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No. of Recommendations: 43
I don't know what it is about Tesla that makes so much bullish commentary around it sound like mindless OTC penny stock pumping, but something certainly does seem to do that. :) I guess that's one of the (many) reasons grumpy bears are always trolling around like me at DTB.

Long time without commenting on BRK board, and somewhat unsurprisingly TSLA is still a common topic.... since I have a position now, I feel compelled to speak.

As a bear on the shares (but not an EV hater, or an oil industry shill :) ), I have to provide some counter commentary, as Tesla has so many red flags, it feels like the flag stores will be raising prices.

1) Demand -- The bullish arguments here are always very interesting... monthly deliveries, weekly "production", sales numbers with or without lease accounting adjusted, and EV credit boosting as the needs fits. Bottom line is this: Tesla has claimed very recently to have 420k reservations for Model 3. But if you buy a AWD version, you are getting a delivery quote of ~1 month (after a few days wait, it drops from 2-4). RWD models are being sold in make shift dealerships off the back of trucks, and are available on the website now for immediately delivery. But M3 product is running <5k / week (<20k / month)... Where is the demand? Where is the backlog? Why isn't Tesla updating this reservation number and it's composition to investors? Are there really 300k+ $35k and/or other non-deliverable reservation holders that aren't configuring (I know many Tesla owners and reservation holders... none have not configured now)? What are the non-$35k reservation holders waiting for? Do they exist... how do you know?

2) Non-truths -- $35k car ready in 2018? Removed from website until later. Tesla Semi? Solar Roof (they have openings today for engineering positions to build the solar roof... widely reported immediately after the solar reveal that it was vapor ware). SolarCity merger... it's the future, but now they are shuttering much of SCTY business, massive layoffs. SCTY bonds selling off implying credit gap/risk vs. Tesla Corp which already trades at CC/CCC levels. Full Self Driving feature can summon your car from across the country in 2018? Nope, Tesla has "Level 2.5" self driving that has clearly legitimate issues with crashing into fire trucks, many reports of the car crashing into folks garages just parking. Perhaps Tesla has overpromised about what can be delivered w/o LIDAR on the car? M3 volume of 20k in the 2H of 2017... nope. What about Q3 / Q4 profitably? (on the last one, take a listen to how Musk talks about "cash flow positive" and profitability on earnings calls and in other venues... I don't think he means "GAAP" or perhaps he doesn't really understand what the investment community means when we say "cash flow positive" (hint: it's not that your cash balance increased during the quarter). Or how about the "$420 buyout" Funding Secured? Only thing left is a shareholder vote... and then "I guess not"...

3) Balance Sheet -- Although Tesla's secret business plan was to build a performance car to pay for the luxury car to pay for the mass market car... the problem is that none of these cars paid for anything. Tesla has now $10B+ in debt / obligations, has vaporized $5B in operating losses, and raised $9B+ in equity from employees/shareholders. Profits haven't (and in my opinion, are unlikely to) fund any of this. I think Tesla's balance sheet is very weak, terrible Current Ratio, exposed to supplier credit (DSOs keep expanding, until when?), customer credit (deposits, subject to immediate call by customers), and inventory is of questionable value (see below) both due to to overstated gross margin, but also due to seemingly production units which seem to not be fully completed and now await rework (or worse) -- See business insider citation of Tesla internal documents showing their end of Q2 production need 85% rework (not production in my book).

4) Profitability -- Whistleblower and internal leads suggesting Tesla billing things to customer Goodwill (op Ex) which are really part of product cost. This is done because the story of Tesla is that if their GM (already overstated vs. their competition because they don't net out dealer cost in the calc, and don't include R&D) is high, than it's just about making up their losses in volume... but if you look at their financials, their operating losses have scaled with volume... they don't appear to be approaching less operating margin loss. Now certainly, as they kill SolarCity and cut back on their other business R&D, I would guess they can lower than operating loss, but the amount of volume they need to make up their losses is very much more than most believe who look at their quoted GM number. And this isn't to forget that Tesla already has an EV of $60B, which suggests a lot of future profit is needed to make the business make sense.

5) Manufacturing / Logistics -- Probably the most under-appreciated thing about Tesla is that folks take their excellence in design and Elon's success in Space-X and they project that onto all his other ventures to give him the benefit of the doubt. shareholders have subsidized Elon in the ways of manufacturing by sending him to a $10B school in how to build cars... and he's still learning. Clearly the cars (especially the S) are fun to drive and quite nice to look at, and that is very impressive, but the continued logistics challenges of delivering (less cars then they supposedly were planning for), manufacturing, and servicing cars seems beyond this company (and servicing by the way is very important as these are some of the most unreliable cars on the road). Many current owners seem fine with this, but this isn't some start up software company releasing beta apps... this is a 15 year old company with 40k employees, and a $60B valuation... and these are cars that cost $100k and can kill people or leave them stranded if things aren't done just right.

6) Executive Departures -- This is probably a reason to short Tesla all by itself. Executive departures have been stunning. If you aren't paying attention, you can just Google around. My favorite example of this is that after a series of very high profile names left the company in the first 5 months of the year, a TSLA "independent" news outlet (aka, 3rd party PR / stock pumping site) put out a list of execs which are the "real" execs and they have a deep bench, yada yada. Well since May, 40% of that list of executives have departed... that we know about. The most concerning to me of this years' departures are VP Treasury, Worldwide Finance Head, CAO, and replacement CAO who left after being with the company less than 1 month, Head of Self driving, head of manufacturing, and head of service.

7) Elon Himself -- I used to think Elon was a genius who had overzealous supporters. After listening to more of his interviews and reading more and more about his back story and what parts of that story are commonly under-reported, I have come to a different conclusion. I do hope his push for the world toward more electrified transport is successful, but I worry when this all comes down and the PR machines runs out of reasons and money to make up favorable stories about Elon and Tesla, and the truth is finally realized, I worry that he will end up doing more harm for the movement so many of his supporters are backing him for. But hopefully I'm wrong.

--

Good luck to anyone long this stock. There are many challenges and red flags at this company, and the task they are undertaking is not simple. There are 1,000 ways to fail and only a thin path to succeed... and if they do, you own a car company with limited patents/intellectual property with a captured Board and and eccentric CEO who has different goals than making you money.

Cheers,

Ben
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