China is rapidly surpassing the U.S. in electric vehicles; Tesla is 'out of touch' with Chinese consumers' tastes; A new book on Tesla's Robotaxis raises serious safety concerns; Mark Spiegel of Stanphyl Capital is short Tesla stock
1) I follow the automobile industry closely because it's one of the world's largest and affects nearly every human on the planet on a daily basis. It's also undergoing two revolutions simultaneously: the shift to electric vehicles ("EVs") and autonomous driving.
The implications for investors – and humanity – are massive, so I wanted to share some of the best articles I've read recently on the subject...
Let's start with this op-ed in the New York Times earlier this week by Michael Dunne, an industry veteran: Why Americans Can't Buy the World's Best Electric Car. He – correctly, in my opinion – warns that China is rapidly surpassing the U.S. in this industry, especially EVs. Excerpt:
BYD, which stands for "Build Your Dreams," is essentially banned from American roads by tariffs, imposed to protect U.S. automakers, that double the price of imported Chinese plug-ins. Erecting tariff walls may buy the domestic auto industry some time, but it ultimately won't insulate American manufacturers from BYD or the bigger threat that it represents.
The company embodies a Chinese industrial model that is leaving America in the dust. This model, which combines government financial support, methodical long-term planning and aggressive innovation, has enabled China to achieve global dominance in a range of high-tech industries, from batteries to robotics to drones. Losing those markets to Chinese companies was bad enough. If the same happens in auto manufacturing, the impact would be far worse for America because of the industry's size and its economic, political and strategic importance.
As Dunne continues, tariffs won't be enough to bridge the gap:
We can coddle American companies with tariffs, but it won't change the fact that we are losing badly. China is, far and away, the world's largest producer and exporter of all types of cars, including electrics. BYD and its Chinese peers may be shut out of the United States, but they are seizing control of the fast-growing global E.V. industry. Unable to compete abroad, U.S. automakers will have to retreat into the narrow space where they remain strong: the domestic market for gas-guzzling trucks and S.U.V.s.
He – again, correctly in my view – calls for a "Manhattan Project but for cars – to restore U.S. competitiveness" before it's too late. I agree that the success of these Chinese EV brands should serve as a warning that the U.S. auto industry is rapidly falling behind.
2) Next, this Bloomberg article compares how cellphone maker Xiaomi (1810.HK) succeeded in developing an EV, while Apple (AAPL) spent $10 billion and produced nothing: How Xiaomi Succeeded Where Apple Failed. Excerpt:
The collapse of Apple's moonshot car program has only underscored the effectiveness of Xiaomi's grounded approach, which took inspiration from proven designs from Tesla Inc. and Porsche Automobil Holding SE while staying true to the affordable ethos that's made it a cult brand for Gen Z consumers.
Crucially, it also launched into the most fertile EV ecosystem in the world – China. With state subsidies, existing charging infrastructure and a ready made supply chain, Xiaomi had a structural tailwind Apple lacked.
3) Even the most innovative American car company, Tesla (TSLA), is falling behind, as this Wall Street Journal article notes: Elon Musk Is Running Out of Road in China. Excerpt:
For a while, Tesla was the hottest car on Chinese roads, and Musk was the toast of Beijing. Government officials showered the company with incentives, part of a concerted strategy to turbocharge the Chinese EV industry by injecting Tesla know-how into the country and spurring competition. Tesla's sales took off.
But the risk was always that Tesla would start falling behind the rivals it helped create. Now, that is exactly what's happening.
Tesla's market share has shriveled as other Chinese automakers become more popular. Meanwhile, Musk's reputation as a partner for Beijing in Washington took a beating as his relationship with Donald Trump soured.
As the article continues, Teslas are "out of touch" with Chinese consumers' tastes:
Top China-designed EVs nowadays come with features that aren't normally found in Teslas, such as multiple big screens to watch films and play games, refrigerators to keep drinks cold and in-car cameras for selfies. BYD, which makes both EVs and batteries; and battery giant Contemporary Amperex Technology, or CATL, recently said they each had developed new technologies that allow users to charge cars in just five minutes.
This is yet more evidence that the U.S. is falling behind in the global EV space.
4) According to CEO Elon Musk, Tesla's future largely depends on autonomous driving – especially its "Robotaxis," which have recently launched in Austin, Texas.
But around the time of this launch, news dropped of a book coming out on September 9 that raises serious concerns: The Tesla Files: A Whistleblower, a Leak, a Fight for Truth: The Inside Story of Musk's Empire. The Guardian recently published a preview of the book: 'The vehicle suddenly accelerated with our baby in it': the terrifying truth about why Tesla's cars keep crashing. Excerpt:
Rita Meier was one of many people who reached out to us after we began reporting on the Tesla Files – a cache of 23,000 leaked documents and 100 gigabytes of confidential data shared by an anonymous whistleblower. The first report we published looked at problems with Tesla's autopilot system, which allows the cars to temporarily drive on their own, taking over steering, braking and acceleration. Though touted by the company as "Full Self-Driving" (FSD), it is designed to assist, not replace, the driver, who should keep their eyes on the road and be ready to intervene at any time.
Autonomous driving is the core promise around which Elon Musk has built his company. Tesla has never delivered a truly self-driving vehicle, yet the richest person in the world keeps repeating the claim that his cars will soon drive entirely without human help. Is Tesla's autopilot really as advanced as he says?
The Tesla Files suggest otherwise...
... while it is one thing to disagree with the political views of a business leader, it is another to be mortally afraid of his products. In the Tesla Files, we found thousands of examples of why such fear may be justified.
Mark my words: Tesla will continue its Robotaxi rollout in Austin, but within a few months (maybe weeks), it will get someone killed, and Tesla will be forced to shut down a service it cut all sorts of corners on...
The problem Tesla has can't be fixed – its cars have just a fraction of the sensors as other autonomous vehicles, and no radar or lidar. You can see this in the graphic below from this Bloomberg article, which compares the Tesla Model 3 with one of Alphabet's (GOOGL) Waymo taxis:
Seeing this, I don't believe any amount of AI or data from all of its cars can make Tesla's Robotaxis sufficiently safe for full autonomous driving.
5) I've long warned my readers away from Tesla's stock, but I've also said it's not a good short. Mark Spiegel of Stanphyl Capital disagrees and is short the stock for reasons he outlines in his June letter, which you can read here. Excerpt:
We remain short Tesla, which in July will report yet another horrible quarter, with sales, margins and profits again all down substantially from the year-ago quarter, even before the upcoming tax bill kills the U.S. $7500 consumer credit and the Trump administration rolls back the fleet CO2 emission requirements that generate the credit sales that are by far Tesla's most profitable "product." (And its energy credits and European emission credits are also disappearing.) In fact, things are so bad at Tesla that in June Musk fired his head of sales and manufacturing.
TSLA closed June at a price of $317.66/share, giving this declining-earnings & revenue car company (only 10% of its 2024 revenue came from energy storage which Trump's China tariffs and subsidy-ending will destroy) a [price-to-earnings] ratio of nearly 318(!) on my ballpark estimate of $1/share in 2025 non-GAAP earnings. Yet auto companies comparable to Tesla sell for only around 6x earnings, which would make its stock worth only around $6/share plus perhaps $8/share for its net cash (if it really exists). No wonder Musk is trying to nonsensically claim that Tesla is "really a robot, robotaxi and AI company!" In fact, Tesla's so-called "robotaxi" is nothing but a dangerous scam...
6) Following up on Monday's e-mail... My college buddy Bill Ackman of Pershing Square came up short in his attempt to become the oldest man to win a point on the ATP tennis tour, as he and retired three-time Grand Slam doubles champion Jack Sock lost 6-1, 7-5 in the first round of the Hall of Fame Open in Newport, Rhode Island. But I applaud the effort!
The closest I came to something like this was when I competed in the Obstacle Course Racing World Championships in October 2017. Because I had completed 75 miles at the 24-hour World's Toughest Mudder the previous November (setting the all-time mark for the 50-plus age group, which stood for eight years), I qualified for the professional division. So instead of running in my age group, I lined up with 173 of the top guys in the world, which was pretty comical – but hey, I qualified legitimately!
My goal was not to finish last – and I succeeded, beating 39 guys and finishing 134th, despite being the second-oldest racer. You can read my full write-up, including pictures and a 46-minute video, here. And here's a picture after the race:
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.