Chevy Volt a Failure - GM to Layoff 1,300

That WSJ story didn't point out things that anyone could, and did, see for several years. Suddenly media sources that inexplicably ignored the endless bullshit are starting to give voice to people not peddling a ridiculous fairy tale.

This was a guy who is short the stock on bubble TV yesterday. I loved that he hit her with a dose of "Are you kidding me?" when she compared the company to Amazon: "First of all, other than the very early days, Amazon financed all of its expansion through internal cash flow. All Elon Musk knows how to do is incinerate cash."

 

The increase in range is major. It was a big reason the Volt was a failure. It also looks like the car has a lot of neat features, including over-the-air software updates. Until (if) they sell a bunch, I won't get too excited, because GM's history of innovation is not that impressive. They tend to be reactionary. And the car is still expensive compared to a comparable gas-powered vehicle. ... but it is going to be a much better sell than the Volt was. The range was a big deal. So we'll see.

The big problems are still there: The battery is the significant cost that makes the cars cost more than comparable gas-powered vehicles. And the batteries have far shorter lifespans than the electric motors they power, which is a major replacement cost most people don't want to take on.

There hasn't been a mass-market EV that has made anyone a dime. Not the Nissan Leaf, which costs less than this car and has sold 200,000. Nissan's strategy has seemed to be to try to become the "mass market" EV seller while the company tries to figure out how to reduce costs and make the thing profitably. But it hasn't been able to accomplish that. It's going to be the same thing for GM, even if they do sell some of these (and they might, unlike the Volt, which was a miserable sell). Unless they have found a way to cut costs that no one else has, at that price point they are going to lose money on each car. They might be Ok with that, given that it will probably be a relatively small player in their product line and they can use it to improve their average fuel economy across all of their cars. Who knows? What is interesting is the effect it will have on the Tesla Model 3. This car will cost significantly less. I have said all along -- Tesla always throws out a much lower cost for their cars than they end up costing the end user: like 25 to 50 percent greater than the price they throw out there with their bullshit (and they still lose money on each car, even with that). That $35,000 car will cost way more than that. This will be a lower-cost alternative -- maybe not quite as nice, and it doesn't have the Tesla name on it for those looking to buy into a cult. But Tesla doesn't want a cult car, they want a mass market. Then, on the heels of this, a number of luxury auto makers are going to be out with competing EVs in the next 2 years, which isn't good for Tesla either.

 

I started to post after I went through the numbers yesterday. And then didn't bother. But since you revived the thread.

It was an ACTUAL profit. And on a GAAP earnings basis, nonetheless! Woo hoo.

$21.9 million for the quarter (puny for a company being valued at $30+ billion). ... but it was an actual profit. It's second ever.

Once you get past the headlines, though, it is the same bullshit unfortunately. Several points:

1) There was so much confusion heading into the announcement. The SEC has been jawboning about all of the non-GAAP shenanigans companies are resorting to, and Musk has been one of the worst offenders. So before the quarter, Tesla announced, they'd be scaling back on the accounting tricks and all of the bullshit crayon accounting that backed out charges they didn't like to try to create better numbers than they really had. The problem was, analysts had no idea how to do their estimates heading into the announcement. So many simply didn't bother, leaving their estimates ridiculously low and not wasting their time doing any work that would have just amounted to a guessing game. It assured a heavy beat.

2) Then Tesla reported a "profit," and the initial headlines were all happy. But it took less than a half hour with the numbers to forensically figure out what was going on. And markets have already discounted the BS. It is typical Elon Musk. He needs to do another capital raise (another $1 billion, actually) and he has gone to the well so much already and has burned through so much money, that the act is finally wearing thin. On top of it, the stock is down double digits on the year and the stock price is the only currency he has to keep trying to raise money (as he burns through cash). The suckers are starting to wake up. Which sucks for him. He can't hit the debt markets anymore, either. They won't let him.

So he tried to engineer a quarter that would look profitable, so he could juke the stock price and then do another secondary stock offering, using a high stock price as the currency (what he did the last two times).

People are seeing through it, though, thankfully. They were NOT profitable selling cars during the quarter (same as every quarter). They are still losing money on every car they sell. But they created their mirage in at least three ways: 1) they stockpiled ZEV credits and sold $138.5 million of them in the quarter. As a reminder, those are zero emotions vehicle credits that the state of California gives Tesla as a subsidy and then requires other car companies to buy them from Tesla in order to operate. It benefits Tesla and hurts its competitors driving up their costs as they subsidize Tesla -- and it also drives up costs for consumers. Tesla pushed ZEV credit sales forward into this quarter (after stockpiling them) to create a windfall so it could create a "profit" for the quarter that it could tout. They then announced that because they blew their load, investors shouldn't expect the usual revenue from those sales of government credits next quarter -- because they blew their load.

Secondly, they slowed down their cash burn considerably during the quarter -- intentionally. They held back on the CapEx they had promised, pushing it into the future -- again to create a one-quarter mirage. They still burned through cash, actually, but they slowed the rate dramatically temporarily -- again, to help create a "profit." The problem is, moving forward, they are talking about $1 billion more of spending (in part why they need to raise yet MORE money) that they don't have, dwarfing their already insane cash burn rate over the next several quarters. And everyone knows it, which is why the stock price shrugged off the initial news of a "profit." People are finally learning it is all bullshit.

Lastly, they actually helped create that profit by not paying their bills. Seriously. Their accounts payable ballooned by $600 milllion and the days payable outstanding was up significantly for the quarter. They made their vendors wait so they could keep the money from going out for accounting reasons.

After all of that. ... on the call, he stated that for Q4 he expects them to deliver 25,000 vehicles, which if (always a big if with him) it happens would mean about 50K for the second half of the year. That would put the company at around 79,000 vehicles for the year (all cars sold at a loss, for what it is worth). Which would mean another miss on a previous promise. He originally had promised 80 to 90K cars for 2016. Nobody every holds his feet to the fire on his missed promises, of course, but that will be missed delivery guidance for three straight years.

To put this in perspective. Tesla has pretty much exhausted the hype -- unless they can keep finding new fanatics, and the enthusiasm seems to be starting to dwindle. They need to sell half a million cars every year just to be a major player in the market. They are coming nowhere near that how many years into all of the hype? And they don't sell actual cars profitably! Which is the most important point. The bad news for them, is that by this time two years from now, every luxury and mid;luxury car maker will have an EV competitor on the market. They are all in late stage development and are slated to be on the market in 2017 / 2018.

All Tesla has to show for all of the BS is about $3 billion in debt and plans to keep increasing that debt level as it burns through money -- requiring subsidies and capital raises for as long as the sources willing to throw good money after bad incomprehensibly exist.

As an aside, of course, this is the kind of misallocation of capital you get when you destroy markets by not allow the price of money to float freely in an actual MARKETPLACE. Tesla is the poster child for how we have fucked things up.

 

Well, if you can find the typo, it means you actually read it! For that. ... thanks. Seriously. I don't expect anyone to read those posts. I can't put a ton of time into the posts, but I did spend some time with their 10Q yesterday trying to figure out what was going on, and I listened to the call -- it is actually entertaining for me. Musk is such an arrogant douche, in addition to being a garden-variety huckster.