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Why China Could Be Tesla's Undoing Sept. 20, 2019 9:20 AM ET | Tesla, Inc. (TSLA) | BMWYY, BYDDF, DDAIF... | 460 Comments | 48 Likes

Summary

Short Ideas | Consumer

Tesla's new China factory is slated to produce the Model 3 by 2019 end. Chinese demand for the Model 3 has been weak and 2020 China losses should be -$490m.

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The terms of Tesla's contract with China are draconian. If Tesla can't generate a 15% pre-tax margin by 2023, the government takes back the factory.

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Handing back the factory could lead to a $2bn write-off or 38% of June- end equity. Tesla put shareholders' capital at risk by agreeing to China's lofty terms.

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There are over 27 new EVs scheduled to launch by 2020 end, the majority of which will head to China. Tesla could see its undoing in a market with such fierce competition.

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With Model 3 sales falling in the US, the additional losses booked in China should lead to a 2020 net loss of -$3.3bn. Financing should be inevitable by Q1 2020 end.

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Tesla's China Ambitions Are Mistimed and Misguided Tesla (TSLA) is preparing to start Model 3 production at its Shanghai Gigafactory 3 (GF3) by year-end and Tesla fans are excited about China becoming the EV maker's next pillar of growth. China is the world's largest EV market and, by producing its cars locally, Tesla can avoid high import tariffs and enjoy the benefits of cheaper labor and component costs.

Tesla has also received yet-unseen, powerful support from China's government, which has allowed Tesla not only to be the first foreign carmaker to own 100% of its Chinese operations but also lined up domestic banks to lend Tesla over a half a billion dollars to help finance the GF3's build-out.

My view is that the GF3 project is badly timed, given what looks like a long- term slump in Chinese auto demand (see figures 1 & 2 below) and possibly misguided, as locally producing the Model 3 - an electric sedan - appears out of whack with market needs: Chinese consumers' preference for SUVs has gone from 17% of the passenger car sales in 2013 to 43% so far this year (locally made SUVs plus imported SUVs), according to Marklines data. Aside from Porsche, most car makers launching EVs in China over the next 2 years will be introducing electric SUVs and cross-overs.

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This report highlights how risky Tesla's rapid launch into the Chinese market will be and how its commitment of $2bn in investments for GF3 may ultimately have to be written off, as Tesla fails to pay a $315m tax bill mandated by the Chinese government by 2023 end (see Section-4). The analysis in this report is divided into the following sections, by major topic:

Section-1: China's Low Demand for The Tesla Model 3

Section-2: GF3-Made Model 3 Factory Price Should Be $35,000

Section-3: GF3 Should Generate $490m in Net Losses in 2020

Section-4: EV Competition In China Will Intensify From 2020

Section-5: Why China May Wind Up Owning Tesla's GF3

Section-6: GF3 Earnings Drag Should Lead to -$3.3bn Net Loss in 2020

Section-1: China's Low Demand for Tesla's Model 3 China's Auto Market Looks Set For a Long-Term Decline

The Chinese auto market has been in a slump that doesn't appear to be short-lived. Since 2004, China's passenger car market has grown by 871% to 24.1m vehicles in 2018. As a long-time auto analyst, this is the fastest growth of any country's auto market that I've seen in such a short time. But it appears like all the Chinese who could afford to buy a car have done so for now, as passenger vehicle sales have declined for the past 14 consecutive months on a year-over-year basis - something else I've never seen before. Figure-1 is a chart of overall passenger car sales, while figure-2 is a chart of sales trends in China among Tesla's arch rivals: Audi, BMW (OTCPK:BMWYY), and Daimler-Benz (OTCPK:DDAIF). Both charts look there could be more downside ahead.

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could be more downside ahead.

Figure-1: China's Monthly Passenger Vehicle Sales

Source: Marklines data

Figure-2: China Sales Among Tesla's Key Rivals

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Source: Marklines data

Tesla's Tepid Model 3 Sales In China - Normal Months Sales Under 2K

Since its first full shipments to China arrived in March, Tesla Model 3 sales have been weaker than those in the US and Europe, with average monthly sales of only 3,227 units, according to data from JL Warren Capital. Stripping out the end-of-quarter months of March and June - when deliveries tend to surge at Tesla - the average monthly sales for April, May, July and August have come to only 1,888 Model 3s. By contrast, the average sales during the same months were 12,650 units in the US and 3,878 units in the EU.

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the EU.

As can be seen in Figure-3, the Model 3's burst rate since being launched in China lags behind that of Europe and especially that of the US (note that the "burst rates" in each country are calculated from the first month of sales that surpassed 1,000 units).

Figure-3: Model 3 Burst Rate in China Lags the US & EU

Source: InsideEVs; TMC; & JL Warren

Furthermore, the launch of the Model 3 in China has done little to bring Tesla's share of the local EV market close to that of around 20% at local brands like BYD (OTCPK:BYDDF) and BAIC Motor (see Figure-4). BYD's Yuan SUV and BAIC's Senova D50 sedan are priced at roughly $20,000 and are China's best-selling EV models this year. For Chinese in search of an EV,

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are China's best-selling EV models this year. For Chinese in search of an EV, both appear to be in the right price range: average sales since March, when the Model 3 went on sale in full force, have been 9,413 units for SAIC's Senova and 6,251 units for BYD's Yuan. While I don't see these two models as competition for Tesla in China, they do show that, even at half the price of a Model 3, local makers have yet to reach the 12,500 units/month range of sales targeted by Tesla for GF3.

Figure-4: Share of China's EV Market: Tesla Vs BYD & BAIC Motor

Source: Marklines & JL Warren

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Section-2: GF3-Made Model 3 Factory Price Should Be $35,000 Some may think that the steep import tariff of 15% - along with extra costs for shipping and handling - might be pricing Tesla's Model 3 out of the market at the moment, but this doesn't explain the fact that other luxury cars from Audi, BMW, and Daimler-Benz sell at prices as high or higher than the Model 3, yet generate much larger volumes.

Figure-5 shows the top-selling luxury brands in China, ranked by average monthly sales volumes this year.

Key point of focus: there are three brands (Audi Q5L, BMW X3, and Mercedes-Benz GLC; all SUVs) that are priced 19% more than the imported Model 3 SR+, yet have average monthly sales volumes over four times that of the SR+.

To me, this is a clear sign that either (a) wealthy Chinese might value luxury European brands more or (b) prefer SUVs more than sedans, if not both. Introducing the Model Y SUV first may have been the correct move for Tesla, given the market preferences for SUVs both in the US and China.

Figure-5: China's Top Luxury Brands Vs Model 3 (Prices & Volumes)

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Source: Marklines, JL Warren, & company data; *Note: Imported Model 3 price comes with free Autopilot, while made-in-China version is without Autopilot; made-in-China monthly volume estimate is 150,000 of GF3 annual capacity divided by 12 months; ** NIO ES6 is average monthly volume since going on sales in May.

The current pre-order price of the Model 3 SR+ in China is 328,000 yuan ($46,336), which excludes Autopilot, while the price of the imported SR+ ($51,408) includes the $4,054 Autopilot option for free, so there's only a $1,018 premium to the imported version.

Tesla is obviously keeping the pre-order price of the upcoming made-in- China SR+ roughly the same as the imported version in order to sell as many imports as possible until GF3 is fully up and running. How much the price comes down once GF3 launches production is the key question. But in order sell an average 12,500 Model 3s/month, here are some important points to consider from the data in Figure-5 above (which I feel speaks volumes about how much Model 3 prices need to be reduced):

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These two key points lead me to believe that, in order for GF3 to sell its 12,500 Model 3s of monthly output, the made-in-China Model 3 SR+ will require a final price tag of $40,000 at the most, including the 13% value- added tax (VAT). This means that Tesla's actual shipment price from GF3, before the 13% VAT, will come to only $35,398, which is 9% lower than SR+ price of $38,990 in the US. Any higher price than this would risk a shortfall in monthly sales volume, which would negatively impact Tesla, as GF3 needs to produce 12,500 units/month in order to cover fixed costs.

By my estimates, the SR+ made at Fremont is unprofitable, with gross losses of around $2,705 per unit without options. At my estimated factory price of $35,398 for the Model 3 made at GF3, there could be a small gross profit/unit of $800 at full production, given the lower labor and component costs in China. However, I see a 3% price cut in both Q3 and Q4 2020 as

Audi & Benz Similar Price, Yet 3.8x Model 3 Volumes: If the Audi A4 and Mercedes-Benz C Class have starting prices of $42,381 to $43,511, yet sell an average of over 13,000 units per month, it's difficult to imagine the made-in-China Model 3 not coming down to similar price levels if GF3 needs to sell as much per month. This already implies an 8% price cut.

Model 3 May Have Tougher Competition From European SUVs: More signs that the Model 3 is mismatched for the Chinese market is strong sales of European SUVs like the BMW X3 and Benz GLC, which cost around $55,447 on average, or 20% more than the Model 3 SR+. Despite their higher price tags, these European SUVs have sold on average 10,000 units/month this year, versus the Model 3's average of only 3,227/month since arriving in full supply last March. If the Model 3 SR+ is cheaper and Tesla has such high brand value in China, why is it selling only one-third of much higher priced gasoline-engine SUVs?

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costs in China. However, I see a 3% price cut in both Q3 and Q4 2020 as inevitable, since European and Japanese rivals will heavily market their new locally made EVs. This should weigh further on earnings and make 2021 an even tougher year to generate profits once the GF3-made Model 3 enters full production.

Section-3: GF3 Should Generate $490m in Net Losses in 2020 By making the Model 3 SR+ locally in China, Tesla will avoid the steep 40% import tariffs that are set to be levied on all US imported cars from December. The cost of labor and locally sourced components are also much cheaper. Figure-6 shows my estimates for GF3's earnings next year.

Figure-6: Tesla GF3 Earnings Forecasts For 2020

Source: Author's forecasts; Exchange rate used: RMB 7.07/$

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Source: Author's forecasts; Exchange rate used: RMB 7.07/$

There are dozens of assumptions used in this model (please feel free to question any of them), but below are the ones with the biggest impact on earnings:

Production Ramp: While Tesla has stated in its quarterly Update Letters that Model 3 production at GF3 would start later this year, there is speculation that this could be delayed, even among some Tesla bulls (example here). I'm expecting a token sum to be made in Q4 and then mimic the Fremont ramp of the Model 3 from Q1 2020. This is fair in my view, given that Tesla has the "production hell" experience of the Model 3 ramp in Fremont under its belt, albeit one disadvantage might be that GF3 line workers don't have any experience assembling EVs. From Q4 onwards, I assume 100% utilization of GF3's annual capacity of 150,000 units or 37,500 per quarter. Under this assumption, 2020 output should come to 67,976 Model 3s.

Price Cuts in Q3 and Q4 2020: Given the onslaught of new EV launches by rival European and Japanese carmakers in China next year (see Section-4 below), I assume that Tesla has no choice but to lower its shipment price by 3% in both Q3 and Q4 of 2020. This will weigh on profitability just as the Model 3 reaches full production at GF3.

Fixed Costs: Assuming 4,000 factory workers at wages of $23,628/year; 1,000 administrative workers at $30,000/year; R&D at 5% of sales; and depreciation at $467m (69% of capex), manufacturing fixed costs plus SG&A should come to $740m in 2020.

Key Component Costs: I referred to Munro & Associates' estimates of key component costs for things like the battery pack and powertrain. While Munro has pegged the Model 3's 75 kWh battery pack at $13,331, the SR+ should have a lower-powered pack of only 62 kWh and cost $11,214, by my estimates. The powertrain, excluding the battery pack,

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Size of GF3 Indicates 300,000 Units of Maximum Annual Capacity

While phase-1 of GF3 aims for 150,000 in annual production capacity, Elon Musk implied at last March's Model Y unveil that, when complete, GF3 should be as big as Fremont and GF1, implying 500,000 units of annual capacity (here). This seems excessive to me, as it's doubtful that the Model 3 can sell even half of that amount - without substantial price cuts - and my view is that the Model Y will simply cannibalize most of the Model 3 sales upon its launch in 2021.

$11,214, by my estimates. The powertrain, excluding the battery pack, should, therefore, cost $4,500, based on Munro & Associates' calculations. These costs from the Munro report are displayed nicely in this YouTube video from 13:04. I reduce variable costs per unit by 5% in Q3 and by 10% in Q4, as the Model 3 reaches full production of 37,500 units/quarter.

GF3 Capex at $680m in 2020: Tesla has committed to spending RMB 14.1bn ($2bn) in capex over four years in China (page 31 of Q2 10-Q). I'm estimating that 34% of this amount will be spent in 2020 in order to reach phase-1's goal of 150,000 vehicles in annual capacity as swiftly as possible, especially since the Model Y is expected to be launched in the 2H of 2021. The depreciation of these investments is estimated by using the same depreciation to capex ratios seen at Tesla over the four quarters from Q3 2017, during which the Model 3 was ramped up in the US. Capex peaked at $1.1bn in Q3 2017 and slowly came down, as depreciation gradually rose with the Model 3's ramp up.

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But 500,000 units of annual capacity itself seems impossible, given the size of land on which GF3 sits. Tesla only secured 210 acres of land for GF3 in Shanghai (here). The only vehicle assembly plant of similar size is Fiat Chrysler's (FCAU) Belvidere, Illinois plant, where the Jeep Cherokee is made. That plot of land is slightly over 280 acres (here). Annual capacity there is 333,000, according to Marklines, so it's difficult to see Tesla squeezing out more than this out of a smaller facility. There would have to be available land nearby to build another Gigafactory if capacity were to be raised to 500,000 units per year.

Local Sourcing Of Battery Cells Should Leave GF1 With Excess Capacity

Another puzzling issue about Tesla's GF3 plans is that it appears as though Tesla might source batteries locally from LG Chem's Nanjing plant (here). While this would certainly reduce currency exposure that would entail from importing packs from Gigafactory 1 (GF1) in Nevada, it begs the question of how Tesla plans to fully utilize GF1's burgeoning capacity. As of March-end, I confirmed with Panasonic (OTCPK:PCRFY) that battery cell output was at 24 GWh/year, or 68% of capacity (see details in this Seeking Alpha report). GF1's 35GWh/year in annual capacity is scheduled to be worth 500,000 units of Model 3 output. But if Tesla only produces 317,506 units at Fremont this year - 1H 2019 output of 135,506 plus 7,000/week for the 2H - this would peg GF1's capacity utilization at only 64% (in the auto industry, anything lower than 80% utilization is seen as inefficient). I expect more drama in the ongoing squabble between Tesla and Panasonic if production at Fremont doesn't rise in 2020.

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at Fremont doesn't rise in 2020.

Currency Sensitivity: Yuan Devaluation Is A Key Risk

For at least the first half of 2020, it appears as though key components like the powertrain and interior systems will be shipped to GF3 from the US (see this link), if all runs smoothly. By my estimates, this amounts to roughly 25% of the made-in-China Model 3's component costs. If the US dollar weakens relative to the Chinese yuan, this would be a boost to profits, as 25% of the US dollar-based input costs come down.

However, if the Chinese yuan abruptly depreciates - year to date, it's down 3% to 11-year lows versus the US dollar - this could present currency risks. By my estimates, every 5% change in the yuan/$ rate would impact gross profit margins by 120 basis points, or roughly $2,845/unit. While I'm no currency expert, there are those who believe that the yuan will be devalued, (much like the Mexican peso in 1994 and Asian currencies in 1997), given the twin deficits that China is running and dwindling US dollar reserves. This view is best argued by Hayman Capital's Kyle Bass in this excellent interview from Real Vision (here) for those who are interested.

Section-4: EV Competition In China Will Intensify From 2020

2019 BMW i3 Adrenaline rushes just as fast in kilowatts.

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According to Electric Vehicle Database - a website with the most detailed and comprehensive list of upcoming new EV launches - there are over 30 new EV launches scheduled between the end of this year and 2021. From later this year through 2020, there are approximately 27 new EVs set to be released, ranging from luxury models to "economical" EVs. These new models will impact not only the Model 3 production ramp next year but also the roll-out of the Model Y in 2021, as the 2020 new EVs hit full production in 2021.

The Volkswagen Group (OTCPK:VWAGY) is possibly the biggest threat to Tesla in China. In a May presentation (here), VW showed a table of their expected global EV sales growing to over 500,000 in 2020, from over 100,000 units this year. As can be seen in figure-7, the bulk of the new models are slated to be sold in Europe and China. If the chart in figure-5 represents roughly a 60%/40% split between Europe and China for these new models, VW could see roughly 200,000 EV sales in China next year. Its two joint-venture plants in China are scheduled to begin EV production next year, which will allow VW the benefits of avoiding 15% tariffs and lower production costs. Having been in China since 1978, VW also has an immensely broader sales network than Tesla does.

Figure-7: VW Group's 2020 EV Sales Forecasts

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Source: Company

Tesla fans will undoubtedly sneer at the thought of any disruption by rival EV makers to the Model 3 and Y's upward trajectory in China. But take a look at NIO (NIO) - hailed by some as the "Tesla of China" - which launched its new electric SUV, the ES6, in May. The ES6 is still in its production ramp-up phase but outsold Tesla's Model X by 2.4x in July and 4.8x in August (see figure-8). These are not significant volumes compared to the Model 3, but if NIO has the ability to inflict this much pain on Tesla's Model X sales in China, it is somewhat daunting to think of the impact that VW's new EVs will have on the ramp-up of GF3's Model 3 next year.

Figure-8: NIO's ES6 SUV Starting To Outsell Tesla's Model X

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Source: NIO & JL Warren Capital

Section-5: Why China May Wind Up Owning Tesla's GF3 Reading through Tesla's agreement with the Chinese government for GF3's land grant will raise more than a few eyebrows among both Tesla shareholders and Tesla bears (Exhibit 10.2 in Tesla's Q2 2019 10-Q). First, in case there were any doubts, Article 51 of the agreement lays out who has the last word in the event of any dispute:

With that in mind, here is the single most astounding clause in this contract, which Tesla signed off on: by December 12, 2023, Tesla has agreed to pay 2.23bn yuan ($315m) in taxes, on a mandated 75bn yuan ($10.6bn) of revenues. Assuming that GF3's corporate tax rate in China is 20% (the rate is 15% for strategic industries like EVs and 25% for non-strategic industries), this implies GF3 must make at least $1.6bn in pre-tax profits by 2023. What is more astounding is that there is no automaker in the world - with the exception of Ferrari (RACE) - who has recently generated anything close to a 15% pre-tax margin. And keep in mind that GF3's limited size makes it physically impossible to produce much more than 300,000 units. If the average shipment price were $33,000, GF3 would have to produce 321,202 vehicles in order to meet the $10.6bn revenue target mandated by the contract. If the price dropped to $30,000, Tesla would need output of 353,333 units. This is physically impossible given GF3's size, as explained in

The formation, validity, interpretation, performance and dispute resolution of this Contract shall be governed by PRC laws and Shanghai municipal regulations and rules."

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353,333 units. This is physically impossible given GF3's size, as explained in Section-3.

This alone is enough for any Tesla bear to place their bets on who will ultimately own GF3. But there is the possibility that Tesla can foot some or all of this $315m tax bill from the 13% VAT proceeds from Model 3 retail sales. Even if the Model 3 average shipment price were $35,000, at 150,000 units in annual shipments by 2023, VAT alone would generate $683m in taxes.

But looking at the fine print, it doesn't look that way: Article 20 in the agreement appears to state that total taxes for reaching target production "will be no less than RMB 2,230 million per year, with annual taxes per square meter no less than RMB 2,500". The contract appears to tie tax revenues to GF3 land area, on a tax per-square meter basis. Same goes for the RMB 75bn ($10.6) in revenues and RMB 14bn ($2bn) in capex. Who in the global auto industry would commit to a plan that mandates reaching 15% pre-tax margins by making electric vehicles?

Not only is it an impossible goal to reach, in my opinion, but Tesla will have to invest $2bn in GF3 and hire 6,000 workers while trying to reach this unattainable goal. And this is where one wonders what Elon Musk was thinking: if Tesla cannot renegotiate these draconian terms and fails to pay the Chinese government $315m in taxes by 2023 end, it will have no choice but to write off its $2bn investment in GF3, an amount equal to 38% of June- end shareholders' equity.

In case there is any doubt about how close to impossible it is for Tesla to satisfy the Chinese government's terms, here are some of the recent milestones among the world's most profitable auto makers:

BMW's recent peak margin for its Automotive Division was 9.3% in 2017.1.

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Of course, it is conceivable that the terms of the agreement could be re- negotiated if China sees this in its best interests. However, as things stand, Tesla will most likely not be able to pay the mandated tax bill of $315m by 2023, which could trigger a write-down of its $2bn investment in GF3. By signing off on these lofty terms, Tesla has put shareholder capital at risk, which seems irresponsible if not downright foolhardy, in my view.

Section-6: GF3 Earnings Drag Should Lead to -$3.3bn Net Loss in 2020 In order to incorporate GF3 into my outlook, it took a full revamping of my earnings model, which was quite arduous. I expect most Tesla analysts on Wall Street are likely doing the same, as China will be the key factor in how good or bad 2020 earnings will be, or whether Tesla can even survive. My new estimates are displayed in figures-9 and 10 below. Before going into my main assumptions though, this quote below by Elon Musk on Q2's conference call is worth a look, as it is a telling example of how he already sees GF3 as a large drag on 2020 earnings:

Daimler's Mercedes Benz unit attained a recent peak operating margin of 9.5% in 2015.

Toyota Motor's Auto Division generated 9.4% operating margins in FY2015.

Subaru, the world's most profitable passenger car maker, generated peak automotive operating margins of 18% in FY2015.

And finally, Ferrari's peak since listing was last year, with a 2018 operating margin of 24%.

Yeah, I think we'll - demand in Q3 will exceed Q2. It has thus far, and I think we'll see some acceleration of that. So - and then, I think Q4 will be, I think very strong. So, we expect that quarter-over-quarter

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In case it isn't clear, Q1 and Q2 of next year will be tough, according to Musk. And the reason he said that, in my opinion, is that he already knows just how heavy the start-up costs at GF3 will be in the 1H of 2020. However, pointing to a V-shaped recovery in the 2H of 2020 is Musk's typical wild optimism, which doesn't even take into account the huge competition coming from the VW Group and others by that time. Here are my assumptions for 2020:

improvements. I think Q1 next year will be tough. I think Q3 or Q4 will be good, Q1 will be tough. Q2 will be not as bad, but still tough. And then I see like Q3 and Q4 next year will be incredible.

Elon Musk; Q2 2019 conference call

Models S & X: Models S/X average prices fall by 10% YoY (this could be conservative, given all the new luxury EV launches next year), with volumes down 22% YoY. While I have both models breaking even at the gross profit level, I feel that Tesla could ultimately generate losses on these two models next year. In the Q1 2018 Update Letter (bottom of page 3 here), Tesla stated that their gross margin on the Models S/X was "slightly above 25%". Given the prices back then, I estimate that the average cost was $69,100/unit. If volumes or prices fall more than I'm forecasting, 2020 losses could be bigger.

Model 3: While I feel that the US has had all it can take of the Model 3 and European and Chinese car buyers simply aren't as interested in the model, I only reduce global volumes (excluding China) by 7% YoY and the average price by 4% YoY to $48,000. This might be optimistic given that InsideEVs reported US sales are already falling by 6% YoY in July and 26% YoY in August (53% of Model 3 sales have been in the US this year, by my estimates). Global Model 3 growth should come from GF3 in 2020, but as mentioned above, at a loss. Ex-China Model 3 margins are estimated to drop down to 13.7% in 2020, from 16.6% this year.

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Regulatory Credit Sales: I give, what I feel, is a generous assumption for ZEV/GHG credit sales, with a $418m bump YoY to $1.16bn in 2020 because of the expected buying of regulatory credits from Fiat Chrysler.

Leasing/Service & Others/Energy: Leasing should decline marginally as the Models S/X sales fall and, by my estimates, Model 3 leases are too costly for Tesla to increase (Q2 leases were only 5.5% of global deliveries). Service & Others losses are kept flat with 2019 but could widen if Model 3 quality issues increase. Energy profits are set at zero, as I envision Tesla's SolarCity business running into a deeper slump after the Walmart lawsuit.

SG&A: This should be flat nominally, but up 4% YoY once one-time charges from 1H are stripped out. R&D should grow by 16% due to the Model Y roll out in late 2020, while G&A should rise by staffing at GF3.

Capex & Cash Flows: In its Q2 2019 10-Q, Tesla states that it will keep capex between $2.0bn to $2.5bn for the next two fiscal years (page 48 here). Given that this includes Model Y development, GF3 roll-out, and infrastructure investments, it is an astonishingly low level. I estimate $1.6bn for non-GF3 capex and $679m for GF3. I expect yield problems at GF3, rising inventories in the US and Europe, and final losses to lead to negative free cash flow of $4.9bn in 2020, despite such low capex levels. GF3 preparations should lead to a spike in capex from the current quarter, by my estimates.

Balance Sheet & Financing: At the rate of cash burn and losses I'm forecasting, Tesla should be back to low levels of cash on hand by Q1 2020 that call for financing. However, I don't forecast any financing via equity, after last May's equity issuance turned out to be a tough sell, according to investment bankers with whom I spoke. The equity portion of that deal ($863m) only amounted to 19% of Q1's equity. Historically, Tesla has conducted equity financing that amounted to over 100% of the prior quarter's shareholders' equity (105% in August 2015 and 151% in

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Figure-10: Tesla Automotive Operations Forecasts

Source: Company data & author's estimates

Figure-11: Tesla Earnings & Cash Flow Estimates

prior quarter's shareholders' equity (105% in August 2015 and 151% in May 2016), but the markets have become more suspect recently. Debt financing would come at steep costs, given Tesla's weak financials, but in my model, I'm running cash burn through increased debt, while maintaining cash & equivalents at $2.7bn.

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Source: Company data & author's estimates

Conclusion Elon Musk and his Board of Directors have bet Tesla's shareholders' money on making it big in China, where at its 2017 peak, Tesla saw only 18,218 units of Model S and X sales. By doing the research for this report, I understand the importance of having local production facilities in China, as it is the world's fastest-growing EV market. However, I simply can't understand why Tesla didn't wait to enter China until the launch of the Model Y, which would likely sell better than the Model 3, given Chinese preferences for SUVs. I also feel that, if my read of the GF3 contract with the Chinese government is correct - i.e. GF3 must generate roughly 15% in pre-tax margins by 2023 - this is a big risk for Tesla's shareholders. While surviving 2020 alone is up in the air in my view, it is almost certain that Tesla can't avoid writing off its $2bn of scheduled investment in GF3 by 2023.

Disclosure: I am/we are short TSLA, VIA PUTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (460) Most liked

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Scarsdale Skeptic Comments (2.68K)

Yesterday, 9:40 AM

Can't happen, I'll prove it:

1. Elon is god. 2. God doesn't make mistakes.

3. Therefore, GF3 will be a success.

QED

Reply • Like (28)

Zwalderon Comments (894)

Yesterday, 9:53 AM

@Scarsdale Skeptic

Thanks for that SS. We can always count on your scintillating commentary.

Reply • Like (4)

Husker Bob Comments (6.45K)

Yesterday, 11:00 AM

@Scarsdale Skeptic - "2. God doesn't make mistakes.".

But as frequently proven by Elon he does work in mysterious ways. As such I would not be so sure about item 3.

Publish

9/21/19, 10:37 AM Page 26 of 49

such I would not be so sure about item 3.

Reply • Like (6)

chasdfw Comments (1.20K)

Yesterday, 11:43 AM

@Zwalderon 'We can always count on your scintillating commentary.'

it's more poignant than this tripe from you

'This article is merely one more attempt to cast a shadow on anything perceived as Tesla-positive in a long string of such attempts.'

Reply • Like (7)

runarbt Comments (1.15K)

Yesterday, 9:58 AM

Your entire article is based on a huge flaw- "no demand in China". This is basically pure fud.There are huge lines and huge interest for model 3 in China. :-D (edited)

Reply • Like (25)

389driver Comments (191)

Yesterday, 10:06 AM

And overall auto sales are down in China? And fellow ev manufacturer nio is struggling? What makes you think ordinary Chinese have USD $48000 to blow on a car?

Reply • Like (9)

hartmap Comments (5)

Yesterday, 11:06 AM

It's not huge lines or huge interest that matter but sales. All you quote is anecdotes.

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Thinky McThink Comments (11)

Yesterday, 12:20 PM

how about the overwhelming interest? Sales staff overwhelmed. Website going down from too much traffic?

Zwalderon Comments (894)

Yesterday, 9:44 AM

This article is merely one more attempt to cast a shadow on anything perceived as Tesla-positive in a long string of such attempts.

Reply • Like (22)

nckadams Comments (1.95K)

Yesterday, 11:14 AM

Zwald.....but even if there is only a 10% probability that the shadow- casting articles are right, wouldn't you want to trim your TSLA position? My recollection is that your have 50% of your portfolio in TSLA.

Reply • Like (2)

Zwalderon Comments (894)

Yesterday, 1:03 PM

@nckadams

"but even if there is only a 10% probability that the shadow-casting articles are right, wouldn't you want to trim your TSLA position? My recollection is that your have 50% of your portfolio in TSLA.

I have no idea what that probability actually is, and no one here does. So, I can't answer that question. But, I'm not selling my position. I have no idea where you got that 50% figure, but it's more like .1%.

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nckadams Comments (1.95K)

Yesterday, 1:32 PM

Sorry.....confused you with someone else. Also, was only suggesting a trim to one's position for prudence, not a total sale of it.

SxWerks Comments (612)

Yesterday, 9:39 AM

Chinese consumers are already embracing Tesla and the superior technology it brings to the market. If there is a reduction of car sales it will be with ICE vehicles. China leadership realizes the horrible air quality that plague their cities. China is also the largest car market in the world so be prepared for Tesla taking increasing market share in the future. Yes China is Tesla’s future. We would be wise to follow Norway’s model before our cities suffer the same fate.

Reply • Like (22)

King Rat Comments (5.68K)

Yesterday, 9:52 AM

Disclaimer: Long BYD and funny how BAIC, BYD, and NIO are doing better while Tesla keeps losing more money.

@SxWerks your solution is for China to burn more coal instead of petrol, got it. That will do wonders for air quality. You must be young and not remember the pollution of cities such as Chicago or Los Angeles in the 1980s or worse yet, the 1960s. Inner city air is getting cleaner except for the smug spewed by people who use the acronym "ICE" in the pejorative sense.

The Norway model as well is to export oil and use the proceeds to buy EVs. How green is that?

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dugnology Comments (174)

Yesterday, 10:01 AM

You do know that individual vehicles burning fossil fuels pollute more than a very large electrical power generation plant even with transmission losses factored in. Electrical vehicle adoption going hand in hand with solar will be key.

Reply • Like (12)

jdash Comments (1.56K)

Yesterday, 10:10 AM

“Superior technology” isn’t worth a penny. It’s what the car does for the consumer that makes them want to buy it. Tesla is an expensive luxury brand, that’s it. Sales will be closely tied to sale price.

Reply • Like (5)

CPAtracker Comments (671)

Yesterday, 9:31 AM

To be fair. Tepid interest from the Chinese is more than likely a wait and see attitude for the home grown version Also the decline in general auto sales doesn’t necessarily translate to a demand decline for EVs

Reply • Like (22)

CedricMi Comments (102)

Yesterday, 9:57 AM

Very thorough. $13.3k for batteries seems very high to me but what do I know.

Reply • Like (2)

cpryds Yesterday, 10:02 AM

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cpryds Comments (521)

Yesterday, 10:02 AM

I would never look at current EV sales to determine future EV sales. Percentage of EV sales is increasing rapidly and will be exponential for a long time. The number of EV introduced in high quantities are stil in absolute numbers very very small! Even in China. We are in front of huge improvements to EV’s and there is not even world wide capacity for batteries to fill 5 percent EV sales. We got to look more broad at things. So yes I am not following the authors arguments.

Reply • Like (11)

cpryds Comments (521)

Yesterday, 10:08 AM

The China Tesla Model 3 will never be extremely cheap. It has way too much compute power, sensors, and is safety build which also does compromise the inside space compared to a boxy car. But boxy cars are less safe for roll over and side collisions I have heard.

Reply • Like (3)

Futurist1 Comments (101)

Yesterday, 10:43 AM

“Chinese demand for the model 3 has been weak and 2020 China losses should be -490m.”

This statement sums it all up. Tesla hasn’t begun shipping vehicles from its Gigafactory 3 yet, and this article suggests that demand for model 3 is weak? Based on the costs of Tesla vehicles manufactured in the U.S. and shipped for sell in China? Very weak thesis. Short sellers are obviously shaking in their boots over Gigafactory 3’s ramp-up. It’s obvious that the author of this article spent a considerable amount of time researching points, creating fascinating charts, and drawing highly speculative opinions about “Tesla’s undoing”. For me, the proof is in the pudding and not in someone’s grand scheme to profit over a company’s demise. When Gigafactory 3 turns out to be a grand

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9/21/19, 10:37 AM Page 31 of 49

over a company’s demise. When Gigafactory 3 turns out to be a grand success, you might be able to repurpose this article for another company— like Ford maybe?

Reply • Like (18)

snowchick Comments (66)

Yesterday, 10:47 AM

@Futurist1

The source isn't even credible. JL Warren's prediction is known for being way off. Last year they predicted Tesla delivered 260 cars/month in China. Actual numbers about 7x of what they derived.

www.wsj.com/...

Reply • Like (12)

efrontier Comments (299)

Yesterday, 12:43 PM

@ snowchick,

Elon is not credible.

Reply • Like (1)

leeo268 Comments (1.69K)

Yesterday, 10:47 PM

The shorts are shaking in their boots because they are still in disbelief that the factory construction even started in 2019, let alone almost finished already and ready to start production in a month.

CPAtracker Comments (671)

Yesterday, 10:48 AM

Motörhead,

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9/21/19, 10:37 AM Page 32 of 49

Motörhead, The Y is not, by any stretch of the imagination, an SUV. It’s a cheap, ill conceived hatchback. Elon put no thought into this model. He was just looking for something he could interchange parts with to lower his proction cost The Y is a dog with fleas and it will sell like one too

Reply • Like (16)

Navel Orange Comments (1.67K)

Yesterday, 11:09 AM

I am looking forward to the off road capability and towing tests of the new SUV.

Reply • Like (2)

Mberry245 Comments (2.19K)

Today, 6:26 AM

I'd consider the Y at 15k $.

Slow & steady wins the race Comments (1.03K)

Yesterday, 11:32 AM

Cost of living in Shanghai is quite high for China, and is higher than Eastern Europe.

www.numbeo.com/...

If we consider those statistics meaningful, we see that Shanghai has an index of 49,98, half of New York.

Poland, Bulgaria, Romania, Serbia are around 40 (20% cheaper) and are more expensive than let's say Mexico (around 37).

Berlin is at 66,60, Dresden at 63,79, only 28% more expensive than Shanghai.

For conventional ICE cars, manpower accounts for circa 40% of the total cost. For BEVs that's less, because 40% of the cost is in batteries, which are not labour-intensive.

9/21/19, 10:37 AM Page 33 of 49

labour-intensive.

It makes sense, though, to manufacture in China if you want to sell to the Chinese. Right. But then, why not manufacture in "cheap China" rather than in Shanghai? Shanghai doesn't give you any tax advantage if you want to sell to mainland China.

ChengDu is for instance at 41,50, GuangZhou at 40,57, and there certainly are much cheaper places than that in China, which has a great disparity in wealth across the country. The capital is at 45,08, 10% cheaper than Shanghai.

Jakarta is 42,80, Kuala Lumpur is 42,65, Manila 40,13. Asia is generally less expensive than Shanghai. Delhi is at 27,93.

Bulls think that a factory in China is some sort of magic bullet, and that it will be an obvious ace in the sleeve to conquer the Asian market. But that's a factory in an expensive spot of Asia!

On the other hand, the Chinese buyers are at large confronted with an average income which is lower than Shanghai's.

The final result will be that Tesla cars will be very expensive for the Chinese market, very expensive for the Asian market, and crippled by possible trade war (even if China-made, for nationalistic - emotional reasons they will always be "American" cars.).

GF3 will not be profitable just like Fremont isn't.

Reply • Like (15)

User 47429802 Comments (5.11K)

Yesterday, 12:42 PM

"But then, why not manufacture in "cheap China" rather than in Shanghai?"

Why does the manufacturing location even matter? Cheap labor is not important when the vehicle is made by machines so quickly you need a strobe light to see the machines move.

"Bulls think that a factory in China is some sort of magic bullet, and that it will be an obvious ace in the sleeve to conquer the Asian market."

9/21/19, 10:37 AM Page 34 of 49

will be an obvious ace in the sleeve to conquer the Asian market."

Bulls think every NEXT thing is the magic bullet. Meanwhile, TSLA has been dead money since the first 35,000 units of Model S rolled, slowly, out of Fremont.

TSLA, September 19, 2014 - $259.32 TSLA, September 19, 2019 - $246.60

Reply • Like (8)

Power Hedge Comments (1.64K)

Yesterday, 1:59 PM

I seem to recall that whole "machines building machines" thing being another Elon-Fail...

Reply • Like (4)

User 47429802 Comments (5.11K)

Yesterday, 2:32 PM

@Power Hedge

Nah, machines building machines is not an Elon-Fail. It's just an Elon-is- too-optimistic-eventually-it-will-happen-but-if-it-doesn't-then-we-will- pretend-it-was-never-said thing.

Reply • Like (5)

cbx6cylinder Comments (1.24K)

Yesterday, 10:58 AM

Model Y is not an SUV, it is a small car that can't even be taken off road

Reply • Like (14)

Robespierre Comments (1.29K)

Yesterday, 11:37 AM

@cbx6cylinder Too funny like people with SUV drive off road in any significant numbers.

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9/21/19, 10:37 AM Page 35 of 49

Too funny like people with SUV drive off road in any significant numbers.

Reply • Like (2)

ccentaur930 Comments (11)

Yesterday, 12:19 PM

this comment about off-roading applies to the majority of SUV's in the US.

Reply • Like (1)

cabaretvoltaire Comments (961)

Yesterday, 1:29 PM

Edmunds said it best - Model Y is SLIGHTLY raised M3.

And yeah there is NO working prototype!

PS - To suckers giving Elon Model Y deposits - y'all know that there is NO refund for your deposit? Read the fine print, chumps!

Reply • Like (4)

Bundle of Joys Comments (199)

Yesterday, 11:21 AM

EVs have always been a pipe dream. So are solar roofs. It's not like the tech isn't decades old. The problems in developing them for the masses have not changed. And will not anytime soon. Basically, Elon is running a race. He is on one side, sucking up venture capital (and government subsidies) with endless and lofty promises, most of which (coincidentally) never seem to materialize. Just around the corner...so to speak. Just one more quarter. Note: building an EV is not difficult. Tesla did not invent the EV. The other side is reality. This includes laws of economics and physics. The little things. Currently, reality is catching up and fairly quickly. Their stock price shows it. Their repeated capital raises show it. Their bond price shows it. Their lack of profitability shows it. The NY GF shows it. The solar city bailout shows it. And

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profitability shows it. The NY GF shows it. The solar city bailout shows it. And so on. This charade will continue until reality overtakes dreams. Or lies, depending on the point of view.

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Blue Sky & Sunshine Comments (2.10K)

Yesterday, 10:12 AM

Article states: "..if Tesla cannot...pay the Chinese...$315m...by 2023...it will have...to write off its $2bn investment in GF3.."

But $315 million can be raised by selling just 1.4 million shares of new stock, or <1% of the current float.

Tesla can keep control of an operating GF3 as long as investors are willing to keep throwing dumb money down a black hole.

Reply • Like (12)

bull_rider Comments (7.31K)

Yesterday, 9:36 PM

@Blue Sky & Sunshine What kind of imbecile would buy stock in a tax bill??? The money immediately goes down the toilet!

Gordonr Comments (4.67K)

Yesterday, 10:58 AM

The sky is always falling somewhere in Teslaville. I remember when the shorts said Tesla is just a novelty car. Now there are 6 on my street alone. ICE is going the way of the dinosaur. With Tesla leading the way.

Reply • Like (11)

Rob Marstrand Comments (1.55K)

Yesterday, 12:33 PM

Stock's gone sideways for 5 years, still burning loads of cash, and

9/21/19, 10:37 AM Page 37 of 49

competition is ramping up fast. Remains a risky company with a pricey stock.

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kcook446 Comments (418)

Yesterday, 12:39 PM

WOW, 6 Whole cars on your street. It's a short street also. How much money did Tesla make on those 6?

Reply • Like (3)

efrontier Comments (299)

Yesterday, 12:52 PM

@ Gordonr,

At least six people vape at my local mall. Maybe I should invest in vaping companies?

Reply • Like (3)

chicagotim1 Comments (1.20K)

Yesterday, 9:35 AM

Hi, thanks for the article, I appreciate the point of view.

Brave effort.

I really do think you've done a good job at trying to take a look at TSLA's China opportunity for what it is, as opposed to looking at it through rose-colored glasses.

Well done.

Best of luck to all.

Reply • Like (11)

Steven Moseley Comments (970)

Yesterday, 1:31 PM

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9/21/19, 10:37 AM Page 38 of 49

Comments (970)

Definitely a different point of view, but there’s lots of confirmation bias in the piece. Using a Jeep factory as a basis for BEV psf output is laughable, especially considering many components are coming from outside. The agreement analysis is also questionable. I’d love to hear a lawyers take on it. Is the $10bn 2023 revenue or cumulative? From the language in the article, it sounds cumulative to me. And where’s the clause that states if Tesla is in breach that PRC gets all their equipment? That sounds ludicrous. Tesla would obviously strip the factory bare before allowing that to happen.

All in all, this sounds a lot like FUD to me. And when it sounds like FUD it usually is. Until hearing from a lawyer who’s reviewed the agreement and concurs with the author, I wouldn’t make a trade based on an article like this.

Reply • Like (3)

chicagotim1 Comments (1.20K)

Yesterday, 1:50 PM

@Steven Moseley Hi, thanks for the comment. FYI, I am neutral TSLA, and hope they ultimately find their way to sustained profits and success.

I thought @Motorhead did a good job unpacking a lot of data: the overall market, gf3 economics, competition in the ev space, the nature of the deal with Chinese authorities; there's a lot there.

If you think the article FUD, that's your choice, but if I were long TSLA, this article would give me pause. TSLA can't afford a flop, either in China, or with MY. So while I wish them the best, do yourself a favor and at least think about what could go wrong; I think TSLA faces a tough nut in trying to crack the Chinese market.

Best of luck

Reply • Like (3)

ACBet Yesterday, 8:34 PM

9/21/19, 10:37 AM Page 39 of 49

ACBet Comments (2.27K)

Yesterday, 8:34 PM

@Steven Moseley "Tesla would obviously strip the factory bare before allowing that to happen."

And where would they then hide all of that equipment? You do realize that shipping it out of China would not be allowed?

Reply • Like (1)

Zeddon Comments (183)

Yesterday, 6:29 PM

Don't say the truth! Tesla investors always need a dream to buy into! When China, model why and robotaxis all are debunked what else is left!? Truth is not a valid investment thesis! More dreams needed!!

Reply • Like (10)

Bundle of Joys Comments (199)

Yesterday, 11:05 PM

You forgot solar roofs. That Solar City bailout...excuse me...."purchase" will be a money printer. Just ask St. Elon.

Reply • Like (3)

Rob Marstrand Comments (1.55K)

Yesterday, 12:35 PM

"We find it so hard to operate in the US, that we build cars in tents. But we're sure we can be more efficient in China, where the operating environment is so much simpler to navigate."

This should be fun to watch.

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DrWolff Comments (755)

Yesterday, 4:20 PM

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Comments (755)

@Rob Marstrand

"demand is so overwhelming that we needed to solve increases in production immediately...so we did. Now that we have time to design/build our own factory from scratch we can use the knowledge gained to streamline processes from installation to production" "Since variants will decrease dramatically on our line we should be able to greatly increase efficiencies week to week where before the same lines spit out vastly differing configurations on the same line."

I completely agree. This SHOULD be fun to watch.

Reply • Like (1)

Watcher of the Fray Comments (1.53K)

Yesterday, 11:16 PM

@Rob Marstrand "This should be fun to watch." I am counting on it.

User 47429802 Comments (5.11K)

Yesterday, 12:26 PM

"But 500,000 units of annual capacity itself seems impossible, given the size of land on which GF3 sits."

You are not taking into account Tesla's superior volume efficiency. The greatest potential is building the machine that makes the machine. Factory capacity is volume * density * velocity. Since Tesla will produce vehicles at a rate like bullets from a machine gun, Tesla will control 108.41% of the world's automobile market in 79 weeks.

Reply • Like (10)

Bay Area Kid Comments (5.21K)

Yesterday, 12:37 PM

The entire articles hinges on a lack of demand for Tesla's in China. The lack of demand narrative has not played out anywhere, as Teslas continues to reach

9/21/19, 10:37 AM Page 41 of 49

demand narrative has not played out anywhere, as Teslas continues to reach all time highs in deliveries and revenues. TSLAQ sure is getting desperate.

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NYC1965 Comments (13.02K)

Yesterday, 1:00 PM

@Bay Area Kid Try looking at HK numbers after the subsidy ended Try to explain at why the Model S seems to be going down for two straight years. If the Model 3 is cannibalizing the Model S how much does Tesla lose per car.

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Percheron1 Comments (952)

Yesterday, 1:03 PM

@Bay Area Kid Actually the article hinges on the ability of GF3 to deliver the number of vehicles to cover the tax...

And keep in mind that GF3's limited size makes it physically impossible to produce much more than 300,000 units. If the average shipment price were $33,000, GF3 would have to produce 321,202 vehicles in order to meet the $10.6bn revenue target mandated by the contract. If the price dropped to $30,000, Tesla would need output of 353,333 units. This is physically impossible given GF3's size, as explained in Section-3.

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Bay Area Kid Comments (5.21K)

Yesterday, 1:06 PM

Yes Percheron, it's perfectly logical that they would build a factory that's not physically able to produce the number of cars they need to meet their obligations. Perhaps they should have considered this before building the multi-billion dollar factory?

Wait, that's not perfectly logical and in fact is asinine FUD? Hmmm, interesting.

9/21/19, 10:37 AM Page 42 of 49

interesting.

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NYC1965 Comments (13.02K)

Yesterday, 10:11 AM

The terms of Tesla's contract with China are draconian. If Tesla can't generate a 15% pre-tax margin by 2023, the government takes back the factory. midget musk must have been thinking mars to agree to that term

Reply • Like (9)

vooch Comments (5.79K)

Yesterday, 10:27 AM

The Chinese have a loan-to-own deal with Elon.

Reply • Like (4)

NYC1965 Comments (13.02K)

Yesterday, 11:06 AM

@vooch I've heard of such deals, seems it as worthy as a title loan on your car

ccentaur930 Comments (11)

Yesterday, 12:19 PM

on the negative bandwagon: if the factory flops, then it is a pile of junk anyways. The Chinese can have it.

The Reasonable Investor Comments (584)

Yesterday, 9:34 AM

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9/21/19, 10:37 AM Page 43 of 49

Proper thesis bro. Tesla doesn’t even have a paint shop installed at their Shanghai factory: www.subtwt.com/... (edited)

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Zwalderon Comments (894)

Yesterday, 9:42 AM

@The Reasonable Investor

"Tesla doesn’t even have a paint shop installed at their Shanghai factory"

Wow, now there's a comprehensive link. /s

I don't know for sure that there's a paint shop installed, but I've heard that there is, and you sure can't tell one way or another by that link. And besides, even if there isn't, do you really believe there won't be a paint shop ready to go by the time manufacturing commences?

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CPAtracker Comments (671)

Yesterday, 9:44 AM

Interesting point, given that the paint room is the the production constraint at Fremont

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Zwalderon Comments (894)

Yesterday, 9:50 AM

@CPAtracker

"Interesting point, given that the paint room is the the production constraint at Fremont"

Is it? I thought it was battery pack production that was the bottleneck. Perhaps I'm thinking of another time. But if the Fremont bottleneck has been the paint shop it stands to reason that Tesla will have learned from that, just as they've probably learned many other lessons by experience.

9/21/19, 10:37 AM Page 44 of 49

many other lessons by experience.

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Sinik Comments (5)

Yesterday, 9:44 PM

I've worked and watched the markets for over thirty years. Madoff and Enron look saintly by comparison.

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paulsteinert Comments (505)

Yesterday, 7:02 PM

I got the sense from reading the article that the author is somewhat negative on Tesla Motors.

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OldTestamentSteve Comments (2)

Yesterday, 10:11 AM

Why do you make such an absurd claim that the GF3 will only produce model 3 and not Model Y or even a future Tesla pickup truck?

Reply • Like (8)

Caboose01 Comments (959)

Yesterday, 11:40 AM

Because we prefer to discuss things that exist.

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InvestingRevealed Comments (549)

Yesterday, 2:41 PM

@Caboose01

Most of the things discussed in the article do not exist.

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Roger Knights Comments (10.49K)

Today, 4:49 AM

@OldTestamentSteve "Why do you make such an absurd claim that the GF3 will only produce model 3 and not Model Y"

Musk has said that the Y will be made in Fremont.

88notes Comments (193)

Yesterday, 9:47 AM

@Motorhead

Thanks for the informative, detailed article.

I agree about the competition being particularly challenging. I thiink the Chinese will not aggressively devalue the Yuan, but the Yuan-to-dollar ratio is still a risk factor for TSLA.

I believe that China is the spider and Tesla the fly -- and as the fly tries harder it will get more and more entangled. Tesla's general over-aggressiveness, trying to do to many things (insurance, solar, China), will force their retreat at some point, if they can still retreat and are not done in by their debt. I have not bought into TSLA going bankrupt previously, but now coming to believe it may be a possible outcome. And sadly, it's Tesla and Elon Musk's own behavior that has brought it down -- Greek Tragedy hubris.

Reply • Like (8)

389driver Comments (191)

Yesterday, 10:04 AM

The wailing will be long and loud.

I wonder how many people have most of their retirement in Musk? I fear far too many.

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Vantablack Comments (1.86K)

Yesterday, 12:19 PM

I believe that China is the spider and Tesla the fly @88notes, Interesting! How would you describe VW, Ford, and others? If the Chinese mess with Tesla they will naturally lose the trust of the global financial industry. Why would anyone want to take a risk in China after that?

Husker Bob Comments (6.45K)

Yesterday, 2:12 PM

@Vantablack - "If the Chinese mess with Tesla they will naturally lose the trust of the global financial industry. Why would anyone want to take a risk in China after that?".

Where have you been for the last 20 years?

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Carefree Capitalist Comments (266)

Yesterday, 6:34 PM

Tesla has started its downward trajectory. It hit the mid 250's on no real news and now people are anticipating the delivery numbers that will be released in early October. That release will be an actual data point. (as opposed to fluff pieces about track times and what is going on in China). The potential for a huge miss is real. It is going to be interesting to see what happens.

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Value Kicker Comments (140)

Yesterday, 2:36 PM

Only reason China allowed Tesla is so they can steal their IP. Musk just handed it to them on a silver platter!

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Robespierre Comments (1.29K)

Yesterday, 3:53 PM

@Value Kicker IP is not static. It evolves. Tesla will create new IP. "stealing" IP is just a fighting cry fro people who don't understand tech or are "married" to a obsolete philosophy

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jz10 Comments (2.74K)

Yesterday, 4:17 PM

If Tesla had any IP worth stealing they might actually be worth the market cap.

China's real reason for allowing Tesla in is to discipline the domestic automakers like BAIC and SAIC for making crappy cars like the BAIC EC180. Tesla's entry as a 100% wholly owned foreign car maker is a test case to see if greater foreign competition will force the domestic car makers to shape up.

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TheFatDwarf Comments (292)

Yesterday, 5:07 PM

@Value Kicker : "Only reason China allowed Tesla is so they can steal their IP."

I see it just the other way round. Tesla is an asset in the bargaining of the trade war between the US and China. Now the Chinese can say: "You always claim that foreign companies are treated unfairly. For example they always have to have a local partner company. This is not true. Just look at Tesla." "You always claim that we steal IP from foreign companies. This is not true. Just look at Tesla." etc.

I am really curios how Tesla will be treated by the Chinese government

9/21/19, 10:37 AM Page 48 of 49

I am really curios how Tesla will be treated by the Chinese government once they have served their pupose in the trade war negotiations.

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