Tag Archives: securities fraud

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

Financial Markets, Market Manipulation, U.S. Economy, , , ,

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

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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.

Put A Fork In Tesla – It’s Done

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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.

Elon Musk Turns U.S. Capital Markets Into A Complete Farce

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“Nobody, when they’re looking at a privatization, dangles this way and does this sort of teasing dance of choreography. Somebody only does this when they are trying to distract us with a shiny new thing…There’s a lot of problems here. He can’t afford to build the new factory that he says he wants to build. This is a distracting strategy like attacking the press” – Jeffery Sonnenfeld, Yale School of Management on CNBC

Elon Musk has turned the U.S. capital markets into a complete farce. He’s made of mockery of the fact that the regulators no longer enforce rule of law. The idea that any financial institution on earth would fund the largest leveraged buyout in history at a level that values Tesla on par with Volkswagen – the world’s larges car manufacturer – is beyond absurd.

We should hope and pray that some truth-seeking entity will hold Musk accountable for what is likely a highly fraudulent claim. Or, then again, perhaps Musk took one of his flying automobiles and went to Mars on Monday to “secure funding” from his Martian financiers.

A careful dissection of Tesla’s latest 10-Q reveals a Company with negative working capital and an unmanageable level of debt and other fixed commitments headed for eventual insolvency.

Beyond ranting about the obvious here, I’m posting an insightful, if not poignant, comment from a friend and colleague:

I am pretty amazed/disgusted that we haven’t come to terms (as a society) with social media. It is in this grey area where leaders of Government and corporations can walk a tight rope of truth/fiction without any consequence or regard for the affect of the immorality and illegality.  Narcissistic psychopaths like Musk utilize cult of personality to harness the power of the hopelessly ignorant looking for a guru; looking for a reason to justify their worst impulses and implausible fantasies. From a social science standpoint: it is interesting. From a person of the society: it is mindblowingly frightening.

Tesla (TSLA): “It’s Not A Lie If You Believe It”

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TSLA stock has levitated on statements from Elon Musk that TSL A would be cash flow positive by Q3, an announcement that TSLA would roll out a Model Y “crossover” SUV by November 2019 and the reiteration of ambitious Model 3 production milestones. All three will never happen.

Elon Musk’s attorneys must be giving Elon the same advise given to Jerry Seinfeld by George just before Jerry took a polygraph test: “Elon, just remember, it’s not a lie if you believe it it.”

It looks like reality is catching up to TSLA and TSLA is going into a death spiral.  An amended complaint to an existing class-action suit against the Company, Musk and the CFO was filed. The suit accuses Musk and the CFO of knowingly making false and misleading public statements with regard to production and quality targets for all of TSLA’s models. The amended complaint includes testimony from several former employees.  The amended allegations give the lawsuit far sharper teeth than the original court filing. When I find the time, I’m going to read the entire court filing.

In addition, recently a judge denied Elon Musk’s request to dismiss a class-action suit stemming from TSLA’s acquistion of Solar CIty (which is turning into a disaster) against Musk and TSLA’s board

As for TSLA generating positive cash flow by Q3 and avoiding the need to raise more money, I found an analysis of TSLA’s current liabilities which shows TSLA’s current cash position is worse than it appears.

At the end of 2017, TSLA showed a cash balance of $3.3 billion. Of that, 25% or $840 million is refundable customer deposits. Another $1.3 billion is current payables which are due over the next few months. This includes $753 million owed for equipment, $378 million in payroll and $185 million in taxes payable. Netting out customer deposits and the accrued payables, TSLA’s net cash position at the end of 2017 was $1.3 billion.

TSLA’s current assets minus current liabilities showed a working capital deficit of $1.1 billion at year-end. TSLA generates a cash loss on every vehicle sold. It’s highly likely that TSLA’s cash net of current cash payable obligations is now well under $1 billion. Elon Musk must have taken LSD before he made the announcement that TSLA would be operating cash flow positive and would not need to raise money in 2018.

Although nothing would surprise anymore in this market, I just don’t see how TSLA breaks higher from the current chart formation. Lawsuits are piling up. Last week the NTSB kicked TSLA out of its participation in the NTSB’s investigation of that fatal accident involving a Tesla in California. The NTSB stated that TSLA violated agency protocols. Consumer Union, the consumer advocacy division of Consumer Reports, issued a report last week which stated that Tesla needs to improve the safety of its autopilot. On top of all of this, I’m convinced that Elon Musk, based on his erratic and volatile behavior, is certifiably insane.