Stanphyl Capital’s commentary for the month ended July 31, 2023, discussing their short position in Tesla Inc (NASDAQ:TSLA).

A Low-Margin Car Company

In July Tesla reported Q2 earnings that proved once again it’s now just a low-margin car company forced to continually slash prices to maintain delivery volume, and on the conference call Musk insinuated that the price-slashing will continue. Rather than discuss the report here with my usual verbiage, I shall instead post a few of my Tweets from the night it was released:

And one from Jim Chanos:

Yes, please don’t lecture me about Tesla’s “energy business,” which in Q2 accounted for just 6% of revenue (declining from 6.5% in Q1) and likely has a net margin in the mid-single digits as it’s in an extremely competitive, low-margin industry.

Safety Cover-Up

As mentioned at the beginning of this letter, in July Reuters revealed a massive & systemic Elon Musk-directed Tesla consumer fraud regarding the range of its cars, while in May Handelsblatt did the same for a massive & systemic Tesla safety cover-up (while people are now dying in or because of Teslas at an astounding pace). I believe one or both of these egregious deceptions will finally force Musk from the company and regulators to crack down hard, as well as destroy whatever remains of Tesla’s rapidly diminishing consumer goodwill.

Also, Tesla recently announced that it will open its U.S. charging stations to cars from multiple other manufacturers which, in turn, will adopt Tesla’s connector and charging protocol. (Those competitors are building their own network, too.)

Seeing as many people only buy a Tesla instead of a competing EV in order to access those chargers, and seeing as all the competing charging networks will also adopt this protocol while paying Tesla nothing (Tesla open-sourced it), this will cost Tesla far more in lost auto sale profits than the pennies per share it may gain from charging profits. Thus, any increase in Tesla’s stock price that can be attributed to this is as ridiculous as the increase attributed to its “AI” that regularly sends Teslas crashing into other vehicles, people, trees and buildings.

No Product Edge

Tesla has objectively lost its “product edge,” with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. Tesla ranks near the bottom of both Consumer Reports’ reliability survey and the 2023 JD Power survey:

In fact, Tesla is likely now the second, third or fourth choice for many EV buyers, and only maintains its volume lead though a short-lived edge in production capacity that will disappear over the next 12 to 36 months as competitors rapidly increase the ability to produce their superior EVs.

Tesla’s poorly-built Model Y faces competition from the much better made (and often just better) electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Chevrolet Blazer EV Equinox EV, Volvo XC-40 Recharge and Polestar 3. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, BMW’s i4, Hyundai’s Ioniq 6 and Volkswagen’s ID.7, as well as multiple local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan outsells the Model S, while the spectacular new BMW i7, Mercedes EQS and EQE, Audi e-Tron GT and Lucid Air make the Tesla look like a fast Yugo, while the extremely well reviewed new BMW iX, Mercedes EQS SUV and Audi Q8 eTron (as well as multiple new Chinese models) do the same to the Model X.

And oh, the joke of a “pickup truck” Tesla first previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as by the time it’s in meaningful mass-production in 2024 that grotesque-looking kluge will enter a dogfight of a market vs. Ford’s F-150 Lightning, GM’s electric Silverado, the Dodge Ram REV and Rivian’s R1T.

Tesla Is Blackberry

Indeed, for years I’ve said “Tesla is Blackberry”—the maker of a first-generation version of a product that—once the market was proven—would be supplanted into niche obscurity by newer, better versions, and now it’s finally happening.

I believe Musk knows this (hence his recent “Twitter buying distraction”), with VW Group, Hyundai/Kia, Ford, GM, Stellantis, BMW, Mercedes, BYD other Chinese competitors and, in a few years, Toyota, Nissan Honda, stealing Tesla’s share and pounding its stock price into the low double-digits, where it will be valued as “just another car company.”

Meanwhile, the NHTSA has initiated the first of what will likely be multiple recalls of Tesla’s fraudulently named “Full Self Driving” (even before the aforementioned safety cover-up revealed by Handelsblatt), and in January it was revealed that Elon Musk personally directed its fake, fraudulent promotional video (something extremely similar to what Theranos did with its blood machines and Nikola with its truck), and that the DOJ is investigating him for it and so is the SEC.

The refund liability potential for Tesla for this is in the billions of dollars, and possibly even the tens of billions if a class action lawsuit proves that the cars involved were purchased solely due to the (fallacious) promise of “full self-driving.”

And, of course, there will be a massive “valuation reappraisal” for Tesla’s stock as the world wakes up to the fact that its so-called “autonomy technology” is deadly, trailing-edge garbage that Consumer Reports now ranks just seventh vs. competitors’ systems (behind Ford, GM, Mercedes, BMW, Toyota and Volkswagen) and Guidehouse Insights now rates dead last:

Yet Tesla has sold this trashy software for over six years now…

…and still promotes it on its website via the aforementioned completely fraudulent video! (For all Tesla-related deaths cited in the media—which is likely only a small fraction of those that have occurred—please see this spreadsheet.)

Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact though, Tesla has nothing proprietary there—it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market, even if Tesla makes some of its own,  other manufacturers will gladly sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

So Here Is Tesla’s Competition In Cars…

(note: these links are regularly updated)

Porsche Taycan Porsche Macan Electric Coming in 2024 Volkswagen ID.3 Volkswagen ID.4 Electric SUV Volkswagen ID.6 SUV EV in China Volkswagen ID.Buzz Electric Van Volkswagen ID.7 VW’s ID.2all compact EV will cost under €25,000 when it arrives in 2025 VW’s Cupra Born Volkswagen Group Will Spend $200 Billion To Boost Its EV Business Audi Q8 e-tron electric SUV Audi e-tron GT Audi Q4 e-tron Audi Q6 e-tron electric SUV Audi A6 E-tron due in early 2024 with saloon, estate and hot RS6 Hyundai Ioniq 5 Hyundai Ioniq 6 Hyundai Kona Electric Genesis GV60 Genesis GV70 Kia Niro Electric Kia EV6 Kia EV9 Kia EV4 Jaguar’s All-Electric i-Pace Mercedes EQS Mercedes EQS SUV Mercedes EQE Mercedes EQE SUV Mercedes EQC electric SUV available in Europe & China Mercedes EQV Electric Passenger Van Mercedes EQB Mercedes EQA SUV Ford Mustang Mach-E Ford F-150 Lightning Ford to launch 7 EVs in Europe in big electric push Ford unveils Lincoln Star electric SUV concept as it readies to add four new EVs by 2026 Chevrolet Blazer EV Chevrolet Equinox EV Chevrolet Bolt Chevrolet Bolt EUV electric crossover Cadillac All-Electric Lyriq Cadillac to start making 3 more EVs in 2024 GMC Electric Hummer Pick-Up and SUV GM electric Silverado pickup truck GMC Sierra EV Denali GM Launches BrightDrop to Electrify the Delivery of Goods and Services GM & Honda Will Codevelop Affordable EVs Targeting Most Popular Vehicle Segments Two Jeep EVs to make U.S. debuts in 2024 BMW iX2 BMW iX3 BMW iX BMW i4 sedan BMW i7 BMW iX1 Nissan Ariya: All-Electric Crossover SUV Nissan LEAF e+ Polestar 2 sedan Polestar 3 electric SUV Volvo EX30 Volvo XC40 Recharge electric SUV Volvo C40 Recharge electric crossover Volvo EX90 electric SUV Renault Zoe electric Renault to boost low-volume Alpine brand with 3 EVs Renault’s Megane E-Tech Dodge Ram 1500 REV Honda, Sony to start premium EV deliveries in 2026 Honda pours $40 billion into electrification, targets 2 million EV production by 2030 Peugeot e-208 Peugeot E-2008 Peugeot E-308 Peugeot’s full-electric 3008 and 5008 SUVs will have up to 700 km range Subaru Solterra Citroen e-C3 Rivian electric pickup trucks & SUVs Maserati Grecale Folgore Mini Cooper SE Electric Toyota bZ4X Toyota and Lexus Will Launch 10 New EVs By 2026 Opel Corsa-e Opel Astra electric Vauxhall Mokka electric Skoda Enyaq iV electric SUV Skoda Enyaq electric coupe BYD presents three BEVs for European market Nio expands into Europe and beyond Lucid Motors: Electric Luxury Cars Fisker Ocean Rolls-Royce Electric Spectre Bentley will start output of first full EV in 2025 Aston Martin will build electric vehicles in UK from 2025

And In China…

BYD is #1 in Chinese EVs, selling FAR more than Tesla Volkswagen Group Accelerates Electrification Drive to Boost Presence in Chinese Market Audi, SAIC EV Tie-Up a ‘Coming of Age’ for Chinese Automaking Audi-FAW’s $3.3 billion electric vehicle venture Nio Xpeng Motors Hozon/Neta Li Auto GAC Aion Leap Motors GM plans to launch over 15 EV models in China by 2025 Ford Mustang Mach-E Rolls Off Assembly Line in China Cheaper than Tesla: Honda takes aim at China’s middle class BMW i3 Debuts As All-Electric 3 Series Only For China Hongqi Geely Zeekr Premium EVs by Geely Baidu and Geely put nearly $400 million more into their electric car venture China-made Mercedes-Benz EQE hits market BAIC Hyundai, BAIC Motor to inject $942 mn in China JV for EVs Toyota partners with BYD to build affordable $30,000 electric car Lexus RZ 450e Steers For China Dongfeng SAIC Renault launches sales of first EV in China Nissan expects 40% of sales in China to be electrified by 2026 Changan forms subsidiary Avatar Technology to develop smart EVs with Huawei, CATL WM Motors/Weimar Chery Seres Enovate Singulato JAC Motors Iconiq Motors Aiways Skyworth Auto Youxia Human Horizons Xiaomi announces plans for four electric vehicle models

Here’s Tesla’s competition in autonomous driving; the independents all have deals with major OEMs…

Waymo ranked top & Tesla last in Guidehouse leaderboard on automated driving systems Tesla has a self-driving strategy other companies abandoned years ago Waymo operates robotaxis NOW GM’s Cruise operates robotaxis NOW Mobileye operates driverless test fleets in Europe and the U.S. Cadillac Super Cruise™ Sets the Standard for Hands-Free Highway Driving Ford’s hands-free “Blue Cruise” Mercedes Launches SAE Level 3 Drive Pilot System Honda Legend Sedan with Level 3 Autonomy Now Available in Japan Motional (Hyundai) & Uber Announce Autonomous Ride-hail and Delivery Services Stellantis Completes Acquisition of aiMotive to Accelerate Autonomous Driving Journey Amazon’s Zoox will test its autonomous vehicles on Seattle’s rainy streets Baidu to further deploy 200 driverless vehicles in China in 2023 Baidu Apollo City Driving Max Alibaba-backed AutoX unveils first driverless RoboTaxi production line in China Pony.ai approved for public driverless robotaxi service in Beijing SAIC-backed Xiangdao Chuxing kicks off Robotaxi pilot operation in Shenzhen WeRide greenlighted for autonomous road test with empty driver’s seat in Beijing GAC-backed Ontime greenlighted for pilot operation of Robotaxi service in Guangzhou Xpeng debuts most advanced semi-autonomous driving system to rival Tesla

Here’s Where Tesla’s Competition Will Get Its Battery Cells…

Panasonic (making deals with multiple automakers) LG Samsung SK Innovation Toshiba CATL BYD Northvolt Volkswagen to Build Six Electric-Vehicle Battery Factories in Europe GM’s Ultium GM to develop lithium-metal batteries with SolidEnergy Systems SK On and Ford form BlueOval SK, an EV battery joint venture Hyundai teams with SK to make batteries for U.S.-built EVs Hyundai Motor developing solid-state EV batteries BMW & Ford Invest in Solid Power to Secure All Solid-State Batteries for Future Electric Vehicles Stellantis affirms commitment to build battery factory in Italy with Mercedes, TotalEnergies Stellantis and Samsung SDI to Invest Over $2.5B in Battery Production Plant in United States Stellantis and LG to Invest Over $5 Billion CAD in Joint Venture for Li-Ion Battery Plant in Canada Stellantis and Factorial Energy to Jointly Develop Solid-State Batteries for Electric Vehicles Mercedes-Benz to build 8 battery factories in push to become electric-only automaker Mercedes-Benz and Sila achieve breakthrough with high silicon automotive battery Toyota pledges $2.1bn more for U.S. EV battery plant Toyota to roll out solid-state-battery EVs as soon as 2027 Nissan preps an old engine plant to make solid-state EV batteries Honda and LG Energy Formally Establish Battery Production Joint Venture Honda, GS Yuasa agree to collaborate in lithium-ion batteries Daimler joins Stellantis as partner in European battery cell venture ACC Renault signs EV battery deals with Envision, Verkor for French plants Nissan to build $1.4bn EV battery plant in UK with Chinese partner Nissan Announces Proprietary Solid-State Batteries Foxconn breaks ground on first EV battery plant Envision-AESC ONE EVE Freyr Verkor Farasis Microvast Akasol Cenat Wanxiang Eve Energy Svolt Romeo Power ProLogium Morrow Amprius CALB

And Here’s Tesla’s Competition In Storage Batteries…

Panasonic Samsung LG Energy Solutions CATL BYD AES + Siemens (Fluence) GE Hitachi ABB Toshiba Saft Johnson Contols EnerSys SOLARWATT Sonnen Generac GM Energy Canadian Solar Kokam Eaton Tesvolt Leclanche Lockheed Martin Honeywell EOS Energy Storage ESS Electriq Power Redflow Primus Power Simpliphi Power Invinity Murata Bollore Adara Blue Planet Aggreko Orison Powin Energy Nidec Powervault Kore Power Shanghai Electric LithiumWerks Natron Energy Energy Vault Ambri Voltstorage Cadenza Innovation Morrow Gridtential Villara Elestor SolarEdge Q-Cells Huawei Toyota ADS-TEC Form Energy Enphase Sumitomo Electric Stryten Energy Freyr Growatt Polarium Alfen Quino Energy Gotion ZincFive Dragonfly Energy Salgenx Lunar Energy

Thanks,

Mark Spiegel

Stanphyl Capital

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