dumpster Fire

“If there is any brilliance to TSLA, it is in the accounting slight of hand” (from @georgia_orwell)

Unfortunately, the key regulatory agencies in the Government, like the SEC, have been co-opted by the big banks and by Wall Street lawyers who built a lucrative practices assisting big banks in  breaking the law.  As we’ve seen,  when caught the banks at worst receive a small financial wrist-slap that could be considered the cost of doing business. The same holds true with the big accounting firms. Witness this quote from a Wall St Journal article detailing the rationale used to justify burying accounting fraud in Mattel’s financials:

[S]senior finance executives and Mattel’s auditor, PricewaterhouseCoopers, decided to change the accounting treatment of the Thomas asset, effectively burying the problem…It was known within Mattel that if we took this approach, at worst we might get a slap on the wrist from the Securities and Exchange Commission” (this disclosure is from a whistleblower who was the director of Mattel’s tax reporting at the time).

Mattel considered disclosing the accounting “error” and restating its financials. But instead, the Pwc partner in charge of the Mattel account figured out a way to completely bury the issue, after which the partner was seen “walking down the hall, high-fiving people, after this decision was made.”

I’m certain that the PwC partner would have never buried the accounting fraud if he thought there was any risk of an SEC audit or of a whistleblower emerging to tell the truth.

It’s becoming increasingly apparent that Tesla’s accountant, Price Waterhouse (PwC), is readily complicit with looking the other way on Tesla’s accounting frauds, if not in fact helping the Company implement illegal accounting gimmicks.

In light of the Mattel situation, I am certain that PwC is fully aware of TSLA’s openly reckless accounting.  PwC earned $9 million in fees from Mattel while the accounting fraud scheme occurred. TSLA’s revenues are 3x larger than Mattel’s so I’m sure PwC is getting paid significantly more than $9 million in fees either to look the other way or to help with the accounting deception.

The Solar City acquisition deposition was a dumpster fire for the Tesla.  As it turns out, a lawsuit file by certain Tesla shareholders who assert the deal should have never happened  is working its way through the court system.  Notes from a recent deposition disclosed that Solar City’s form audit firm, Ernst & Young, testified that Solar City was insolvent at the time Tesla’s board “agreed” to pay $2.6 billion to acquire the zombie company.

The deposition of Kimble Musk, Elon’s brother, reads like a chapter from “The Gang That Couldn’t Shoot Straight.” The skilled questioning by the plaintiff’s attorney made it clear that the acquisition of Solar City was rife with extreme conflicts of interests.

After Kimbal was deposed it was clear that the acquisition served as a quasi-bailout for Kimble and possibly Elon, as they both had Solar City shares pledged as collateral against various loans, some of which were extended by Wall St banks. Solar City may well be the Company’s undoing rather than the implosion of the EV operations.

It’s likely that Tesla will be left alone by the regulators, who serve as hand-puppets for the big Wall St banks, until firms like Goldman Sachs and Morgan Stanley – financial advisors to both Tesla and Elon Musk – have completely milked any possible fees from the Company.

Eventually Telsa’s business model will dissolve from intensifying, superior competition and an inability to service its massive and growing load of debt and other fixed obligations.  This is happening already, as numbers for October from the U.S. and the EU show a stunning decline in Tesla registrations across all three models.  The only unknown is China.  But auto sales in China are falling like a rock every month. In October auto deliveries plunged 6%. The industry fundamentals are not conducive to the fairytale told by Musk that TSLA will eventually sell 12,000 cars per month in China.

Perhaps in the end justice will be properly apportioned and served on PwC for its role in helping Tesla and Elon Musk perpetrate what will eventually emerge as a largest financial fraud in U.S. history…but I’m not holding my breath

Tesla’s Shock And Awe

The degree to which Elon Musk manipulates GAAP accounting in awe-inspiring. That the various regulators in charge of protecting investors allow Musk to commit accounting fraud is shocking.

Note: The commentary below is an excerpt from the latest issue of the Short Seller’s Journal. It’s based on Tesla’s earnings press release. In the next issue I’ll layout the facts about Tesla’s numbers based on a close-reading of the 10-Q which was filed Tuesday.

Tesla both shocked and awed short-sellers with its earnings report. The financials Musk presented to the public were produced from a contorted interpretation of GAAP accounting standards which stretch beyond legality. Any analyst with an intermediate level understanding of accounting can quickly see through the skeletons beneath what can only be described as a financial report awkwardly fit with a Halloween costume. This probably explains why Elon Musk and the CFO did not sign the quarterly letter for the first time ever.

From what has been made available in the earnings release, Musk has outdone all of his previous works of artistic accounting with his latest masterpiece in an attempt to deflect attention from declining revenues and cover-up poor earnings. On a YoY basis for Q3, total revenues declined 7.6%, with automotive sales revenues down 12.7%, with revenues in the U.S. down a shocking 39%. The difference in total vs automotive sales is predominantly revenues derived from services.

Tesla’s gross profit fell 22%, operating profit plunged 37% and net income free-fell 54%. Of the $143 million of reported net income, $107 million was Government subsidies in the form of environmental credits that Tesla sells to the large OEM’s who need to buy them to remain in compliance with environmental regulations (auto manufacturers are required to produce a certain percentage of zero-emission vehicles; if they do not meet the test, they can buy ZEV credits from companies like Tesla which generate a surplus of these credits). But the ZEV sales will eventually disappear as the large OEMs ramp up their line of EVs.

Some portion of the revenues was the recognition of deferred revenues. Deferred revenues occur when a company sells a product for which the complete product is not delivered but which is paid for up-front by the end user. Typically companies that derive revenues on a contractual basis have deferred revenues.

Tesla’s source of deferred revenues includes features like auto-pilot,smart summons and supercharger access which are sold up-front  but available only a limited basis or not yet available. Deferred revenues are set-up as a liability on the balance sheet and amortized into revenues. When recognized, deferred revenues are non-cash because payment from the customer was received at the time of the sale. The amount of deferred revenue recognized, for the most part, flows through the income statement to the bottom line.

In June Tesla said it planned to recognize about $500 million in deferred revenue over the next 12 months, which means Q3’s income statement contained at least $100 million in non-cash deferred revenues. The amount of deferred revenue in any given quarter shows up in the cash flow statement as a source of cash. The cash flow statement in the earnings letter did not have deferred revenues as a line-item in the cash flow statement but there should be a disclosure of the amount amortized into revenue in the 10-Q when it’s released.

The bottom line is that Tesla recognized some portion of deferred revenues in the revenue line, which means that gross profit, operating profit and  net income are overstated by the amount of deferred revenues that was used in Q3’s revenue number.

There several more highly problematic aspects to Tesla’s Q3 financials. The 10-Q will help shine light on most of the areas in which Musk and his financial goons impose the questionable interpretations of GAAP standards on s financials.

Why did the stock jump $73 in two days? Revenues missed Wall Street analyst estimates. Margins were lower than expected. Net income smashed estimates. The net income “beat” expectations because the degree to which Elon Musk is willing to commit accounting fraud is unpredictable.  It certainly can’t be modeled into an analyst spreadsheet.

I believe the move in Tesla’s stock was an orchestrated short-squeeze in conjunction with rabid momentum-chasing by daytraders and hedge fund algos. Let me explain first by sharing this tweet from Charles Gasparino (Fox News business reporter): “Senior management tell bankers they have the short sellers where they want them (on the ropes) with the latest financials.”

Assuming that’s true, and I’m 99.5% certain that it is, it shows that targeting short-sellers is one of Musk’s primary agendas. Reading between the lines, it implies that Tesla manipulated the financials specifically to cause a short-squeeze. I also believe that Musk orchestrated the short-squeeze in conjunction with a couple of Wall St banks, likely Goldman and Morgan Stanley, both of which have significant financial exposure to Tesla stock and to Musk’s personal financial health.

How to orchestrate a short squeeze.  Keep in mind when you short shares, your brokerage firm borrows shares from funds which make shares available to borrow. They do this because they can earn interest on the shares loaned. In the case of stocks with a high short interest like the TSLA, the stock loan rate can be double digits.

Goldman and Morgan Stanley would contact a few of the large “friendly” fund shareholders and ask them to recall the shares they have loaned out.  If they agree, their back office contacts the back office of the hedge fund or broker-dealer to whom the shares are loaned and asks for the shares back (a “recall”).  No reason has to be given. The entity being asked to return the borrowed shares either has to find a new source from which to borrow shares or buy back the shares in the open market to return them.

Keep in mind that, outside of Musk and his circle of friendly shareholders (Larry Ellison, Bailey Gifford, etc), the true free-float of Tesla shares is maybe 30% of the shares. A lot of those shares are borrowed and shorted as a hedge against Tesla’s outstanding convertible bonds.

In the case of a large short-seller, like Greenlight Capital (Steven Einhorn) or Kynikos Partners (Jim Chanos), it might be difficult to find a source from which to borrow the amount of shares being recalled. In that situation, the short-seller has three days to find and return the shares borrowed. It’s likely that large short-sellers were forced to cover part of their short position and then look for a new source of borrow to re-establish the short. In a situation like this, the stock can be driven up sharply in a short period of time.

The move made by Tesla’s shares on Thursday and Friday is similar to the short-squeezes that occurred during the internet bubble. Most of those internet stocks were very obviously highly overvalued and were aggressively shorted. The slightest positive news headline would cause the stocks to move 20 to 30 percent in a couple days from a short-squeeze despite the obvious superficiality of the news reported. Goldman and Morgan Stanley were two of the largest Wall Street promoters of internet stocks.

There’s no telling when the short-squeeze will subside but I think it might be running out of steam. The stock is now – per the RSI – more overbought than it was when it squeezed higher after the “funding secured” tweet by Musk. The stock dropped $120 in 20 trading days after that.

Tesla’s Questionable “Free Cash Flow” Claim

In last week’s earnings release, Elon Musk made the claim in the headline release that Tesla generated $614 million of “free cash flow,” which he defined as “operating cash flow less capex.”  Additionally, in the 2nd paragraph of the earnings release Musk states that, “As a result of this growth and operational improvements, we generated $614 million of free cash flow (operating cash flow less capex) in Q2.”

Notwithstanding that fact that Tesla has slashed its capex spending to what appears to be the bare minimum, and setting aside Musk’s claim of “operational improvements,” a careful dissection of the cash flow statement, balance sheet and footnote disclosures calls into question Musk’s assertion that the Company generated $614 million of “free cash flow.”

The graphic above is from the operating cash flow section of Tesla’s cash statement. I use the earnings release version to make comparisons YoY for Q2 and Q1 2019 easier (the 10Q only shows the YTD 6-month numbers in the cash flow statement). You’ll note that Tesla’s capex was $30 million less than Q1 2019 and 59% below the capex spent in Q2 2018. Strange for an automotive OEM that is building a factory in Shanghai, developing a new model (the Model Y), reconfiguring its OEM facility in the U.S. to accommodate the new model and planning an OEM facility in Europe.

However, the big source of Musk’s alledged “free cash flow” comes from the “changes in operating assets and liabilities.” The netted number shows $287 million provided by changes in the various balance sheet accounts. But a detailed analysis of the accounts that provided this “cash flow” would call into question the reliability of Musk’s assertion. In fact, most of the cash was generated from “accumulator” sub-accounts that can be found in the footnote disclosures. These accumulator accounts are liability accounts which account for near-term cash payment obligations which would have used up all of that “free cash flow” had Musk signed the checks to make the payments by June 30th.

The graphic above shows the liability section of Tesla’s balance sheet. I’ve highlighted the liability accounts in question.   The “accrued liabilities and other” account increased from Q1 2019 by $346 million, meaning that it contributed $346 million in cash to the “changes in operating assets/liabilities” number in the cash flow statement.  Most of this is a “current liability” for which Musk is obligated to make payments in the near term. Tesla does not disclose the breakdown of “accrued liabilities” in its 10-Q, but it shows the contents of this account in the 10-K.  In 2018, the two biggest items were payroll and taxes payable, which represented 21.4% and 16.6% of accrued current liabilities.

The second largest contributor to the “free cash flow” calculation was the change in “other  long term liabilities” from Q1.  The details of this account are disclosed in Note 9 of the 10-Q.  This account contains longer term cash payment obligations like “accrued warranty reserve” and “sales return reserve.”  Again, this is an “accumulator” account that accumulates future payment obligations.  This account increased by $180 million from end of March, meaning the accumulation of cash payment obligations contributed $180 million to the “change in operating assets/liabilities” account in the cash flow statement.

Finally, there’s “deferred revenue.” Deferred revenue for Tesla is derived from the portion of the revenue for each vehicle sold which is attributable to access to the supercharger network, internet connectivity, autopilot (LOL), full self-driving (LOL) and software updates.  In other words it represents some portion of the revenue which is paid up-front which is contingent on Tesla delivering performance obligations.  It’s revenue received but not earned.  It also means that Tesla did not recognize the corresponding expense that needs to “amortized” against this revenue source. Thus, it’s a source of cash.  This contributed $121 million in “cash flow” to Tesla’s Q2 “free cash flow.”  But in reality it’s not free cash flow.

The point of this analysis is that Telsa is on the hook to make cash payments on obligations and liabilities incurred well in excess of the amount to which Musk refers as “$614 million  of operating cash flow less capex.”  Most of the money – payroll, taxes, facility lease payments – will be due on or before the end of July.  Some of it will have be paid out of Tesla’s cash balance over the course of the next several months.  But to make the claim that Tesla generated $614 million of “free cash flow” is highly deceptive.

Tesla, Gold, Silver And A Historical Stock Bubble

“Tesla’s headed for bankruptcy. It’s got a flawed business model; costs are way too high for the price charged for the vehicles and its riddled with accounting fraud. But the regulators will look the other way until it’s too late.”

Silver Liberties invited me on to its podcast to discuss reality. We spend 35 minutes trying to blow away the Orwellian “smoke” that is engulfing the United States’ economic, political system:

***************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Tesla: Lies And Fraud Engulfed In Elon Musk’s Hubris

Elon Musk should have considered a career as a children’s fairytale author. He would have made multiples of his current net worth selling his amazing fantasies and optioning the movie and tv series rights. He’s spent the better part of the last few years spinning fantasies as a means of addressing the growing army of analysts and truthseekers who report the facts about Tesla. He’ll say anything in an attempt to drive the stock price higher. The “funding secured” $420 buyout fraud is just the tip of the iceberg, if not wholly emblematic of Musk’s desperation to succeed.

At the shareholder’s meeting on Tuesday Musk referenced an alleged shortage of batteries that was constraining the ability to make deliveries and to bolster his claim that demand is strong.  Of course, the facts say otherwise about demand (see this, for instance:  Q1, April, May EU deliveries) . The battery claim will serve the purpose of Musk’s excuse for falling short of his assertion last week that Tesla “might” set a record in deliveries.

As his remedy to the battery shortage lie, Musk said “We might get into the mining business, I don’t know, maybe a little bit at least.” In some ways, that statement is just as shocking as the “funding secured” tweet. Mining companies spend years and millions looking for mineable deposits of cobalt and lithium. Then if a company is lucky enough to find a deposit, there’s several more difficulties to overcome in order to get a mine operating. Musk’s assertion minimized the cost and effort required to “get into the mining business.” He made it sound like anyone can make it happen. It’s the definition of hubris.

The “mining business” pronouncement typifies the degree to which Musk will say anything to fortify his lies – his fraudulent narrative – surrounding Tesla’s inability to execute a business model successfully. The fact that journalists, the financial media and Wall Street analysts refuse to hold Musk accountable for his chicanery enable its perpetuation. The victims are the people who die in car accidents connected to the unregulated mechanical failures with Musk’s products and the investors who are blind to his deceit.

It’s mind-blowing to me that the Musk/Tesla faithful continue to follow him off the cliff. His track record of failure to deliver on promises is unparalleled in history. In truth, beneath the facade of fraud and fairytales, is a poorly run business operation that bleeds billions in cash and will never achieve true profitability. The Model 3 is produced in a glorified Coleman tent, for god sakes. Make no mistake, the GAAP “profits” reported in 2018 were nothing short of outright and blatant accounting deception. Anyone who still believes those numbers is living with their eyes wide shut. Anyone who takes Elon Musk at face value is either tragically naive or catastrophically stupid.

But then again, Tesla and Elon Musk is the poster-child for the degree to which the U.S. economic and political system has gone down the rabbit hole and has become an empty shell of greed-driven fraud and corruption…

Is Musk Trying To Sell Tesla’s Stock Price Or Automobiles?

TSLA had yet another bad week, closing down $19 (9%) from the previous Friday’s close. Last week every attempted bounce in the stock was shortable on a daytrading basis. Currently Tesla’s shares are trading at $188. It would likely be a lot lower if it weren’t for Musk’s repeated “leaked” emails loaded with dubious production and delivery claims, with both barrels pointed directly at short-sellers.

A second “leaked” email appeared on Wednesday, as the stock was getting ready to take another deep plunge, in which Musk asserts that the employees need to “catch up on deliveries” in order to have a “successful quarter.” Speaking of catching up on deliveries, whatever happened with the 10,000 vehicles that Musk claimed were “in transit” at the end of Q1…? This analysis posted by @boriqato is a priceless “de-coding” of the Musk emails.

In between Musk released a report that he was gearing up to start producing the chimerical Model Y in the Fremont facility, in addition to consolidating the production of the S and X onto one production line.  Nothwithstanding the complications involved with reconfiguring the factor floor to produce 2 models on one line,  hidden behind the concept is that fact that the move would be cutting in half the production rate of each model.  Why would he do this if he’s running behind on deliveries?

Curiously absent from the news release was any estimates of the cost to retool the factory, purchase the equipment required to produce the Model Y and the manner in which the expense – which is enormous  – would be funded. Given that there’s currently 20 lawsuits outstanding filed by vendors and service providers against Tesla seeking several million dollars in claims against unpaid invoices for services provided, it would appear that the Company is cash-strapped despite the recent capital raise.  (Note: I sifted through several of the filings  – many are honest mom and pop businesses trying to make a living – it’s quite sad that Musk feels entitled to stiff the businesses which are helping him proliferate his fraud)

Regardless of the veracity of the production numbers in the “leaked” emails to employees, the new order and Q2 delivery assertions are likely Musk’s standard fraudulent misrepresentations. In fact, on Saturday I saw a report from one of the analysts who posts his research on Twitter (@fly4dat). The data he tracks for Model 3 deliveries in Norway, Netherlands and Spain – three of Tesla’s largest European markets – show a stunning decline in deliveries (the data comes from official sources which track VIN registrations).

Based on his extrapolation of Q1 and April deliveries plus the plunge in deliveries across all models globally, it looks like Tesla will be lucky to reach Q1’s 63,000 deliveries. Certainly we would have to suspect fraudulent reporting if deliveries come anywhere near Musk’s claim that Q2 deliveries could reach 90,000. Furthermore, Tesla’s Models S and X are now getting crushed in Europe by sales and deliveries (VIN registrations) of the Audi e-tron and Jaguar IPace.

Tesla was forced to slash the price of both the S and X this past week for the third time in three months. Unquestionably, the price cuts reflect the collapsing demand. More likely, Musk scripted the email and its “leaks” for the purpose of juicing the stock price in pre-market trading in an attempt to stimulate hedge fund and retail daytrader momentum chasers and trigger a short-squeeze.

The leaked email on Friday had the intended effect – for about an hour – as the stock shot up to as high as $199.60 from $181. The stock closed at $195.46. The second leaked email on Wednesday – not so much. The stock opened briefly higher but is now down over $2 from Wednesday’s close. It’s trading at a level not seen since the end of November 2017. The Musk/Tesla mystique is unraveling.

The email events, along with all of Musk’s circus acts, begs one simple question: Is Musk trying to produce and sell automobiles or is he simply attempting to pump the stock price of a failed business model?

Every Bounce In Tesla Stock Can Be Fearlessly Shorted

Elon Musk sent out an internal email to employees on Thursday in which he makes the highly dubious claims that the Company has 50,000 new orders for the Model  3,  the Company has a “good chance” of exceeding Q4’s record deliveries and the production of the Model 3 is close to 1,000 per week.

Regardless of the veracity of the production numbers, the new orders and Q2 deliveries assertions are likely Musk’s standard fraudulent misrepresentations.  From all of the data that can be gathered from official sources which track deliveries and VIN registrations globally, sales of all three Tesla models are falling off a cliff.  The recent price-cuts announced confirm the sales reports (eventually the Law of supply/demand/price prevails).

More likely, Musk scripted the email and its “leak” for the purpose of juicing the stock price in pre-market trading trading on Thursday morning in an attempt to stimulate hedge fund and retail daytrader momentum chasers and trigger a short-squeeze.

The leaked email had the intended effect – for about an hour – as the stock shot up to as high as $199.60 from $181.  The stock closed at $195.46.  This morning, the bubble-promoting financial media transformed lies embedded in the email into reports that Tesla was on track for record deliveries in Q2.  The stock ran up in pre-market from $196 to as high as $203.71.  As I write this the stock is trading below $191.

Elon Musk is obsessed with fighting the shorts rather than running a business and proving the shorts wrong. The funding secured debacle was more than a mistake – 1) it reflected desperation 2) it was highly illegal but our Government no longer prosecutes the crimes committed by billionaires.

The “leaked” email is another example of Musk using social media in an attempt to manipulate the stock price and punish short-sellers.  He’s emboldened by the fact that SEC has made it clear that it has no interest enforcing securities laws on Musk.  The public is on its own –  those for whom the laws are meant to protect (unsophisticated daytraders and the investors in  recklessly managed public mutual funds like ARK) are the ones who get hurt the most.

The problem faced by Tesla is that, in order to generate sales, Musk is unable to charge a high enough price to cover the all-in cost of designing, producing and delivering his cars to the end user. That’s why TSLA bleeds so much cash – it’s that simple.  Furthermore, he should have never issued debt to bridge the funding gap until it was guaranteed that the business model was truly profitable. It’s the same problem all these unicorn businesses face (NFLX, W, CVNA, LYFT, UBER, etc ad nauseum).

Tesla is now headed toward “zombie” status as both its business and its stock price limps toward and off the cliff.  As evidence, all of the stock analysts at firms involved with helping the Company raise $2.7 billion ($2.4 billion net) just two weeks ago  have suddenly become bearish on the story. Morgan Stanley’s Andrew Jonas – snake oil salesman extraordinaire – has publicly set a “downside” price of $10.  However, in a non-public conference call with clients, Morgan Stanley’s cross-asset trading group has made the case that the stock is worthless.

That the stock is worthless has never been an issue for me.  The more interesting question regards the ultimate value of the junk bonds, which are currently “priced” in the low $80’s. But this is based on small trades –  $1mm-2mm face value crosses and investment advisors at boiler room operations like Wedbush dumping 10 bond lots into client accounts. We used to play this game with ill-fated junk bonds that were artificially priced to high until a big seller capitulated when I traded junk bonds in the 1990’s.  More likely the  ultimate chapter 7 liquidation value of the unsecured debt on Telsa’s balance sheet is  well below 20 cents on the dollar.  In other words, short away every time the stock price spikes up on rumors or on desperate attempts by Musk to squeeze the shorts.

More Evidence Tesla Is In A Death Spiral

Reuters  report in which the news service discovered that almost all of the solar cell production at Tesla’s solar factory in Buffalo, New York is being sold overseas, primarily to a large Asian buyer.  Tesla’s Solar City business was given $750 million in State subsidies to build the plant in NY in exchange for employing at least 1,460 people and spending $500 million per yer in the State over 10 years.

The factory employs far less than the 1,460 required and the State has no hope of ever seeing the $500 million per year. The factory has become little more than a solar cell production facility for Panasonic paid for by U.S. taxpayers.

Panasonic produces the solar cells in the factory that were supposed to be used in Solar City’s solar panels.  The problem is that Solar City’s sales are approaching zero.  In California only 21 Solar City roof systems are connected to the State’s three investor-owned utilities as the end of February.  Panasonic is seeking to use the Buffalo plant to fulfill demand for U.S. made solar sales from foreign buyers (foreign solar manufactures can then export the solar panels back the use duty-free).

Earlier this year Panasonic announced that it was suspending plans to expand capacity at Tesla’s Gigafactory. It also suspended planned investment in Tesla’s Shanghai Gigafactory. The decision to curtail investment in Tesla’s U.S. Gigafactory was based on declining sales in the Models S and X and on Model 3 sales which are running below plan.   Panasonic’s Tesla EV battery business had losses exceeding $181  million in its fiscal year that ended in March.  Panasonic was likely not interested in repeating that experience as a “partner” in Tesla’s Shanghai operations.

What’s interesting about the two situations described above is that, more than anyone outside of Tesla’s corporate suite, Panasonic has an up close inside look at the truth behind Tesla’s operations and financials.  It’s quite clear that Panasonic is in financial loss containment mode with respect to its relationship with Tesla.  In this regard, Panasonic is signaling that Tesla is in deep trouble operationally and financially.

Panasonic’s withdrawal from its relationship with Tesla reflects the same critical information about Telsa as the steady stream of high level executive departures over the last year, the rate of which accelerated over the last 4-6 months.  Clearly the message is that Tesla is now in an irreversible death spiral.

Just for the record, I believe that Goldman Sachs and Morgan Stanley used the recent stock and convertible bond offering to suck fees out the deal that would help offset the likely losses the two banks will incur when Musk inevitably defaults on loans he owes to both firms.  It cost Tesla $300 million to purchase derivative protection against the potential shareholder dilution affect if Tesla’s stock were to rise the conversion price of $309 in the new converts.

But those two firms know that Tesla is going to hit the wall and that the stock has no chance of sniffing anywhere close to $309 from now to eternity. It’s highly likely that Goldman and Morgan Stanley forced this hedge structure on Tesla to rake in the $10 to $20 million in fees skimmed on the derivatives used for the hedge.  It was nothing more than vultures who are closest to the carcass grabbing the choicest cuts of meat.

Ironically, Morgan Stanley’s analyst issued a ”worst case” $10 valuation on Tesla. Unless the analyst is a complete idiot with little experience in distressed situations – which is possible – the $10 dollar valuation is Morgan Stanley’s “code” for, “the stock is worthless if Tesla has to file” (which it will sooner or later).

Put A Fork In Tesla – It’s Done

Tesla has been “done” for awhile but many of the Wall Street and investor “uber” bulls are finally starting to see this reality.  Amusingly, Wedbush’s Dan Ives issued a report in which he lowered his price target on Tesla stock from $270 to $235.   He refers to Tesla’s situation as a “code red situation.”  Quite frankly, a “code red situation” with regard to a company and its stock price should be regarded as, “sell your shares if you’re long and get out of the way.”

How someone with the credentials to occupy a stock analyst’s seat at a stock brokerage – even if it is just Wedbush, a retail pump and dump mill – can truly believe that Tesla stock is worth the $40 billion market cap at $230/share is truly mind-blowing.  As an example, consider just a basic valuation metric.  The average automotive car OEM trades at an enterprise to revenue ratio of 0.2x revenues.  At the high-end Toyota trades at 0.6x revenues. That’s because Toyota sports a 7.5% operating margin.  Tesla’s market cap plus debt is 2.6x revenues, or 13x greater than the industry mean.

It would be useful to use other valuation metrics but Tesla does not generate any profits beyond its highly suspicious gross profit as shown in its SEC filings. It would also be useful to know if Dan Ives owns any Tesla shares. Does he really put his money where is mouth is?

That aside, Tesla shares are going to zero. Tesla stock broke down last week, closing at its lowest price since December 21, 2016. The stock is down $44 (17.5%) since May 6th, when it closed at $255 after completing the stock/convertible deal. It’s down 43% from its $370 close after the “funding secured” incident (August 8, 2018). Today the shares traded as low as $195 before a dead-cat short-cover bounce that has lifted the shares back over $200.

Tesla has likely entered into an irreversible death spiral. The only question at this point is how long it will take for the stock to head below $10 and how long the Company can stay solvent. There are scattered reports that the latest price cuts have stimulated a brief increase in sales of the Model S and X, but nothing has been verified. To be sure, sales of the Model 3 have fallen off a cliff in Europe and China, as an increasing number of potential buyers are made aware of the poor quality and follow-up service of this vehicle.

At TSLA’s current cash-burn rate, it won’t make it until the end of the year without a sales turnaround miracle on par with Moses seeing God in a burning bush. I doubt the Company will ever be able to raise money again. The stock does not have value as an acquisition because I highly doubt any potential acquirer would pay an amount that would cover Tesla’s debt load plus other fixed obligations.

In my 34+ years of experience in the financial markets, I’ve witnessed several Pied Piper types who have led their faithful  off the cliff.  Elon Musk for my money is the greatest purveyor of cult of personality that I’ve observed in my lifetime.  I don’t know how else to explain, at least for myself, how so many seemingly intelligent people continue to support Musk’s glaringly indisputable fraud.