Tesla unlikely to Survive (Vol. 3)

My read on the situation, FWIW, is that the financials are really hurting big-time. At the end of Q1 2024, Tesla had something like $29bn in cash on hand, which sounds a lot. However, IIRC, there are debt repayments coming up, plus a chunk of that money is deposits against future orders (CT etc.).

The factors really hurting Tesla right now include:

- interest rates (competitive finance is an important selling point, and Tesla is presumably having to underwrite the finance deals) - many forecasters assumed rates would have started falling by now;
- interest rates (dampening demand because of cost ups in daily living, alongside inflation) - again, the forecasts were for an easing of that problem by now;
- a major price war with Chinese manufacturers, some of whom appear to be essentially dumping product in order to buy market share;
- the continued high costs of utilities (which are likely to be hurting the Supercharger business);
- a very cash-hungry roadmap (new factories, new models, new tech).

At times like this, Tesla gets stung by its reliance on in-house tech (as opposed to just buying-in and licensing from suppliers such as MobilEye - whose own financial performance has taken a major hit).

Tesla won't want to go back to raising finance using convertible bonds, or selling equity. And there is - of course - the conflict of interest issue (we believe Musk's debt is secured against Tesla stock; if the stock price continues to fall, he's going to be in trouble posting collateral to keep his loans afloat). I suspect he can't leverage SpaceX stock for this purpose and, besides, SpaceX is itself in a continuing cash-burn situation.

As I've said before, there's no doubt in my mind that his purchase of Twitter was a major mis-step. Not only did it distract him at an important time; it also created a really poor (for Tesla) feedback loop in which the stock price became even more of a driver of short-term decision-making than in other firms.

It would seem Musk is responding to all of these things by slashing costs hither and yon (presumably in an attempt to beat analysts' forecasts on P&L for Q2), whilst trying to maintain progress on what he sees as core tech (whether that's core to Tesla's future or core to the stock price is up for discussion). Hence his comments on the earnings call (anyone who sees as as just a car company shouldn't be invested in Tesla stock), continued updates on robotics (which do, to be fair, look promising), the accelerating cadence of FSD beta releases (which, judging by the videos, are now very impressive), the announced China FSD deal, the continued pressure on European regulators over FSD, and so on.

Musk isn't short of imagination. I'm sure, were I in his shoes, I'd be looking at the world quite similarly. He can see the prospect for ill economic winds to blow away the fantastic gains he's made so far. Right now he's probably looking to batten down the hatches, try to maximise revenues from the existing investments, and weather the next 2-3 quarters in the hope of an economic rebound.

As far as Superchargers go, now the standardisation issue has been resolved in Tesla's favour in North America, the smart money would be on a strategic partnership, JV or spin-out of that business. There's a ready-made pool of employees (who could usefully be taken off of Tesla's payroll), and bringing in a partner (say a financial institution) to underpin the capital required for the next phase of expansion could be a smart move. Whilst it would be a hit to P&L (assuming Superchargers are profitable), it would generate very useful cash right now, and it would reassure investors that one of Tesla's key competitive advantages is safely underpinned by fresh capital.

If only he'd left Twitter alone...

If they do have $2bn in deposits for CT, that's $2bn of sales that generate no new cash. And nearly 10% of their total estimated cash on hand. But how many of those deposit-holders either cancel, given the new pricing and/or economic realities?

In terms of net debt, it *was* almost zero towards the end of last year; since then it has been jumping up very rapidly, which is what I suspect has prompted Musk's actions.



If they can turn the handle on CT deliveries, that will help. I'd assume the $2bn deposits is included in that $10bn total at the end of Q1. If they all cancel, that's 20% of total debt that suddenly has to be repaid...

Wonder if people are waiting for new model y?

I agree up to a point, but Tesla are blaming everything but the competition

tbf, if the market for EV's grows, there should be room for extra competitors.

A "problem" I predict with EV's is just how long they last. From what I've seen, they have the capability of outlasting ICE vehicles by a factor of two. A lot of people will still swap cars every 2-5 years, but I can imagine the second hand market will just be saturated to the extend it will really hurt resale value.
Watch the autoalex video where they buy a cheap Model S with over 700 000 km on the odo. Of course it lost a significant amount of range, but other than that the drivetrain was mechanically sound. Where they usually were afraid to go anywhere in a barge like that in fear of breaking down, all they had was "range anxiety", which is completely manufactured as you know exactly when it's going to happen.

I think you’re all missing the key data from the SMMT release:

The overall market may seem healthyish, but the markets that matter for profitability are on their arse. -17.7% is an enormous drop-off; even YTD private sales are down 11%.

Tesla market mainly to private buyers and user-choosers. Private sales seem to have collapsed. We don’t have user-chooser fleet data, but business buyers (a much smaller slice of the pie, but again important to Tesla) has also tanked.





The SMMT doesn’t publish the cross tabs, so we can’t see where the different purchaser groups are spending.

The problem with data is we tend to see headlines and then construct a narrative around it. For all we know, Tesla is doing better in terms of market share of the private market than before, but that market has shrunk.

It is very likely, however, that price is a major factor, and Tesla needs to keep moving volume. It is indeed a shame that Model 2 hasn’t turned up. As we know, substantially cheaper product is at least 12 months away.

So, if I tend to believe likely, Tesla has a problem there, it must lean itself rapidly (which it is doing) and do the best it can. It is unlikely to want to meet the sort of fleet discounts many other manufacturers routinely offer, for instance. But in the UK, right now, fleets are 60% of the market.

This trend has been there for a while. Tesla units YTD April 23 vs 22 were down 2.5% as large fleet sales picked up again.

Selling to lease companies heavily reduces margin - more than ever up against the competition from China.

I agree that the Tesla lineup has stagnated somewhat and a smaller/more basic, M2 car is needed - especially if it's to appeal to private buyers.

I think there's no doubt Tesla have and we're always destined to lose market share over time, that's a given when si many competitors jump into the same market. But whilst that forgives Tesla to an extent, I do feel they could be doing better in terms of product lineup and development. It's as if they lost momentum..

That's true, easy to forget how long they've been around tbh!

I agree that technological advances don't make current cars any less suitable - people sometimes act as if their current EV would be next to worthless if one with better batteries was introduced... In reality it'd just take a small value hit and become a bargain for a future owner that simply doesn't need more range than it offers. Which is most drivers.

Are you sure?

Mine will do around 150 miles, which is more than enough to run around in if you have home charging.

For the same reason, the sheer number of competitors entering the market which vastly outweighs the rate of sales increase, I would expect the volume to drop too.

Also not helped by the ageing lineup. Buying a Tesla doesn't set you apart anymore, they need a new car. Not a refresh and not a truck.