Whitney Tilson
Fri, Oct 6, 2023|Whitney Tilson

Anniversary of SpaceX's first successful rocket launch; SBF compared to Musk; Spiegel letter; How China's BYD Became Tesla's Biggest Threat; Tweets, video, articles

This is the e-mail I sent to my Tesla (TSLA) e-mail list yesterday afternoon. If you'd like to join it, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com...

1) From my investing daily last week:

I've been very critical of much of Elon Musk's behavior, especially in the past two years, but it's important to acknowledge his extraordinary accomplishments – so I wanted to highlight this:

I think Musk's "becoming an interplanetary species" talk is a bunch of hooey and a huge waste of money, but I can tell you from having been embedded with a front-line unit in Ukraine, his Starlink satellite internet network has changed the course of that war.

2) Here's an excerpt from yesterday's daily about Sam Bankman-Fried's ("SBF") trial and Michael Lewis' new book about him, Going Infinite: The Rise and Fall of a New Tycoon:

I keep thinking to myself, "Man, this is one weird dude"...

He reminds me a bit of Elon Musk, in that he's socially awkward (clearly somewhere on the spectrum), works crazy hours, behaves erratically (due to drugs and/or sleep deprivation?), is addicted to video games, lies like a central banker on the eve of a devaluation, has grandiose visions of saving humanity, and is totally full of himself.

On the plus side, SBF doesn't appear to have Musk's "demon mode" mean streak. But he also doesn't have Musk's genius in actually creating amazing companies like Tesla (TSLA) and SpaceX.

The two businesses SBF built, FTX and Alameda Research, were nothing but total scams and houses of cards that collapsed the moment the crypto craze encountered even mild turbulence, which is why I say humanity owes Musk a debt of gratitude, whereas SBF deserves nothing but jeers – and a jail cell.

I think SBF knowingly committed massive fraud, stealing $8 billion from FTX depositors so he could live large and speculate in his Alameda hedge fund. When (not if) a jury convicts him of this, he will be sentenced to at least 20 years in prison.

3) Here's an excerpt from Mark Spiegel's recent bearish take on TSLA:

In early October Tesla is expected to report declining sequential deliveries vs. Q2 despite yet more continual worldwide margin-slashing price-cutting. In other words, Tesla is now just another low-margin car company forced to continually cut prices to try to juice its delivery volume, and its annualized earnings (in an industry with typical PE ratios of 4x to 8x) are now only around $3/share (a decline from 2022's figure), while its high-single-digit operating margin is down to roughly "industry-average." (As for Tesla's irrelevant "energy business," it accounts for only around 6% of revenue and likely has a net margin in just the mid-single digits.)

To make matters worse, Tesla recently announced that it will open its U.S. charging stations to cars from most other manufacturers which, in turn, will adopt Tesla's connector and charging protocol. (Those competitors are building their own networks, too.) Seeing as many people only buy a Tesla instead of a competing EV in order to access those chargers, and seeing as all the competing charging networks will also adopt this protocol while paying Tesla nothing (Tesla open-sourced it), this will cost Tesla far more in lost auto sale profits than the pennies per share it may gain from charging profits.

Meanwhile, Tesla has objectively lost its "product edge," with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. In fact, Tesla ranks near the bottom of both Consumer Reports' reliability survey and the 2023 JD Power survey...

Meanwhile, in August Tesla's CFO suddenly quit (or was fired) on no notice, the latest in a series of sudden and unexplained Tesla CFO departures. This may be tied into the possibility that the DOJ is close to criminally indicting Elon Musk following the revelation of a massive & systemic Musk-directed consumer fraud regarding the range of Tesla's cars, his alleged attempted theft of company assets to build himself a house, and Handelsblatt's story about a massive & systemic Tesla safety cover-up while people continue to die in (or because of) Teslas at an astounding pace. Regardless, whether from these transgressions or something else, Musk will go down because fraudsters like him always do.

Meanwhile, the NHTSA has initiated the first of what will likely be multiple recalls of Tesla's fraudulently named "Full Self Driving" (even before the aforementioned safety cover-up revealed by Handelsblatt), and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck).

The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of "full self-driving." And, of course, there will be a massive "valuation reappraisal" for Tesla's stock as the world wakes up to the fact that its so-called "autonomy technology" is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors' systems (behind Ford, GM, Mercedes, BMW, Toyota, and Volkswagen) and Guidehouse Insights now rates dead last.

4) From the front page of yesterday's Wall Street Journal: How China's BYD Became Tesla's Biggest Threat. Excerpt:

A few years ago, the founder of Chinese automaker BYD was worried it might not survive. Now, the company is nipping at the heels of Tesla as the world's No. 1 seller of electric vehicles.

BYD, short for Build Your Dreams, sold 431,603 fully electric cars in the third quarter, just shy of Tesla's 435,059. It's on track to sell around 1.8 million EVs by year-end. That would tie it with Tesla, which has set the same EV sales target for this year, up from 1.31 million it sold in 2022.

BYD, though founded in 1995 as a battery maker, has rocketed up the ranks in just the past few years. The company, which also sells hybrid gasoline-electric cars, plans to sell 3.6 million total vehicles this year, likely putting it in the global top 10 automakers by unit sales. It has surpassed Volkswagen as the bestselling car brand in China, and is growing into an export powerhouse.

The leaps are a testament to the ambition of two executives. Founder Wang Chuanfu, 57, born to rice-farmer parents, was orphaned as a child and became an expert battery engineer. His longtime partner, Stella Li, 53, helped sell Warren Buffett's Berkshire Hathaway on the idea that an obscure Chinese company could grow into a global auto giant.

Wang, widely known in China, is a merciless cost-cutter who still flies economy and wheels his own suitcase. Li, who keeps a lower profile, is responsible for overseas business and sales and has negotiated a number of the biggest deals that have helped put BYD on the map. People who know the two describe them as "Mr. Inside" and "Ms. Outside," with Wang focusing on making the products and Li on selling the company to business partners.

Wow, look at BYD's stock chart (its current market cap is $91 billion):

5) I sent the WSJ article to my analyst Kevin DeCamp, who's a TSLA bull, and a more skeptical friend. Here was their conversation:

Friend:

I would rephrase the title. BYD may be the single most important threat, but it's a poor way to describe the impact of an extremely diversified market. Not even BYD is an "important' threat to Tesla. This is a market where there are 30-40-50 whatever brands and very few have a market share above 1-2-3%. There is no single "important" threat to anyone in the market, Tesla or otherwise. The threat is the collective weight of 30+ brands, maybe 50+, that are coming after you, each nabbing not much more than 1% market share.

I highly recommend taking a look at this YouTube channel from China, called "Wheelsboy" – which is a car review site. All sorts of cars we never see in the US. Some of them we see in Europe. Either way, the Chinese are done competing just on price. It's about design, features, performance etc. – extremely impressive.

Kevin posted this:

Friend:

I'm looking at Troy's numbers: Q3 just reported: 86K, 2Q before that 92K, 1Q was 94K, 4Q 2022 was 95K. So basically down every single quarter in a row. This isn't growth. It's consistent decline. 95K -> 94K -> 92K -> 86K. Down every quarter, four in a row. And that is UNITS. Now imagine the catastrophic impact on the bottom line from all the wild price cuts, and the idle capacity in the Germany factory. This is more Enron than Elvis.

Kevin:

What does Troy have wrong?

Friend:

Nothing. These are Troy's numbers. You're just comparing them the very low numbers Tesla had in Europe in the first 3 quarters of 2022. So it will end up being a 58% increase for all of 2023 over 2022. But the tide turned in the fourth quarter of 2022 and sales have been going down ever since.

A contributing factor to this is seen in the combination with the falling sales this quarter: Tesla just had exhausted its sales capacity come September. Even though they had plenty of Model Y units left to sell on the ground, they couldn't sell them despite the radical price cuts. As a result, sales this quarter fell from 92K units in Q2 to 86K. Imagine how bad it would have been without the price cuts. The margins will be brutal, especially in combination with the excess capacity in the German factory. Small wonder the CFO bolted in early August.

Kevin posted this:

Friend:

I agree with this comment by Gary Black. It's economics 101: A lower price means higher unit demand.

6) An interesting post:

And this:

7) A funny video posted by someone who saw a new Tesla Cybertruck on the road and went nuts!

8) Other articles of interest:

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.

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