Tesla’s YoY Q4 sales declined by 4%; EV market share dropped over 30%

Stanphyl Capital commentary for the month of February 2021, dicussing Tesla‘s Q4 financial results.

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Q4 2020 hedge fund letters, conferences and more

Tesla Is The The Biggest Bubble In Modern Stock Market History

We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA), which currently has a fully diluted market cap of approximately $732 billion, just slightly less than the $746 billion (non-diluted) combined market caps of Toyota ($210 billion), VW ($116 billion), GM ($73 billion), Daimler ($74 billion), BMW ($56 billion), Stellantis ($51 billion), Hyundai ($49 billion), Honda ($48 billion), Ford ($47 billion) and Nissan ($22 billion), despite run-rate sales for Tesla of 720,000 cars a year to their approximately 65 million. The core points of our Tesla short thesis are:

Tesla has no “moat” of any kind; i.e., nothing meaningfully proprietary in terms of electric car technology, while existing automakers—unlike Tesla—have a decades-long “experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably, as well as the ability to subsidize losses on electric cars with profits from their conventional cars. Excluding sunsetting emission credit sales Tesla still loses money, as it has every year in its 17-year existence. Unit demand for Tesla’s cars is only increasing via continual price cutting. Elon Musk is a pathological liar who under the terms of his SEC settlement cannot deny having committed securities fraud.

Tesla Lost $131 Million In Q4

In January Tesla reported its Q4 2020 financials, and excluding $401 million of pure-profit emission credit sales (an income stream that begins shrinking imminently then likely disappears after 2021 when other automakers have enough EVs of their own) it lost $131 million, nicely summarized in a graphic from @TeslaCharts:

(And if you think Tesla is really “an energy company” not “a car company,” well, the energy division had a negative gross margin!)

For those of you who still think Tesla is a “growth stock,” the most competitive EV region in the world (and a bellwether for what will soon happen in Asia and then North America) is Europe, and due purely to new competition Tesla’s year-over-year Q4 sales declined by 4% there while its EV market share dropped from over 30% to just an estimated 10% (and in 2021 will likely be much lower). Courtesy of Twitter user @fly4dat, here’s a great chart showing that:

And contrary to what bullish Teslemmings may tell you, Q4 European sales were not “production constrained,” as Tesla delivered 181,000 cars in the quarter while its October 8-K reported current quarterly production capacity of 210,000…

…and the Q4 earnings 8-K claimed quarterly production capacity of 262,500 cars:

The Illusion Of Being Supply Constrained

Nothing is more amusing than seeing this giant stock promotion of a company try to perpetuate the illusion of being “supply constrained” by continuing to add capacity in order to desperately try to maintain an image of “limitless demand” while it continually slashes prices (14 times in just the first two months of 2021 and 18 times in 2020, according to GLJ research!) just to utilize far less than its existing capacity. Tesla’s “plan” is now obvious: keep slashing prices to move as much volume as possible while using the world’s most illicitly creative accounting to maintain razor-thin profitability. But what’s the end game? If Tesla stops cutting prices volume will collapse. Tesla is no longer “a growth story”—it’s a nearly-profitless stock (and Bitcoin) promotion for idiots!

And if you think the proposed extension of the U.S. electric car tax credit will be “the savior of the Tesla growth story” I have bad news for you: the most likely of the various credit proposals is not "unlimited"—it's a $7000 credit on just 400,000 more cars, plus one quarter of a $3500 per car credit. Let's say this sells 250,000 additional Teslas that wouldn't have sold without the credit, at $5000 net margin per car: $5000 profit x 250,000 extra sales = $1.25 billion = around $1 billion after-tax = a one-time (i.e., you don't put a PE multiple on it) addition in value of around 90 cents per diluted Tesla share. That's it. The proposed U.S. EV credit extension is worth a total one-time gain of only around 90 cents a share to Tesla.

In China during Q4 (and Europe in Q1 2021) Tesla cut its Model 3 price significantly, enabled by the use of an inferior (in cold-weather performance) LFP battery formulation it now plans to use in the U.S. This price cut drove Chinese sales to over 20,000 cars in both November and December 2020, but despite monthly Chinese production capacity of 37,500 cars, in January 2021 Tesla’s sales of locally made cars in China collapsed back to just 15,484 out of a total market of 2.5 million! Meanwhile GM sold around 300,000 and Ford sold around 60,000. In other words, Tesla is just a flea in an elephant-sized market and now, exactly as in Europe, China’s EV competitive landscape is about to get vicious.

Tesla's Newest Hope May Fall Flat

As for Tesla’s newest “hope,” the Model Y, its quality is awful and it faces current (or imminent) competition from the much better built electric Audi Q4 e-tron and Q4 e-tron Sportback, BMW iX3, Mercedes EQA, Volvo XC40 Recharge, Volkswagen ID.4, Ford Mustang Mach E, Nissan Ariya and Hyundai Ioniq 5, as well as the less expensive yet excellent all-electric Hyundai Kona and Kia Niro. Meanwhile, Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful new Polestar 2 and the premium version of Volkswagen’s ID.3 (in Europe), and later this year from the BMW i4.

And oh, the joke of a “pickup truck” Tesla previewed in 2019 won’t be much of “growth engine” either, as it will enter a dogfight of a market.

And in the high-end electric car segment worldwide, the Audi e-tron now outsells both the Tesla Model S and the Model X, and almost outsells both of them together!

Meanwhile, Tesla quality ranks 30th among 33 brands in the latest J.D. Power survey…

…and second-to-last in the latest Consumer Reports reliability survey:

…while the most recent What Car? survey shows similar results with Tesla finishing #29 out of 31.

As for batteries, Tesla has nothing proprietary—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.

Regarding safety, the Chinese government recently forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and now Tesla has been hit by a class-action lawsuit in the U.S. for the same defect. Tesla also knowingly sold cars that it knew were a fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was recently forced to recall a dangerously defective touchscreen. And of course Tesla continues to sell and promote its hugely dangerous so-called “Autopilot” system, which Consumer Reports has completely eviscerated; God only knows how many more people this monstrosity unleashed on public roads will kill, despite the NTSB condemning it as dangerous. In other words, when it comes to the safety of customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the number of lawsuits of all types against the company continues to escalate, including one proving blatant fraud by Musk in the SolarCity buyout. (If you want to be really entertained, read his deposition!)

Finally, Tesla has the most executive departures I’ve ever seen from any company; here’s the astounding full list of escapees. Telas seemingly hasn’t been able to hire or even retain a high-profile executive from outside in years; clearly no one with any real-world experience wants to work for Elon Musk (who seems to spend most of his time these days on anything but Tesla).