Tesla’s European Troubles Continue

When it comes to Tesla Motors (NASDAQ:TSLA), we continue to wonder if the company’s growth story is fully intact. One place where the company continues to struggle is Europe, where Model X sales are off to a poor start and Model S sales continue to lag last year. Now that the European Alternative Fuels Observatory has issued its latest monthly figures, we can get a glimpse of how Tesla’s Q3 is shaping up.

According to EAFO since the last update, 842 Model S units have been sold. However, that compares to 1,123 units in the same time frame for 2015, a drop of just over 25%. Through this update, Tesla has sold over 8,300 Model S vehicles, but as the chart below shows, this number continues to lag last year, and the divide is growing.

WHY TESLA’S SOLARCITY BID WILL FAIL

Gigafactory, Model 3 Implications

Tesla’s blog notes its Gigafactory-produced Powerwall home battery system dovetails with SolarCity-produced solar panels. But Goldfarb objects to “the hypothetical connection in that solar can charge a home battery during the day, and this then can be used by the electric vehicle at night — or both batteries could be used to sell back to the grid.” But solar generally doesn’t produce enough to power a home, he says. “And you can’t store power in your car battery during the day because the car is usually not there.”

Goldfarb also says the $4 billion Gigafactory in Nevada has been “a huge bet” and has experienced delays. “It is hard to see how its battery model will be profitable,” he says.

Musk says, according to Vox, that a SolarCity deal will not affect Tesla’s plan to sell its $35,000 Model 3 starting in 2017. But Goldfarb says the margins in this part of the market will be very tight. “General Motors has been promising a late-2016 launch of a 200-mile range Chevrolet Bolt EV, electric car,” he says. “Moreover, the electric car market is crowded in the midprice range. Nissan, Ford, BMW, VW, Fiat, Mercedes, Kia, Mitsubishi and Smart all produce cars in the segment.”

Not Mass-Market Suited

Given the above-noted factors, Goldfarb says Tesla’s mass-market and SolarCity-takeover ambitions appear out of line with Musk’s track record as a master and visionary. For example he’s been out in front of the self-driving revolution (though the self-driving car “is really just a toy right now, and this market is very crowded, too,” Goldfarb says). Tesla can and should focus on what it does best: high-end electric cars, Goldfarb says. “Tesla owners love their cars,” he says. “They should. These are wonderful automobiles.”

How Long Will It Take SpaceX to Return to Space?

Every minute that SpaceX must spend figuring out why its rockets are blowing up, instead of launching them, is time the company is not collecting revenue, not earning profits, and not making progress toward Elon Musk’s goal of amassing enough money to finance a manned mission to Mars. So long as SpaceX is kept busy figuring out the SpaceXplosion phenomenon, there can be no relaunch of a “used rocket,” and no test launch of the company’s new Falcon Heavy rocket, either.

Meanwhile, SpaceX’s website continues to describe the company as “profitable and cash-flow positive” — even after two explosions and a combined seven months of inactivity over the past 15 months. The longer SpaceX remains grounded, though, the more questionable those claims will become.

Even Musk can’t make SolarCity, Tesla deal make sense

Why should Musk be allowed to issue billions of dollars of Tesla stock, diluting existing shareholders and putting his whole enterprise at undue risk when he could so easily acquire what he wants merely by waiting for SolarCity’s bankruptcy, which will be along shortly? So Musk’s personal brand remains unsullied?

Tesla appointed two “independent” directors to make the go/no-go decision on recommending that Tesla complete its offer to acquire SolarCity. But how independent were they? One, Nancy Pfund, had been quoted saying Elon Musk “has always been a master of the universe in my mind.” Hardly a neutral appraisal. But 80% of Tesla’s stock isn’t held by Musk, and perhaps those investors will be the ones who collectively shout, “C’mon, man. Really?”

Harvard Business Review case studies are famous for their anodyne prose and non-judgmental tone. But if HBR ever publishes the facts and analysis of this proposed deal, in my opinion, it will be hard not to point out the sheer ridiculousness of the whole thing.

Tesla would scale back Indiana operations under a legislative proposal

A senior official with Tesla Motors Inc. said the company would curtail its investment in Indiana if legislators pass a law prohibiting it from selling cars directly through its own dealerships, which it has been doing in the state since 2013.

The Palo Alto, California-based electric car manufacturer operates a sales outlet on the north side of Indianapolis at the Fashion Mall, and it plans to open a service center later this year. The company does not use franchise dealers anywhere in the world, officials said, and does not intend to do so in the event Indiana mandates them.

Tesla, The Cartel, And The Big Short

Summary

The “cartel” of institutional ownership has a powerful tool with which to support Tesla’s stock price: not selling the stock.
The situation is not dissimilar from that of subprime mortgage-backed securities circa 2007.
Increasing unit losses as the company scales up its sales volume indicate that Tesla, in truth, has increasingly negative gross margins.
Increasing negative gross margins and long-tailed service costs mean that Tesla, with or without Solar City, is doomed.
An “amazing” Q3, year-end bonuses for the fund managers, and then; the crunch?

Musk’s vision at stake in Tesla shareholders’ vote on SolarCity merger

SolarCity’s fate now lies squarely in the hands of Tesla Motors and its shareholders.

A 45-day window in which SolarCity could consider other offers beyond Tesla’s $2.3 billion merger bid closed on Wednesday night, and no other investor or company put a proposal on the table.

That wasn’t entirely surprising. After all, 15 potential buyers or investors looked at SolarCity earlier this summer, while the solar energy company was hammering out the terms of Tesla’s merger offer and trying to see if anyone else would top the electric vehicle maker’s bid.

None did.

Now the big question is whether Tesla’s shareholders buy into CEO Elon Musk’s vision for creating a renewable energy juggernaut that combines electric vehicles with solar energy and battery storage.

Shareholders from both companies still have to vote on the proposed merger. The date of the votes haven’t been set, but it could be as early as October.

Most analysts think the deal will go through. They say many Tesla investors support Musk’s renewable energy vision and are likely to go along with his strategy.

They also tend to downplay the concerns that arose from the regulatory filing about the cash crunch that both companies are facing. Tesla needs to pay $422 million to some of its bond holders by the end of the month, and both companies need to raise billions in new funding to finance their ambitious plans.

The news recently has been better on the financing front. Tesla, which had $3.25 billion in cash on its books at the end of June, reached an agreement this month to borrow up to $300 million from Deutsche Bank to fund its vehicle leasing program.

SolarCity earlier this week raised $305 million in a deal with five institutional investors and an investment fund advised by George Soros.

That fundraising will cover only a portion of the companies’ financing needs, but it shows that their ability to raise funds remains viable.

Still, the worries persist on Wall Street. Since the deal was finalized on Aug. 1, Tesla’s stock is down by 13 percent. SolarCity shares have tumbled by 34 percent.

As a result, a deal that was worth $2.6 billion when it was announced now is worth about $350 million less.

In the deal, SolarCity shareholders will receive Tesla stock worth $22.59 at today’s prices. But because of the liquidity concerns and uncertainty over shareholder approval, SolarCity’s shares are trading at $17.50 – a steep 23 percent discount to the value the Tesla offer places on the shares.

Normally, the discount would be just a few percentage points.

One of the more skeptical analysts following the deal, Gordon Johnson of investment firm Axiom, pegs the odds of the merger passing at 50-50. Johnson, who has a sell rating on SolarCity’s stock and thinks it could fall as low as $7, said Tesla “failed to consider whether another solar company was a better fit,” and noted that none of the three potential suitors who had more extensive contact with SolarCity were willing to make a counter offer, according to a regulatory filing by the companies late last month.

“With a number of solar vendors available currently, at arguably depressed prices … Tesla failed to consider if any other solar companies offered more favorable synergies,” Johnson said in a research note.

Musk, who owns more than 20 percent of the stock in both companies and is SolarCity’s chairman, has argued that no company is a better fit for Tesla than SolarCity. With a commanding market share in the rooftop residential market, Musk has said that SolarCity, run by his cousin, Lyndon Rive, offers the best opportunity to link Tesla’s battery storage capabilities with a leading solar energy installer.

Some analysts wonder if Musk is taking on too much at one time.

“We see a lot more that can go wrong than can go right,” said Jeffrey Osborne, an analyst at Cowen & Co. “The company, while fundamentally well positioned for the long term, has a material amount of execution risk over the next 12 to 18 months.”

Tesla is developing its Model 3 sedan, which will sell for as little as $35,000 and will be its most affordable model, by far. As it moves to ramp up production of the Model 3, Tesla also is opening its battery gigafactory in Nevada.

SolarCity, for its part, is pushing to open its solar panel factory in South Buffalo, which will be the biggest in the Western Hemisphere, with production scheduled to start by the end of June as the company rolls out a new solar roofing product.

“The SolarCity acquisition only adds an additional layer of complexity at a crucial time when the company should be focused on the gigafactory ramp and Model 3 launch,” Osborne said. “We see the potential for delays in the introduction of the Model 3, ramp of the Gigafactory and integration of SolarCity, leading to increased cash burn levels.”

Cash is such a concern because neither Tesla nor SolarCity is profitable, although Musk, in a memo to employees this month obtained by Bloomberg News, urged them to cut costs and deliver “every car we possibly can” to push the vehicle maker closer toward generating more cash than it uses. Hitting that milestone would put Tesla in “a far better position to convince potential investors to bet on us.”

Together, the two companies will have about $5 billion in debt between them. And because neither one has a positive cash flow, they will have to raise billions in new capital to meet their ambitious plans, from opening the battery gigafactory and the Buffalo solar panel factory, to ramping up production of the Model 3.

The big question now, though, is how much interest Tesla shareholders have in approving the deal.

Stop Elon From Failing Again

THE ONE STOP DATABASE ON STOPPING ELON MUSK