Tesla may report EPS $2.23 per share in Q4, jump above $320, and only go to zero afterwards
As you may have noticed, I am one of the staunchest Tesla bears.
The most general and impersonal business problem that I see is that with the current prices and technologies, the electric cars are some $25,000 more expensive than they should be (than their non-electric counterparts) – which is why they're not competitive in the mass market.
Electric cars may still be great for a smaller set of rich enough buyers (and in a decade, for everybody, if prices of things change). Tesla could have become a profitable producer in this niche category but it has never generated an annual profit and 2018 will not change it.
Tesla was a huge Czechoslovak electronics company during communism. The company was founded as "Elektra" in 1921 (capitalism) and originally renamed after Nikola Tesla in 1946 but the name was later explained unemotionally and cleverly as an acronym for "Technika slaboproudá", i.e. "Technology of the Weak Currents". Tesla and Yugoslavs were probably too capitalist for our comrades after Tito refused to sleep with Stalin. Almost all electronics in Czechoslovakia – and we weren't too bad – was Tesla. We had lots of fun with PMD 85, a computer close to Sinclair ZX Spectrum, as kids. Add TVs, radios, components, microprocessors cloned from Intel, vinyl records players, and hundreds of other things. In the voucher privatization, I even bought hundreds of Tesla stocks for a few crowns LOL – Tesla Glass TV Components went out of business rather soon, however. It no longer shows up in my list of stocks – the Harvard Industrial Holding still does (I have 10 stocks, they can't be traded LOL, greetings to Viktor). A tiny fraction of the Tesla factories was revived and "Tesla" CZ produces set top boxes and a few other things today.
Some other companies start to produce luxurious electric cars that have a chance to be profitable. But Tesla couldn't and can't. One reason is that it doesn't have the stream of money from from petrol and diesel cars. Another problem is Elon Musk. In my eyes, Elon Musk is a classic villain – the kind of a character from the movies who makes me enthusiastic when someone finally kills him. The business survived this long because of his lies, distortions, hype, and blackmail. Lies to consumers, investors, bondholders, and employees. Blackmail to real traders.
Most of the people on his side seem to be brainwashed submissive pußies dreaming about their enslavement by someone like Musk. I also noticed that almost everybody in those corners is a climate hysteria fanatic. Even when they get brutally fired, they still worship him. The unavoidable result is that he is the only person who makes important decisions at Tesla – a would-be Hitler surrounded by tons of sycophants. Others just lick his aß. And a great fraction of the decisions are unavoidably stupid because Musk is a rather stupid man. His people have to call these decisions ingenious and disruptive – just because they're sometimes different than the decisions by more standard rational managers (which means "worse" in most cases but they're not allowed to say it). The model is completely wrong because a much higher number of people of many types have to contribute to the decision making in a healthy company.
We should talk about the current situation of the company. The old subsidies of $7,500 per car in the U.S. got halved after the end of 2018. The demand dropped by more than 50% – some informal methods indicate the drop by 80% or more. The smaller subsidies explain most of the effect – especially because both buyers and the company needed to make sure that the delivery took place in 2018. That's why lots of the purchases were unnaturally "squeezed" into 2018 although they should be naturally occurring in 2019.
Independently of that, Tesla is just running out of demand for the expensive models. Just to be sure, they were making the old luxurious Model S, the newer luxurious Model X, and they added the cheaper Model 3 a year ago or so. The sales of Model S are almost zero now and this model should be completely discontinued. At any rate, Tesla reduced the production of both Model S and X by 1/2 or so, because of the lower demand. Night shifts were canceled and the official story is that they focused on Model 3 which they really trust.
This explanation is demagogic by itself. The reduction of staff by 7% surely indicates that the overall demand is weak. And if they admit that it's primarily the demand for Models S,X that dropped (those were still the models with a higher profit margin), it does not imply that the demand for Model 3 went up. On the contrary, the dismissals make it rather certain that it didn't go up – otherwise the people would be moved to the production of Model 3 and not fired.
Outside the U.S., the demand for Models S,X has always been small and Tesla only made it to the 8th largest seller of electric cars e.g. in Germany and it's worse elsewhere. Concerning Model 3, about "hundreds" of copies will be sold in China, according to reports, while some 15,000 copies have been ordered in Europe and that (less than a month of production) may be the end of the demand for years. Add the huge problem with the exploding, arguably superior, competition. Or the plans to ban Tesla in Sweden for 6 months because the on-air software updates look dangerous (it's being claimed that they decided to tolerate it now). And hundreds of other problems. Complaints about dysfunctional services, rear bumpers that fall in the rain, horribly reduced range of Model 3 in the cold weather because the model has no special heating of the battery that prevents it, back mirrors that don't move when it's cold outside, rain that is concentrated to pour into the trunk or engine, and so on, and so on.
tbh smh— Elon Musk (@elonmusk) January 30, 2019
Musk's newest tweet, as of today noon Prague time, seems cryptic but "tbh smh" actually means "to be honest, shaking my head", and "smh" expresses disappointment. Is it true and how much disappointed Musk is? ;-)
A decision about cheaper Models S,X was made just a few hours ago. It's another wonderful example of the omnipresent economic stupidity underlying Musk's business model – which seems like a personification of the stupidity of the communist economies. All Models S,X will be sold with the same batteries but the cheaper ones will differ by software restrictions.
In particular, Tesla Models S,X used to be sold either with small, 75 kWh battery packs, or large, 100 kWh battery packs. By now, Tesla will place the large, 100 kWh battery packs to all the cars but the range will be restricted by software to be just 310 and 270 miles for cheaper Models S,X, respectively. Just think how incredibly stupid it is from the financial viewpoint. They produce all these large battery packs and their software gurus make sure that 1/4 of each of them is wasted. It's a monstrosity from a financial viewpoint – and if you were an environmentalist with a brain, assuming that this combination is possible, you would see it is a monstrosity from an environmental viewpoint, too.
You shouldn't doubt that the price of the batteries is basically proportional to the number of kWh. And right now, one kWh costs over $100 at Tesla. It's not clear how much above $100 but they are only dreaming about the $100 costs by the end of 2019. At any rate, if each car is given 25 kWh that are there but software-locked, it means that in total, the company and the buyer waste more than $2,500. That's on top of the $3,750 half-subsidy that evaporated three weeks ago.
Why would you do that? Probably because you are unbelievably stupid. Or because your company's looming death is so obvious that you enjoy throwing extra millions to the trash bin, just for fun. You know, it's a business model in which two copies of the most expensive iPhone model are hidden into the trunk of every car and some software makes sure that those two phones are never used in any way! ;-) Or imagine that the driver with this restricted Tesla actually runs out of juice, thirsty in a desert, and her Tesla says: "I still have 1/4 of the power in my battery pack but I won't give you, bitč, because you didn't pay enough for your car."
You could euphemistically call such decisions "unorthodox" and fans may call them "disruptive". But producing lots of extra batteries that are turned into useless waste and extra baggage by a piece of software is exactly the kind of stupidity that is sometimes being banned in the EU. I hate similar bans because they ban lots of things that are actually better for somebody – like vacuum cleaners with a lot of brute force, you know. But a purely wasted extra 25 kWh of a battery pack inside each car isn't good for anybody. If the EU banned this particular thing, e.g. with an environmentalist justification, they would have my unconditional support.
Why doesn't Tesla simply try to allow the cars to do as much as the hardware allows, and sell these models for as much as the sufficient number of consumers is willing to pay? Clearly, they need to reduce the price because at the high prices, the demand has dropped hugely. And they want to mask it so they only reduce the price of a "new model" with a software lock. But this is just an obfuscation of reality that costs over $2,500 per car. Placing a smaller battery pack in the car is undoubtedly better than placing a larger battery that is restricted by software.
What will happen now? The company had some $3 billion in cash at the end of 2018. It is consuming some $7 billion a quarter and has the revenue of $7 billion. In the first two quarters of 2018, the loss was almost $1 billion per quarter or $4 per share. In Q3, they made a rare profit – $1.75 per share, see graphs. A letter sent a few weeks ago indicated a tiny profit in Q4.
I suspect it could have been a lie and a bear trap. Analysts actually predict the average profit of $2.12 per share and Earning Whispers announce that today after 4 pm New York time, i.e. after the trading hours, Musk will announce $2.23 per share in Q4 of 2018 in the webcast, beating even the record expectations by 5%. (It's still a small $10 per year which, even if sustained, would only justify some $60 stock price.)
When I rationally looked at all the evidence, I didn't find a good reason – except for Musk's letter which may very well be a lie because he's a chronic liar (and he's clearly obsessed with schemes to hurt bears, as his "$420 funding secured" securities fraud showed very clearly; incidentally, he is not allowed to deny that he has committed securities fraud) – to think that Q4 of 2018 was already very bad. The subsidies still worked fine in the U.S. They probably made sure that everyone who still wanted the car bought it already in 2018. Some graphs indicate that the last month of each quarter always shows a huge uptick in deliveries.
Because $2.23 may beat the expectations – that were made very low by the letter – I find it plausible that the price of the Tesla stock, currently below $300, will shoot up, perhaps to $320 or even $380 or anything like that.
Sorry, I can't really take any responsibility for your investment decisions.
But I do think that if the price of the Tesla stock really shoots up after Musk's announcement tonight, you should try to "pick the top" and short it at the moment (probably during Thursday's trading hours) because almost everything that will follow the moment will be a rather smooth path towards bankruptcy or some "reorganization". Tesla is the most shorted company in the history and many bears already got sophisticated and buy lots of put options – the right to make a profit if the stock price drops below a threshold, the strike price, at/before some predetermined future moment.
Even if the major thesis that Tesla is going to collapse in some way in 2019 is right, both "naked shorts" and "put options" have their risks. "Naked shorts" may get burned by some short-lived flukes, e.g. by the earnings report tonight in which Musk deliberately mentions the great results only – and nothing about the dying company of 2019. On the other hand, "put options" might be threatened by some chaos about trading during the filing for Chapter 7 (liquidation) or 11 (reorganization). Pacific Gas, a Californian utility, filed for bankruptcy yesterday but the stock jumped up by 16% afterwards. Here are some attempts to explain this shockingly counterintuitive behavior of the market. A court may refuse the filing. Money may be left. The stock price of $PCG is already greatly reduced relatively to the peak price etc.
So you always face risks. And of course, there's a risk that the thesis is wrong and Musk may crawl through 15 more years of losses and fraud. But if I had the broker tools and if Tesla's stock price jumped after the Q4 earning report tonight, I would put lots of money to shorting it because it looks like the free money on the sidewalk. The people who listened to me and shorted EURCZK – before the artificial weakening of the Czech currency was stopped in April 2017 – did very well. Tesla's journey "much closer to zero", to put it carefully, seems equally unavoidable.
You know, even if Tesla survived this lowered demand, the need to pay $920 million of convertible bonds in cash (which looks extremely likely now – and I think that the average February price will drop below the required $360 even if the Q4 results are very good) etc., the firing indicates that Tesla's growth story has been invalidated. It's a company making some 200,000 cars – without any significant growth in the future – whose valuation should therefore be about 5% of what it is now! If some miracles happen and the bankruptcy is avoided, $15 per stock may be justifiable again. But prices near or above $300 are unsustainable.
Above, I prepared you for a possible "good story" tonight, accompanied by the $2.23 earnings per share. And bad stories may be avoided. But I am not really sure. At the event tonight, he may also be forced to admit that the company is dying in 2019 – e.g. because the SEC forces him to speak the truth, and I've seen hints that this is taking place. In that case, the premarket price could already plummet after the event tonight and you would miss the opportunity to short Tesla. To be sure, if the bad news were offered and the stock price would be above $250 tomorrow, it would still be a great opportunity to short it.
P.S.: The Q4 earnings were $1.93, 5-10 percent below the estimates by analysts and Earning Whisper (that clearly doesn't have any miraculous source of leaks). So the stock goes down 5% even though no horrible changes that occurred from 2019 were discussed. There should be virtually no good news left at Tesla before it goes bust and I think it's almost safe to short the Tesla stock now.
There was an amazingly comical sentence by Musk during the call: The demand for Model 3 is huge, the only inhibitor is that people can't afford it. LOL. The demand for gold-coated yachts is also huge in this sense. In the Financial Times, Izabella Kaminska (the smartest person in a show about the Bitcoin cult) rightfully mocks the "genius".