I speculated previously about what might be the catalyst for the great Tesla (NASDAQ - TSLA) unravel and since then I believe we may have seen it. When the histories are written and the movies made in the not too distant future about the most colourful corporate debacle since Enron, the turning point for Tesla will probably be regarded as the fraudulent acquisition of Solar City in November 2016, but the tipping point may well be seen as the events of these last few days.
On Thursday, after much preparatory hype by Musk on twitter which saw the stock bid up to $320, Tesla revealed that it was planning to scrap its dealerships and showrooms and move to an online only sales model in order to sell its model 3 cars at $35,000. This came 10 days after Tesla’s Q4 statement was released which stated that it was expanding in this very area and demonstrates a 180 degree which smacks of wild desperation. Musk stated a short while ago that Tesla could not survive selling cars at $35,000 for at least six months until production was ramped up sufficiently to make it viable. That he is now trying to shift a stripped-down version immediately and probably at no profit to the company suggests that demand has fallen off a cliff and he is frantically trying to meet previous commitments to vendors.
By far the largest of these is Panasonic, from whom Tesla had committed to buy battery cells in bulk way into the future from the jointly run Gigafactory in Nevada into which Panasonic has poured significant amounts of capital. It is telling to note that in Tesla’s profitable Q3, Panasonic’s automotive division was losing money hand over fist and its architect and cheerleader of what is increasingly looking like a disastrous joint venture, Yoshio Ito, has recently left the Japanese company. Tesla’s goosed Q3 numbers showed a noticeable decrease in costs relative to production and it would not surprise me if huge rebates had been demanded from vendors with promises of “pay back” when production increased, with the implied threat of bankruptcy if they were not agreed to. It would certainly explain the dismal performance of the Panasonic division and the departure of Ito.
The threat for Tesla bears, and what is looking like the only way for Tesla to avoid a messy restructuring is a significant injection of capital very soon. That Musk has chosen this moment, not only to flout the extremely lenient terms imposed upon him by the SEC for committing serious securities fraud, but also to openly taunt it, suggests that this is problematic, as the SEC must rubber stamp the registration process (if Tesla could raise capital, surely it would have done so by now). It looks to me that it is finally sinking in that Musk’s luck has run out. Not being short Tesla when the inevitable happens remains this year’s biggest risk.
Filed under: Tesla, Bearcast, CAP-XX, Synectics, Swallowfield, commodities, gold, Tom Winnifrith
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