Tesla stock is up more than 30 percent in the past three months, one of the strongest performers in the Nasdaq 100 during a less-than-buoyant period.
Before we get into the bulls versus bears debate, let’s start with Elon Musk’s 60 Minutes interview.
14 minutes of Tesla CEO Elon Musk
Couldn’t Tesla's PR department steer Musk away from this awkward, SEC-baiting meetup with Lesley Stahl? The interview is here.
Musk emphasizes that he does not respect the SEC, that he’s going to be less than accurate about model delivery dates, and no one is currently reviewing his outgoing tweets for securities compliance, despite his settlement with the Securities and Exchange Commission. (Tesla has until January 14 to apply the oversight rules.)
There’s no word on new directors, but Musk did say that he handpicked Robyn Denholm to be his replacement as Tesla chairman, which makes her only arguably independent in a role he doesn’t seem to respect. He tweeted that “'Chairman' is an honorific, not executive role, which means it’s not needed to run Tesla. Will retire that title at Tesla in 3 years.”
In the interview, Musk toured and lauded the rigid tent structure under which a new general assembly line was constructed. He said it was a crucial element in getting Tesla to meet its 5,000-per-week Model 3 production goals.
Are the Tesla shorts in trouble?
Despite Tesla's strong recent quarter and real prospects of a profitable second half, a lot of folks are still betting against the $50 billion electric vehicle upstart.
Tesla is one of the most highly shorted stocks on the market (short-sellers make up more than 20 percent of the float), but the short thesis loses credibility with every profitable quarter and with every week the company successfully delivers 5,000 electric vehicles.
The short-seller pillars of debt load, lack of cash and softening demand are crumbling. As for reliability issues, that appears to be the Tesla/PayPal strategy — some fires are going to be left burning.
Several months ago, the shorts were convinced that Tesla’s debt burden would bankrupt the firm. Yet Tesla paid off the ~$300 million SolarCity debt last quarter. And the $920 million convertible bond coming due in March can now be repaid in shares because the stock is trading above the equity-conversion price of $359.88. In fact, Tesla plans to pay the debt off with 50 percent cash and 50 percent stock — a sign of Tesla’s confidence in future profits.
Another short-seller tenet is that Tesla would need to raise enormous sums of capital to finance the Model Y crossover, the new Roadster, the Semi and the “Mad Max” pickup, and that however the cash would be raised, it was going to be expensive and dilutive.
On numerous occasions and as recently as a week ago, Musk has been rather adamant that Tesla would not need to raise additional capital — that product development funding would come profits generated by the firm.
Now, allow your mind to accept a 180-degree turn. This week, Tesla is preparing an $837 million asset-backed security based on car lease assets, its second ABS of the year, according to Bloomberg. An ABS instrument is tied to specific revenue streams — in this case, Model S fleets.
So yes, Tesla is raising money, and probably far less than it actually needs.
As for demand, that’s a bit trickier to divine. Shorts suggest that pent-up demand in the U.S. has peaked and will settle into a modest organic run-rate now that the full tax break is a thing of the past for Tesla buyers.
Yet current estimates for Q4 2018 see deliveries for the quarter up, at 61,976 Model 3s and 27,872 Model S+X combined, for a total of 89,848 vehicles. If accurate, it means that Tesla has been able to sustain a Model 3 run rate of roughly 5,000 units a week (versus 4,300 units per week last quarter), and perhaps that a profitable $35,000 Model 3 is within reach.
European Model 3 sales have yet to contribute to demand. Tesla is still in the process of EU homologation, with estimates of completion in mid-next year.
Tesla plans to start building cars in China in 2019 to meet local demand and avoid tariffs.
Last month, Tesla secured a 9-million-square-foot plot of land in Shanghai for its next Gigafactory, according to the Shanghai Bureau of Planning and Land Resources. Tesla will fund the Shanghai Gigafactory with $1.3 billion of low-interest local debt, along with $700 million in equity from Tesla over the next two years. Land leveling has been completed and construction is about to start, according to the Shanghai mayor.
So, U.S. demand was up this quarter, and EU and China demand will be addressed in the middle of next year. U.S. Model 3 demand forecasts remain murky for the next few quarters.
As for the recent profitable quarter for Tesla, the shorts point out that those numbers were highly influenced by regulatory credits and warranty reserve sleight-of-hand.
The good, the bad and the ugly
The California Highway Patrol convinced a 70 mile-per-hour-Model S on autopilot to come to a stop without waking its sleeping driver, who was then arrested on suspicion of DUI.
Dozens of complaints and three lawsuits have been lodged against Tesla for workplace harassment and discrimination against African-Americans at the automaker’s Fremont factory, according to The New York Times. Tesla claims there is no pattern of racism.
According to Tesla short Diogenes and others, there are hundreds of Teslas sitting idle and dusty in parking lots across the U.S. (here are some photos). Previous explanations from Tesla that these are staging areas seem flimsy.
Porsche North America CEO Klaus Zellmer, in an interview with The Los Angeles Times, said, "If you look at what Tesla has done, if you look at their volume and look at their price level, it's truly astonishing.
Tweets from Musk and others
Adam Wildavsky tweeted, “My #tesla has shut down in a tunnel. I cannot put it in neutral or tow mode. Tesla emergency service has me on indefinite hold.”
Elon Musk tweeted, “If you have a Tesla built in past 2 years, definitely try Navigate on Autopilot. It will blow your mind. Automatically passes slow cars & takes highway interchanges & off-ramps.”