September 29th, 2020

Motor Mouth: Tesla's real business model needs a reality check

David Booth is a nincompoop. He attempts to spread fear and uncertainty with unsubstantiated claims. He neglects to do simple math and makes worst case assumptions at every turn.

First David, to answer your question "did we ever see that $35,000 Tesla Model 3 we were promised?" - Yes!

While not listed on the public facing website, you can order a $35K Model 3 by contacting Tesla. There is a long line for the $40K version, so it really doesn't make sense to put it on the website. Furthermore, the Model 3 is vastly superior than what Elon announced he would produce on March 31, 2016.

David speculates that Donald Trump would get elected and the ZEV credits *could* vanish. He acts as though California will roll over despite winning all their environmental cases against Trump and the EPA.

It is uncertain and some would argue improbable that Trump will win. If Trump does not win, perhaps regulations go the other way.

David points out "enforced by more than 10 other states as well as Quebec — the zero-emission mandate sets a quota". What happense if this goes to 20 states, 30, 40 or 50 states. Also he completely ignores ZEV credits from Europe.

But Tesla depends on these credits right? They would die without them or have to charge way more for cars to produce profit right? Well, again a stupid argument. Tesla pours billions of dollars into factory production, research and development, Supercharging stations, Service Centres. There was no mention that while Tesla has been profitable for the last 4 quarters, they were building factories in record time in China. This costs money. If Tesla continues to profit, it will be while expanding their factories in Nevada and China as well as adding 2 more in Texas and outside Berlin.

How can Tesla get money? Well, a 1.1% dilution of shares can bring in $5B like it did this month. Tesla can lose money if they want. But making money is better for the share price. It also gives nincompoops like you ways to spread uncertainty by cherry picking a single number from their financial statements and make pie in the sky predictions about how bad things could get.

David admits "Now, you’ll get no argument from me that fining traditional automakers is sometimes (that should be read always) necessary to get them to do the right thing". Compare the $5000 penalty for the cost to reverse the emissions and clean up the atmosphere. There absolutely should be a penalty, I agree with you David. Getting rid of the penalty isn't good for air.

To reduce the chances of going bankrupt, car manufactuers need to build a time machine and get on board with EVs 20 years ago. But since that can't happen, they are suffering from their lack of drive to transition and they will likely get disrupted in possibly the worst way.

Tesla is going to beat them. Not because of the ZEV credits. Because of their ability to engineer. I am sorry you don't see this. It is super obvious. On the one hand, you have legacy auto, with a legacy dealership model. This itself could be enough to kill them. The legacy dealership model is so problematic for the big players in auto that they have some states banning the sale of Tesla vehicles altogether.

You seem to be pretty hung up on the ZEV credits David. Can you tell me a company other than Tesla that is selling Full Self Driving? No doubt you see this as another fabrication Elon has said to swindle buyers. But because it isn't feature complete, the money for it hasn't been fully recognized and sits on the books, carried over. Slowly being recognized as each new feature is rolled out.

To say that Tesla produces cars below cost is an outright lie. If Tesla stopped creating Superchargers, stopped R&D and stopped building factories, they would be very profitable. But I would much rather Tesla spends every penny they can do accelerate as fast as possible. Because in the end, the mission is to transition the world off fossil fuels as quickly as possible. And that is a good thing for the air we all breathe.

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ABOUT THE AUTHOR:
I am TSLA Long. Model 3 Owner. Brother of a Model 3 owner. Son of a Model S owner. I have reservations for Slate Roof and Cybertruck. I am a Tesla speculator and fanboy. I am not a financial advisor. Investing in anything comes with inherent risk. Short NKLA (Aug 4 2020)