Elon Musk as Orren Boyle

First, two disclosures

  1. I am short TSLA
  2. I love the Model S.  I would love to own one.

At some level, the quality of the product is irrelevant.  They key questions are:  Does TSLA really justify a $60 billion valuation and does TSLA really deserve billions of dollars in taxpayer subsidies.

As to the first question, I will leave it up to you to research.  This is a good case for the short position.   I still think the SolarCity purchase was an absurd business decision and borderline corrupt.  The problem with shorts, especially in emotionally driven near-religion stocks like TSLA, is how long you have to hold on before the crash comes.

As for the second question, a guy who goes by the moniker of Montana Skeptic over at Seeking Alpha has been looking in to some of the larger Tesla subsidies, and the picture is not pretty.  Here is his analysis of the subsidy of the SolarCity plant in New York (SolarCity, another Musk company, was bailed out of near-bankruptcy and bought by Musk's Tesla, a smelly deal that put me on the road to shorting the company).  He tells a long, interesting story but the tl:dr is:

  • In the fall of 2014, New York State awarded SolarCity a sumptuous subsidy package: free use of the enormous Riverbend factory and $750 million of taxpayer money to refurbish and equip the factory.
  • The "Essential Purposes" of the subsidy deal were to enable manufacture and sale of Silevo's Triex technology, and then develop "next generation technology improving on the Triex product."
  • Governor Andrew Cuomo praised the deal as a visionary accomplishment "of critical importance to the United States economic competitiveness and energy independence."
  • In return for the subsidies, SolarCity promised to spend $5 billion in New York State over a 10-year period and to create 4,900 New York State jobs.
  • After the deal was signed, SolarCity's promises were noiselessly scaled back.
  • A promise that 1,460 of the jobs be "high-tech" disappeared. A promise to hire at least 900 people within two years of the factory opening shrank to 500.
  • And, SolarCity's promise to hire 2,000 solar panel installers throughout the state quietly disappeared in December 2015. It appears SolarCity knew then - two months before Elon Musk and Lyndon Rive say they had their first merger discussions - that its solar panel business was failing.
  • While SolarCity's obligations were shrinking, the factory opening was delayed. And delayed. And delayed some more. The opening is now almost two and one-half years late, with no date yet announced.
  • Meanwhile, SolarCity has abandoned the Silevo technology and taken a huge write-off on its Silevo investment.

This is the sort of reporting you almost never see in the press.  All these subsidies for business development made on promises of jobs addition.  My experience is that the resulting promises are never kept.  Why does no one ever follow these things up?

Postscript:  I have a quibble with the article on cases for shorting TSLA.  This is one part:

Until recently, TSLA has been the recipient of substantial subsidies, fawning praise and a “fanboy” following. In other words, it has received large financial benefits from various governments which were not available to its automotive peers. It’s been judged by a non-critical press, and any problems with product quality and/or delays in timelines have been readily accepted by its hardcore supporters. All of this has combined to build the quixotic narrative which justifies the sky-high valuations outlined above.

Apple has benefited from this effect for years with no sign that its cult following is diminishing.  Just wait for Apple fanboys who lose there head over whatever Apple announces for its anniversary iPhone later this year.  Prediction:  Apple will add a number of new features already found on Android phones and the press will fawn over its inventiveness and leadership.

  • irandom419

    If he had some revolutionary battery tech like a replaceable non-toxic electrolyte or a technique for ultra super dooper fast charging that doesn't cook the batteries, it'd be different. But it is the same old $h!t, just repackaged and no one can see it. It is basically the emperor has no clothes.

  • C078342

    Just another argument against the government picking winners and losers with our tax money. It would be interesting in the future to see a HBR-like take on how tesla bilked the American people out of many, many $$$$s. But it won't come from the HBR given their predilections.

  • Ruggerbunny

    "received large financial benefits from various governments which were not available to its automotive peers."

    The bailout not counted as financial benefits these days?

  • The_Big_W

    One plus for the iPhone. At least it's not running code from google...

  • Mercury

    Cost of EV ownership will outstrip internal combustion vehicles, even with subsidies, for the foreseeable future:

    https://ftalphaville.ft.com/2017/08/03/2192188/electric-vehicle-realities/

  • cc

    I agree with you about Apple benefiting from fanboys (and girls) and uncritical media coverage, but in spite of that they have gradually lost market share in the phone business. The difference is that Tesla is an inflated balloon. Their products would fail (esp. solar) without subsidies. When some of their subsidies are cut, I predict a rapid and total collapse.

  • joe

    I'd be careful actually shorting the stock, use options. I bought it long at $20 and it was one of the most shorted stocks then and couldn't possibly go up. I sold it at $140 because I didn't think it could possibly go up any more. There's nothing keeping it up, there's also nothing keeping it from going to $1000.

  • John O.

    Don't get me started about the Solar City plant. They conned hundreds of Erie Community College students when they started offering a course on solar panels so that graduates could get an edge on being hired by the new plant opening in Buffalo but then everything fell apart and the certifications the school gives out turned out to be worthless. It was cheaper for Solar City to just hire temps and train them. $5,000 a semester at ECC wasted on many of these kids.

  • Earl Wertheimer

    Sorry, obsessive about spelling:
    Just wait for Apple fanboys who lose there head
    s/b 'their'

  • Brad Warbiany

    I'm about the last person you'd expect to defend Apple, but I'm going to do so. I am an Android user, I don't particularly like the Apple OS and how it works, and generally I really enjoy the Android experience. And I wholly agree that generally Android phones lead feature-wise, and then Apple announces the same features Android already has and the fanboys lose their sh*t.

    But I think it's unfair to compare Apple and Tesla. Apple (under Jobs) was a master at controlling user interface / user experience. MP3 players were around for years, but the iPod was a game changer. Phones (even some "smart" phones) were around for years, but the iPhone changed the game. They established the tablet market with the iPad. And they've made bank with iTunes and an App Store, where they don't have to produce the content, they just take a cut of the sale. They've had some clunkers (i.e. the Apple Watch was an attempt to open a new category that failed), but it's hard to look at this with an unbiased eye and not see how successful they've been based upon real innovation in product category.

    Where Apple fails is also Jobs' fault. They want total control. So they produce their products. They produce their OS. They don't license this out. So much like the early PC years where Apple lost market share because Microsoft licensed their OS to basically anyone, in the phone space they're losing market share because Android licenses their OS to basically anyone, and those guys compete with Apple [AND each other] based on features, prices, etc. That's experimentation, but Apple doesn't want 50 products, they want 3. And, Apple doesn't want to dilute/cheapen the experience with inferior products, so they lose to companies who are willing to experiment more.

    But I still respect Apple and their attention to detail in OS and user experience. I know a lot of people who have used both and prefer Apple. Apple still satisfies customers. Their products might not be as feature-rich as Android, but they command a price premium because they're still high quality products. They recognize that style/fashion matters almost as much as function, and they *are* fashionable.

    Tesla, on the other hand, appears to be far more "house of cards" to me than Apple. They have a first-mover advantage in "mainstream" electric-only cars, but is that defensible over the long term? Do they have the ability to scale? Will they *really* be able to achieve the synergies of the solar play, the "powerwall", and the cars? After all, a limiting factor of solar and powerwall is that people in modern society move more frequently than they used to, and sinking that money into your house may be a losing investment if you move 5 years later. What's going to happen when solar, batteries, and electric cars go truly mainstream and they have to compete with everyone?