Published on July 23rd, 2018 |
by Zachary Shahan
July 23rd, 2018 by Zachary Shahan
First of all, let’s be clear — Tesla is such a popular company now that many people in the media have to cover it or feel inspired to cover it who know very little about the company, its products, its history, or its finances. Some of those reporters and opinion writers may think they got up to speed quickly, got the story straight, and rightfully came in with boxing gloves on to bash the tech/car company. The problem is that those people often didn’t get the full story, may have consumed and digested absolutely incorrect information, and may be out of their depths in the general topics they’re briefly covering (manufacturing, finance, cars, technology, etc.). I would say that, by and large, these people aren’t evil — they’ve just been misled. However, the original sources driving the narrative do likely have ulterior motives, in my opinion.
Here at CleanTechnica, we’ve tried to dig into the depths of Tesla’s products, financing, manufacturing, and consumer demand for nearly a decade. We don’t have all the info we’d like, so I’m not claiming that we always get the story right, but we do routinely see that other media outlets are lacking a great deal of context and have false facts. Many of them have picked up a certain narrative that seems plausible for a while but then crumbles with more information. That doesn’t mean they’re evil or in conspiracy with Big Oil, but it is a problem for society and does reflect poorly on their media outlets and the media in general.
Tesla shorts and multi-year critics, on the other hand, seem to be a different breed. They either have a stubborn but genuine logical bias for some reason or another and have not learned to let go of it, or they know they are wrong and spout misinformation to deceive people.
We’ve had a couple of good pieces on the possibility that Jim Chanos, perhaps Tesla’s most influential short seller and critic, fits into the latter camp. Another longtime, prominent critic on investment channels goes by the name Montana Skeptic. It has been reported by sleuths on Twitter (unconfirmed by me or others in the press) that he’s managing director at The Stewart J. Rahr Foundation and has invested heavily in the oil industry in that role. According to the reports, when his activity was revealed to his billionaire boss, he was told to cut it out and get off of Twitter.
A week ago @shortshorterhmm exposed @MontanaSkeptic1, a fierce Tesla critic, as Larry Fossi – managing director of The Stewart J. Rahr Foundation. Rahr heavily invested in oil. Today Larry was forced by his boss to close his Twitter account. #Transparency $TSLA $TSLAQ
— Tesla Bull 🐂 (@TeslaBull) July 23, 2018
Does Montana do Stewart’s bidding in his quest to short Tesla, or has he gone rogue? pic.twitter.com/VdWolVFY0D
— whowearsshortshorts (@shortshorterhmm) July 14, 2018
For those of you who missed it, I present you with your Montana Skeptic pic.twitter.com/8ivlSvD4ej
— whowearsshortshorts (@shortshorterhmm) July 15, 2018
— whowearsshortshorts (@shortshorterhmm) July 12, 2018
One of our findings indicates that the person posting as Montana Skeptic is managing a company that is funding deployment of Oil Platforms. Just one of the recent contracts he personally signed was for $60M+ @Tesla $TSLA $TSLAQ pic.twitter.com/0QhrzlOCfH
— Montana Skeptic Dossier (@SkepticMontana) June 8, 2018
Two of Montana Skeptic’s most prominent Tesla-trolling colleagues seemed to confirm this:
Guys – I’m beside myself & before you ask, this is NOT a joke – I just got off the phone with Montana Skeptic. He told me that he voluntarily deleted his Twitter account after Elon Musk personally called his boss to complain. I asked for Montana’s permission to Tweet this. $TSLA
— Quoth the Raven (@QTRResearch) July 23, 2018
— Mark B. Spiegel (@markbspiegel) July 23, 2018
Is it odd that someone who has managed an enormous amount of money in the oil industry has been trolling Tesla for years? Is it odd that someone invested in the oil industry has been shorting Tesla and doubling down on his criticisms of the company even as previous claims and projects were proven wrong?
Before going further, based on my own online discussions with all three of these people, I wouldn’t take any statement on face value. I’ve seen far too much twisting of the facts and what seemed like outright lies to believe anything they claim without actual proof. But whether all of this is true, it’s interesting that one of the top “Tesla trolls,” one of the most outspoken Tesla shorts, has shut down his Twitter account and may also be dropping his Seeking Alpha activity. (If he was told to get off of Twitter, one would think he was also told to get off of Seeking Alpha.)
When it comes down to it, any long-term bets against Tesla have proven extremely costly so far. Whether you have an oil bias and are thus opposed to Tesla or you just shorted TSLA because you thought the company couldn’t ramp up its manufacturing capacity and produce great cars, the problem has been Tesla’s nearly unprecedented ability to break into this highly mature auto market and get to a high level of vehicle production.
Just as Tesla is on the verge of quarterly profits that essentially shut down the shorts, however, there has been a blitz attack on the company and its image from multiple corners. A longtime auto journalist who wrote a positive review of the Tesla Model 3 for the Wall Street Journal was reportedly harassed so much about that review that he deleted his Twitter account. Why are there so many Tesla haters on Twitter? The company is building superb electric cars. Whose toes is the company stepping on?
Aside from attacks on positive Tesla stories like that, there have reportedly been cases of underhanded UAW campaigns against Tesla (printed to wide readership by The Guardian, one of my favorite media outlets, and others), cases of insider sabotage at the factory and misleading leaks that led to negative media reports, and a great deal of spin about Tesla finances (which most reporters covering Tesla are not equipped to personally evaluate).
More members of the new-to-Tesla or loosely-following-Tesla media would do well to separate the misinformation from accurate information and not be misled on the context by people who have put millions or billions of dollars down betting against Tesla. Below are 7 key topics to watch out for and hopefully not be misled on.
1. Tesla’s finances — investing vs. burning: As we’ve tried to explain meticulously in previous articles, there’s a difference between “burning cash” and investing cash into rapid, transformative growth. Tesla isn’t “burning cash” with nothing to show for it. It has gone from producing zero cars to an annualized production rate of approximately 300,000 in the course of a decade. Each quarter shows dramatically more production and deliveries than the quarter a year before. Last July, Tesla delivered 30 Model 3’s. This July, it may end up delivering 20,000 or so. Is that “burning cash” or is that ramping up production of a mass market car?
Chart via Lycanthrope
You may see a lot of red in the chart above and thus get concerned, but the point is that after all the R&D, robot procurement, etc., Tesla can make money on each vehicle it produces. Instead of just coasting with green bars on a couple of those products, though, it continuously goes a step further and starts bringing another product to market. It is that growth and development that actually has the company valued so highly, and it would go against the interest of investors to slow down and just make profits quarter after quarter on a couple of vehicle models.
So, who are the people trying to scare the world about Tesla “cash burn” or such? Well, for the most part, they aren’t legitimate Tesla investors. Rather, they are probably betting against Tesla. Should people betting against an obviously successful company for selfish financial gain be the ones driving the media narrative about that company?
2. Tesla’s finances — mass production vs. ramping up: Now, you could understand all of that but still think that Tesla’s screwed financially. All you have to believe is that the cost to produce a Model 3 is more than the cost Tesla is selling it for. Aside from the fact that pricing your product below the cost to produce it seems highly illogical, we’ve also seen independent reports claiming the cost of a Model 3 is around $28,000. With the base model scheduled for $35,000 and current options sitting at $49,000 and up, it looks like Tesla is making a lot of money on each car sold.
That also means that with each vehicle sold, Tesla is able to cover more of its initial machinery investment costs, R&D costs, and debt. That would explain why Musk celebrates higher production rates rather than dropping us a frowny face because of all the extra money Tesla is “losing” from producing so many cars.
We’ve gone from ~1000 S/X deliveries per week in US last year to ~6000 S/3/X. It’s like hitting a square wave.
— Elon Musk (@elonmusk) July 23, 2018
3. Tesla vehicle demand: If scare tactics about Tesla’s finances don’t work for you, people trying to twist the narrative in favor of Big Oil or Big Auto instead of Tesla have another favorite up their sleeve — a claim that comes around semi-regularly that demand for Tesla vehicles is dropping. We saw this with the Model S even while demand was rising. We saw this with the Model X even while demand was rising. And we see this now with the Model 3, despite claims from Tesla that it has over 400,000 reservations for the Model 3 and more coming in every day.
Dunno where this bs is coming from. Who knows about the future, but last week we had over 2000 S/X and 5000 Model 3 *new* net orders.
— Elon Musk (@elonmusk) July 20, 2018
If you reconcile those two tweets above from Elon, you can see that Tesla is still bringing in more new net orders in a week than it can produce in a week, adding to its reservation backlog. (The math: 7,000 new net orders minus 6,000 vehicles produced = 1,000 more new net orders than vehicles produced that must be added to the reservation backlog.)
If your concern is just about demand for Tesla’s higher-margin Model 3 configurations rather than its $35,000 base configuration, which is not being produced yet, that is misguided as well. Tesla has just started shipping some of these higher-margin configurations, so it surely has plenty of demand to work through for them. It also hasn’t started deliveries of any configurations beyond North American, so it could start sending $49,000 versions, $55,000 version, $70,000 versions, etc., to other countries if it feels compelled to keep producing those configurations before producing the base version of the car. Furthermore, Tesla has hardly done anything to sell the car. It is just now getting the Model 3 into showrooms for test drives. Many buyers want to actually test drive a car before buying it, and they will finally get their chance at that. Others will just stroll into a store at one of the many malls where Tesla has put up shop and be blown away by the vehicle. No worries about demand should be coming through the door for a long time still.
4. What about the competition? Okay, Tesla may have a lot of consumer demand now, but what will happen when traditional automakers bring their best new offerings to market? Critics who think this is the real death threat for Tesla miss several points. One is that consumers largely think that Tesla produces the best electric cars — that the software, performance, and autonomous driving features are all better. Another point is that only Tesla has a superfast charging network — a vast one that allows convenient long-distance driving. Without this, an electric car cannot go on road trips in a time-efficient manner, which many consumers expect from their cars. And perhaps the biggest issue of all is that other automakers have far less production capacity, largely because they have far less battery supply.
Expected production levels for upcoming Tesla competition for the next year(s):
— Tesla Bull 🐂 (@TeslaBull) July 23, 2018
5. Newfound paparazzi interest in manufacturing & finance: Much of the problem in media coverage of Tesla comes from not having a strong grasp on the auto manufacturing world or the finance side of the business. Because there’s so much interest in Tesla and so much demand for Tesla news, various writers and outlets stretch into territories they don’t understand well. Thus, industry norms or slight tweaks leaked out of Tesla factories end up being reported as mountains rather than the molehills or standard procedures that they actually are. The confusing thing that drives people to talk of conspiracy, of course, is when a well recognized business outlet like the Wall Street Journal misrepresents what is happening. They should know better, right?
6. Frustration boiling over: After more than a decade of misleading attacks on Tesla, its products, and himself, CEO Elon Musk seems fed up. With profitability in sight, my presumption is that he’s less constrained by a need to be civil and level-headed, and so he’s more vocal in his responses to such critics. He’s also surely tired and a bit stressed since it’s been a hard year of production growth and he recently said it feels like Tesla still has one foot in “production hell.” So, seeing light at the end of the tunnel but struggling to get there while rats bite at his feet, he appears more prone to kicking the rats and possibly hitting innocent moths in the process. Is it the right thing to do? Probably not. Is it hard to understand. No, not really. Should the media be a check on abuse of power? Of course. But we can also keep it in context and try to explain the whole story rather than sensationally demonizing someone who has spent more than a decade doing what he can to help society help itself.
7. Tesla shorts are scared, exposed, desperate: With a warning that Tesla is on the verge of showing a profit, and previous indication that Tesla needs to produce just 5,000 Model 3 per week to get into the black, Tesla short sellers and foes who have long expected Tesla to collapse can largely see that the stock price could surge soon. If that starts to happen, other short sellers could bail and just decided to take a loss on their bets. Given that TSLA has been the most shorted stock on the market recently, that could mean a historic “short squeeze.”
It appears that some short sellers are trying to push the price down to a certain level to exit with a gain or a slight loss. Others may be holding out hope that with enough negative news and a little “luck” on the Tesla production side of things, the company could run into a financial death spiral and they could finally get their dream of Tesla collapsing. Others may have honestly not examined the numbers carefully and picked up the wrong, pessimistic narrative.
In any case, if you are covering Tesla, try to get to the root facts, get to the root finances, and solicit appropriate context from trustworthy, independent sources. There are a lot of rats circling Elon and Tesla right now who would rather convince the world of a tragic story than have to jump ship.
Special thanks to members of the Tesla Motors Club forum investment thread.