Friday, November 3, 2017

Is Tesla Motors Heading for Collapse?

That's the provocative idea from financial anlyst and publisher Bill Bonner in one of his daily letters this week.

The reasons are simple and financially obvious.
The company’s market cap – the value of all its outstanding shares – is at $53 billion. That’s higher than Ford’s market cap, despite Ford making profits of $4.6 billion last year and Tesla losing $67 million.

And Tesla has almost as high a market cap as GM, which had more than $9 billion in earnings last year… and which sold 10 million vehicles versus Tesla’s 76,000. ...

And the losses are getting bigger; a record $619 million in capital disappeared in the last quarter alone.
Graphically, from farther down the piece:
There is no rational reason for Tesla to have a market cap 80% of GM's when they ship 3/4 of 1% of the number of cars GM does (76,000 vs. GM's 10,000,000).  If the reason for the stock market price isn't the pure financials of the company, then it becomes the personal mystique of Elon Musk.  A Cult of Personality around the owner of the company.

Anybody remember John Delorean and his Delorean Motor Cars company?  The same sort of story 40 years ago in the 1970s.  The Delorean was sleek and futuristic with its gull-wing doors.  With a largely stainless steel body, it didn't require the painting and finish upkeep that entails.  It was the car that had to be chosen for "Doc" in the "Back to the Future" movies.
(image source)
While John Delorean might have been visionary, he never returned on investors' money. 
Poor Mr. DeLorean launched his car company in 1975. Over the next years, he took in – and mostly destroyed – approximately $100 million.

Toward the end, he was so desperate for financing that he was an easy target for the feds’ entrapment program. Claiming to be investors, FBI agents coaxed him into talking about importing $24 million worth of cocaine into the U.S. and taped the conversation.

DeLorean beat the rap, but DMC went bankrupt in 1982.

Later, he faced challenges from investors and car buyers and was driven into personal bankruptcy, too. He lost his home in 2000. Then he lost his mind… suffering strokes, which killed him in 2005.
Much like reasoning that you don't want to turn your government over to a charismatic con man, you don't want to invest in a company run by a charismatic con man.  Yeah, I know, times are different now: nobody invests for the long term on the company's actual value.  They buy stocks, let them pump up some amount, sell them to a bigger fool and move on to the next target.  By any conventional measure of stock values the entire stock market is overpriced and due for a major correction. 

Is Elon Musk that charismatic con man whom we shouldn't invest in?  I know some of you think so; you've said so here in comments to other articles.  There's something behind the market's enchantment with Tesla and it's not the detailed financials.

Conclusion to Bill Bonner:
“When will Tesla’s stock promote finally implode?” asks Kupperman.

Answering his own question: “When people realize that it’s a cash incinerating vanity project for Elon Musk, at a time when newer, better products are coming to the market. That point is coming soon. Very soon.”


  1. As soon as the subsidies end.

  2. I think Tesla's stock price has a few things going for it:

    One, supporting it is a virtue signal by fossil fuel and nuclear hating liberals.

    Two, supporting it is an act of green religious worship. It's not supposed to produce outputs which are more valuable than the inputs (horrors); it's supposed to destroy wealth and man-years of labor and put the human species closer to living in caves and dying at 30.

    Three, it wouldn't exist without government subsidies, tax credits, and purchases. It's dependent on government money like an arms manufacturer. Government won't stop paying it as long as having it around keeps giving government good press.

  3. I know people who ere interviewed by Mr. Musk, and I know people who work or have worked for him.

    He's the rocket industry's Steve Jobs.....

  4. The implosion may occur soon if the GOP keeps the Sparkymobile giveaway out of their tax bill and is able to pass same.

    By the way, if that happens, I wonder what will become of SpaceX?

    1. The launch services provider market is completely different than any other business. SpaceX is/was getting preferential treatment from NASA and the US Gov, compared to the other launch providers and it resulted in a couple of lawsuits.

      Sea Launch was the only 100% commercial venture, and we know how well that turned out....

    2. Watts Up With That has a story that Tesla's stock dropped about 10% Friday on the rumor that some of that free taxpayer money might get dried up in the new tax plan.

      While I admire seeing SpaceX almost always recover the first stage of the their rockets, I'm not sure the private launch business is truly private, as DrJim says. On the Cape, it's all labeled as private now: contractors run all the individual rockets. SpaceX bought pad 39A, where the Saturns and then the Shuttles flew from. I'm not sure there aren't aspects that are still run by NASA or the USAF.

      Some you undoubtedly know more than I do.

  5. "you don't want to turn your government over to a charismatic con man"
    Is there any other sort of person that is successful in politics?

    -Paul Joat