Answer:  It’s not. The longer I observe the Elon Musk/TSLA show – and the more I research in-depth the Company’s business model and financials – the more I’m convinced that there’s a striking similarity between Enron and TSLA. The graphic below was sourced from @TeslaCharts on Twitter (with my edits):

By now, I’m sure many of you have seen the report from a Twitter sleuth who discovered a huge fenced-in, gated lot in Lathrop, California where literally thousands of Tesla Model 3’s were being “stored” (@IspyTsla). Recall that Musk had set producing 5,000 Model 3’s by the end of June (Q2) in a week as a holy grail goal. A report from an anonymous insider who works on the production line stated that Musk ordered skipping a critical brake test in order to meet the production goal. Sheer insanity.

A subscriber to my Short Seller’s Journal who designs and builds electrical testing equipment for the auto industry told me that automotive plants shutdown rather than let their stuff go out the door untested. He said it happens quite frequently.  Tesla’s key operational executives have been leaving the Company like survivors jumping off the Titanic.  The latest to leave is the head of sales. Now we know why.  Tesla has entered an irreversible death spiral.

This accounting of Tesla brought back instantly my memories of shorting Enron in early 2001. The stock had been a high-flier and ran up with the tech bubble. The Company had supposedly fused together energy management technology and a Wall Street-style trading floor operation that was supposed be a huge money-generator for the Company. I recall reading some reports that Enron was using off-balance financing and LLC gimmicks to manufacture profitability.

After going thru Enron’s 2000 10-K with a fine-tooth comb, I determined that Enron’s balance sheet was a ticking time-bomb and I shorted the stock. I rode my short from the $40’s to under $15. Obviously I covered to too soon. But little did I know that it would emerge after Enron hit the wall that it had erected a fake trading room at its Houston headquarters. Upper management would have employees man the desks and phones when Wall Street analysts or big investors visited. The entire operation was a scam.

But how is this any different from turning out operationally flawed cars and storing 1000’s of them in a vacant lot? An analyst from Needham & Co reported that, based on his checks, Model 3 refund requests are outpacing deposits and order cancellations are accelerating. A year ago the refund rate (vs orders) was 12%. The analyst believes the refund rate has doubled. I was wondering when the refund rate would begin to place additional stress on Tesla’s liquidity. I believe it is quite likely TSLA will need to admit before Thanksgiving that it has raise more capital. That’s when the real fun for shorts begins.

Enron was able to get away with the fraud it was perpetrating for several years because of the complicity of its auditor, Arthur Andersen. I believe a similar relationship exists between Tesla and Price Waterhouse. There are just too many areas in Telsa’s financials where GAAP accounting standards are pushed beyond the limit of the so-called “gray area.” The irregularities span the entire income statement and balance sheet – from revenue recognition to expense capitalization. The latter enables Tesla to hide current expenses and debt.

Tesla will report Q2 numbers on Wednesday, August 1st after the market closes. In my opinion, shorting TSLA or buying long-dated puts has become unavoidable. In my latest issue of the  Short Seller’s Journal, I share my ideas for using puts to make a bearish bet on Tesla or how to manage the risk of shorting the shares outright. At some point, it will become unavoidable for Tesla’s largest shareholders to liquidate their holdings. It’s a massive breach of fiduciary duty lawsuit waiting to happen.

Just like Enron was emblematic of the fraud and stock market mania that defined the tech bubble, Tesla is the poster-child for the entire U.S. economic and financial system. Like Enron and Tesla, the U.S. is defined by debt, fraud, corruption, greed, entitlement and a blatant disregard for humanity.