{"id":870,"date":"2018-04-18T05:23:49","date_gmt":"2018-04-18T05:23:49","guid":{"rendered":"https:\/\/www.antya.ca\/research\/tesla-inc-reading-the-tea-leaves\/"},"modified":"2026-02-17T06:27:32","modified_gmt":"2026-02-17T06:27:32","slug":"tesla-inc-reading-the-tea-leaves","status":"publish","type":"post","link":"https:\/\/www.antya.ca\/research\/tesla-inc-reading-the-tea-leaves\/","title":{"rendered":"Tesla Inc. \u2013 Reading the Tea Leaves"},"content":{"rendered":"
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Tesla Inc. is surrounded by bears, naysayers, bulls, day-traders, convertible arbitrage funds, high-yield seekers, bloggers, 24-hour news channels, sell-side analysts, buy-side analysts, electric vehicle enthusiasts, tree-huggers, journalists etc., all of whom have a different view on the Company\u2019s prospects. We apologise if we missed someone. Then there are some of the most famous investors that are short Tesla, and to use the metaphor, have lost their shirt doing so. Will the shorts breathe easy anytime soon? In our opinion, not likely.<\/p>\n<\/div><\/div>\n<\/div>\n

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Tesla Inc. (\u201cTesla\u201d or the \u201cCompany\u201d) has been riding a wave of bad news in the last thirty days or so. It began with the involvement of a Tesla Model X SUV in a fatal accident on March 23, 2018. Details on the accident as reported by Bloomberg are here . The Model X crash came close on the heels of an accident involving a self-driving UBER vehicle in the prior week. Jittery investors already on edge due to Model 3 production delays hit the sell button on the news, and the stock price declined precipitously from $315 before the accident, to a low of $250 on April 2, 2018. For more on self driving challenges at Tesla please see Autonomous Driving- The Tesla Delusion .<\/p>\n

Production Challenges<\/p>\n

During the same week, Bloomberg reported that Elon Musk was sleeping on the Floor of the Tesla factory to solve production related issues. The link to that story is here. Previously in a comment S.C. Capital, another provider of insights on Smartkarma, highlighted that Tesla had to employ extra hands on deck to get to a target of 2,000\/week at the end of Q1. We discussed that and much more in our comment Tesla Inc.-Defying Gravity: Tiangong-1or Voyager-1. In our opinion, if additional employees can solve the production problems, then the problem is solvable. Lo and behold, after a not so successful start-up of the Model 3 production line, Musk admitted that he is no A.I. avatar but human after all, by tweeting:
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Figure 1: Must Admits That he is Human<\/p>\n

In ANTYA\u2019s opinion that proves two things:<\/p>\n

1. Musk is human and not an alien, because only humans make mistakes, and admit as much.<\/p>\n

2. Excessive automation can and will be, taken care of, and hence the Model 3 production problems are fixable.<\/p>\n

Critics pounced once again saying, perhaps rightly so, that prototyping was required, and that Musk is not suited to run a more maturing auto-maker. Noticeably, there is no new information in these stories, except perhaps the right to say, we told you so, beginning with Reuters , followed by many others.<\/p>\n

The Economist Wades In; but can it be Right?<\/p>\n

Adding fuel to the fire, The Economist played right into the hands of those that are short Tesla stock, by publishing a story on April 13, 2018, with a cheeky take on the \u201cProduction Hell\u201d phrase of Musk, rechristened \u201cThe next circle of Hell\u201d. The Economist said that the Company faced clear and present danger, and that \u201cTesla is heading for a cash crunch\u201d. We will not bore (pun intended) you by regurgitating Musk\u2019s response here, but a newspaper devoted to publishing value-added stories printed something that apparently the whole world \u2013 except those that are long Tesla \u2013 knows, was a bit disappointing. We cancelled our Economist subscription just to get even ? We are peeved that the narrative touted by The Economist is available for free on the Internet, whereas by printing it the Economist expects to get paid top bucks for it!<\/p>\n

For readers interested in the Economist\u2019s take on Tesla, please click The Economist says . A word of caution, \u2013 although we love their contrarian view\u2013 is that at the lowest ebb of the crude oil cycle, when it was trading close to $10\/barrel in May 99, the esteemed Economist newspaper had a cover story saying \u201c$5 oil\u201d.
\nTo refresh our reader\u2019s memory and to enliven the debate we quote;<\/p>\n

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\u201cYet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1 [Figure 2]. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a \u201cnormal\u201d market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range.\u201d<\/p>\n<\/blockquote>\n

Figure 2 is the chart that the The Economist referenced in 1999.
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\nThe Economist on Oil in May 1999<\/p>\n

All we are trying to outline is that historically there have been times when The Economist has proven to be a reliable contrarian indicator, notwithstanding its stellar reputation and credible reporting. We agree with Niels Bohr while paraphrasing him, \u201cthat predictions are hard, especially about the future\u201d. We are making one too.<\/p>\n

Are Tesla Workers Unsafe?<\/p>\n

If all of this preceding wasn\u2019t enough, on April 16, 2018, revealnews.org published a lengthy story outlining that Tesla\u2019s reported worker safety record is not trustworthy because;<\/p>\n

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\u201cTesla has failed to report some of its serious injuries on legally mandated reports, making the company\u2019s injury numbers look better than they actually are.\u201d<\/p>\n<\/blockquote>\n

It is not our job to verify any of this, and kudos to the team that uncovered these shenanigans at Tesla. California workers safety board and other federal entities do exist to resolve and deal with such issues, and so we will leave it at that. During this tumultuous time-period, such vilification would have wounded lesser folks mortally, but miraculously not Tesla, although in recent times short interest in the Company has risen as illustrated in Figure 3.
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\nFigure 3: Tesla Short Interest Rising or Not ?<\/p>\n

Model 3 Production Line Makeover<\/p>\n

If that was not enough after market close on April 16, 2018, Tesla announced a temporary shut-down of the Model 3 production line to fix its shortcomings.<\/p>\n

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\u201cThese periods are used to improve automation and systematically address bottlenecks in order to increase production rates,\u201d said a Tesla spokesperson as quoted in the Reuters news story available here .<\/p>\n<\/blockquote>\n

Is the Current Shutdown Planned or Not?<\/p>\n

We think it is planned. On February 7, 2018, at the Tesla Q4-17 conference call, in response to a query about the fully automated line, Jeffrey B. Straubel, CTO of Tesla said;<\/p>\n

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\u201c\u2026 we do expect the new automated lines to be landing and starting out at the Gigafactory in just the next \u2014 well, the landing in sight within this quarter.\u201d<\/p>\n<\/blockquote>\n

Musk provided additional colour by elaborating thus:<\/p>\n

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Yes, expect the new automated lines to arrive next month, in March.<\/em> And then it\u2019s already \u2014 it\u2019s been \u2014 it\u2019s working in Germany, so that\u2019s going to tracked \u2014 going to be disassembled, brought out to the Gigafactory and reassembled and then go into operation at the Gigafactory. It\u2019s not of question whether it works or not. It\u2019s just a question of disassembly, transport and reassembly. So that\u2019s kind of \u2014 yes. So we expect to alleviate that constraint. That \u2014 with alleviating that constraint, that\u2019s what gets us to the roughly 2,000 to 2,500 unit per week production rate. The next constraint would be material conveyance at our Fremont vehicle plant. And that\u2019s a very sophisticated automated parts conveyance system. We think it\u2019s probably the most sophisticated in the world or at least we\u2019re not aware of one that is more so. And the software for that is quite complex. So that would be the next constraint on production to get to 5,000, is the conveyance system in Fremont. So that also appears to be on track. So we feel like the error bars around the unit volume predictions are getting smaller with each passing week.\u201d<\/em><\/p>\n<\/blockquote>\n

If those automated production lines landed at Tesla sometime in Q1, the Company was bound to shut down the factory for a few days in Q2 to ramp it up.<\/p>\n

Thus, a marginal decline of 1% in Tesla\u2019s stock price to $287.69 at the close of trading today, seems to suggest that investors were expecting this shut-down. However, the stock did fall 2.7% on April 16, 2018, after the revealnews.org story. Was there a news leak that the plant was going to shut-down, or was it the worker safety issue, one can never tell because both occurred on the same day. To the extent investors believe in the integrity of the equity market, it appears it was the worker safety story that was unexpected, because the stock price barely budged today. Plant closure was announced after market yesterday.<\/p>\n

After Market, the Stock Regains its losses<\/strong><\/p>\n

As we speak, CNBC is reporting that Musk has raised its goal of Model 3 production to 6,000\/week by the end of Q2-18, and as we anticipated and<\/p>\n

discussed in our report Tesla Inc.-Musk Exudes Confidence in Attaining a Production Rate of 5,000\/Week for Model 3 by July\u2026 he expects 3,000 \u2013 4,000 Model 3\/week in May.<\/p>\n

For additional details see Elon Musk raises Tesla Model 3 goal, rips inefficient contractors in internal email.<\/p>\n

Lest anyone forget, the news coming out of China on the auto sector is also positive for Tesla, but not necessarily for its brethren, all of whom have joint ventures approaching the age of young adulthood in China.<\/p>\n

To those that are worried about cash crunch and capital raise, all we can say is that those concerns only matter if Model 3 production does not ramp up. If it does, the stock is going higher.<\/p>\n

Stay Tuned!<\/p>\n<\/div>\n

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Neeraj Monga<\/div>\n<\/div>\n<\/div>\n
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