Are there enough warning bells about Elon Musk and Tesla? Or have we forgotten Madoff, Enron, and other big-time names who were ultimately in way over their heads? For those following Tesla, it was jockeying with GM as the biggest US automaker by market capitalization, even though it sold less than 1% of the number of vehicles that GM sold, and last month, the Chevy Bolt alone outsold both the Tesla Model S and Model X combined. By being propelled to the loftiest heights based on hype, the only way left for Tesla to go is down. And many heads will roll when this gigantic house of cards Musk and Tesla has built comes tumbling down.
Now why am I so sure that Tesla has turned into a scam, a securities pyramid scheme?
Because it is doing everything it thinks it can get away with in order to keep it stock price up and get more money anywhere, any way it can.
Because the desperation of Elon Musk and Tesla is now plain as day. Desperation of failed execution (flat growth in actual sales), desperation to maintain the stock price (~$380/share at its peak, now down to about $310/share; Elon Musk has pledged his interest in Tesla as collateral for loaned funds for himself, and his creditors will surely be displeased at a precipitous stock price drop), desperation to raise additional inexpensive capital as its junk bonds dive underwater, desperation to "prove them wrong", and desperation to be loved and wanted, and to maintain his cult leader status.
I have witnessed this scenario many times, both from public events as well as through my own practice experience. Desperate people do desperate things, and desperate things typically means cutting corners, fudging numbers, and in the case of a publicly listed and highly visible company, invariably results in a scandal that threatens its very existence.
Now why am I so sure that Tesla has turned into a scam, a securities pyramid scheme?
Because it is doing everything it thinks it can get away with in order to keep it stock price up and get more money anywhere, any way it can.
Because the desperation of Elon Musk and Tesla is now plain as day. Desperation of failed execution (flat growth in actual sales), desperation to maintain the stock price (~$380/share at its peak, now down to about $310/share; Elon Musk has pledged his interest in Tesla as collateral for loaned funds for himself, and his creditors will surely be displeased at a precipitous stock price drop), desperation to raise additional inexpensive capital as its junk bonds dive underwater, desperation to "prove them wrong", and desperation to be loved and wanted, and to maintain his cult leader status.
I have witnessed this scenario many times, both from public events as well as through my own practice experience. Desperate people do desperate things, and desperate things typically means cutting corners, fudging numbers, and in the case of a publicly listed and highly visible company, invariably results in a scandal that threatens its very existence.
Tesla Model S sedan. Image courtesy Tesla. Because:
1. Tesla's sales are leveling off even as cash burn continues unabted. Recent sales have been spurred by by large discounts, even though Musk himself promised "no discounts";
2. Tesla being unable to achieve extremely important promises that it has staked its name upon because of Elon Musk being wrong. To wit:
(a) "Full self driving" sans LIDAR for which customers have put down deposits and are now suing,
(b) Musk in 2012: "Tesla does not need to ever raise another funding round",
(c) 20,000 Model 3 cars made per month by 12/2017 (Tesla is being sued for misleading investors by actually producing cars by hand due to "production bottlenecks"),
(d) Mass firing of employees under the guise of "performance reviews", apparently conducted en masse;
(e) SolarCity acquisition failing, and much more.
3. Tesla's cash burn of half a million dollars per hour means a capital raise via an equity sale and consequent dilution is inevitable in light of pending interest rate raises by the Fed, which renders another bond sale unfeasibly expensive in the face of an imminent credit downgrade;
4. Tesla is becoming increasingly defensive as well as evasive, and seeing the world in a black-and-white, us-vs.-them lens. During earnings calls, for example, its CFO avoided questions about deposit allocation, and Elon Musk himself actually saying "shut the f---- up" in response to Toyota's solid state battery technology claims (rather reminiscent of Enron's "asshole" earnings call comment made when asked about why it was "the only financial institution that can't come up with balance sheet or cash flow statement after earnings", shortly before Enron imploded);
5. After "revealing" the first 30 Model 3 "deliveries" to employees who are subject to gag contracts and the subsequent failure to deliver on its production and sales promises, and realizing the major problems it now faces Tesla and Musk have quickly scheduled another "reveal" that would "blow your mind clear out of your skull and into an alternate dimension". The more joking hyperbole Elon Musk and Tesla spits (psychological "reappraisement" in order to cope with horrific reality), the more it reveals Tesla's true position --Tesla is teetering on the brink of collapse --
1. Tesla's sales are leveling off even as cash burn continues unabted. Recent sales have been spurred by by large discounts, even though Musk himself promised "no discounts";
2. Tesla being unable to achieve extremely important promises that it has staked its name upon because of Elon Musk being wrong. To wit:
(a) "Full self driving" sans LIDAR for which customers have put down deposits and are now suing,
(b) Musk in 2012: "Tesla does not need to ever raise another funding round",
(c) 20,000 Model 3 cars made per month by 12/2017 (Tesla is being sued for misleading investors by actually producing cars by hand due to "production bottlenecks"),
(d) Mass firing of employees under the guise of "performance reviews", apparently conducted en masse;
(e) SolarCity acquisition failing, and much more.
3. Tesla's cash burn of half a million dollars per hour means a capital raise via an equity sale and consequent dilution is inevitable in light of pending interest rate raises by the Fed, which renders another bond sale unfeasibly expensive in the face of an imminent credit downgrade;
4. Tesla is becoming increasingly defensive as well as evasive, and seeing the world in a black-and-white, us-vs.-them lens. During earnings calls, for example, its CFO avoided questions about deposit allocation, and Elon Musk himself actually saying "shut the f---- up" in response to Toyota's solid state battery technology claims (rather reminiscent of Enron's "asshole" earnings call comment made when asked about why it was "the only financial institution that can't come up with balance sheet or cash flow statement after earnings", shortly before Enron imploded);
5. After "revealing" the first 30 Model 3 "deliveries" to employees who are subject to gag contracts and the subsequent failure to deliver on its production and sales promises, and realizing the major problems it now faces Tesla and Musk have quickly scheduled another "reveal" that would "blow your mind clear out of your skull and into an alternate dimension". The more joking hyperbole Elon Musk and Tesla spits (psychological "reappraisement" in order to cope with horrific reality), the more it reveals Tesla's true position --Tesla is teetering on the brink of collapse --
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