MAS Ep. 30: A vocal Tesla critic on why it’s only going to get worse…
Overall Thesis
Post-SEC-settlement interview (Oct 2, 2018): Mark argues Q3 2018 will be the best quarter Tesla ever has, that GAAP profit will land between -$50M and +$75M, the Model 3 backlog is nearly exhausted, and the equity is worth zero under any car-company multiple.
Narratives
Q3 2018 will be Tesla's peak quarter: the long-range rear-wheel-drive Model 3 backlog is running out within the first month of Q4, the promised $35K Model 3 won't exist at that price (best case $40K with mandatory premium package, gross margin collapses as tax credits expire), and luxury-EV competition (Jaguar I-Pace, Audi e-tron, Kia/Hyundai crossovers) is hitting showrooms at or below Tesla's ASPs. Under any car-company multiple, the debt wall of ~$10B leaves zero equity value. Musk can't abide by the SEC agreement and will detonate further. Goes broke quickly (can't refinance) or slowly (busted growth story, auto-maker multiple).
Key Arguments
- Q3 2018 GAAP earnings forecast: range of -$50M to +$75M, best case maybe $75M — inadequate to service a ~$10B debt load
- The long-range RWD Model 3 backlog will be depleted before the end of October 2018 — new orders don't replace run-rate
- A shorter-range Model 3 can save at most ~$4K in battery cost; can't credibly sell for $35K or even $25K-net after the $7,500 tax credit expires
- Model 3 ASP of ~$60K this quarter isn't sustainable once higher-margin AWD/Performance backlog is gone and premium EVs arrive
- Luxury competition this fall/next year: Jaguar I-Pace, Audi e-tron, Mercedes EQ, Porsche — much nicer interiors, similar or lower net prices after tax credits diverge
- Average automaker trades at ~8x earnings; at a generous 25x PE on a hypothetical $400M annual profit, equity value = $10B which is fully absorbed by the debt
- Tesla claimed a 420K reservation list for the Model 3 — almost certainly fabricated; the number literally maps to Musk's 420 pattern, not a real count
- Musk cannot adhere to the SEC communications agreement — he's already playing games with tweets; SEC is 'laying in wait' for a bigger catch