What was the problem with Tesla, who was shorted again?

Recently, Jim Chanos, a big short-seller who became famous in the short run for Enron, said Tesla’s stock was “worthless”. Jim Chanos first disclosed his short position in Tesla as early as last May. Then the question came, why does Jim Chanos again short Tesla this year?

Here we may wish to first look at the many reasons why Chanos shorted Tesla, including, for example, negative cash flow, centuries of car prices and attacks from startups, 2020-2021 or bankruptcy, the government's new energy car credit subsidies approaching the ceiling, patents Problems of protection, too many “foundations” of founders, implementation risks of mass production, and weak investor confidence. Today, some of the above arguments for emptying Tesla seem to be fulfilling.

For example, in terms of negative cash flow, according to a data from Bloomberg, in the past 12 months, Tesla burned an average of 8,000 U.S. dollars per minute, which means that he burned 480,000 U.S. dollars per hour. At a speed, Tesla will use up its current cash reserves on August 6 this year, and Tesla said that it has enough funds to complete the production of 5,000 Model 3 targets by March next year. In an open letter written to shareholders on November 1st last year, Tesla stated that after this date, the company expects to obtain “a lot of cash flow” from its operating activities.

This is undoubtedly closely linked to volume production. As the industry has said, if Tesla can prove that it can achieve the goal of producing 3,000 Model 3 per week, the company will raise more funds in the third quarter (otherwise, Will be very difficult). Because the output of 5,000 vehicles per week is equivalent to 250,000 vehicles a year, it is already the mass production level of ordinary automobile factories (the basic standards and capabilities recognized by the industry).

But the fact is that Model 3's above-mentioned mass production goals have not been realized and have been delayed. The industry knows that, as the cheapest entry-level sedan for Tesla, the Model 3, which was priced at $35,000, has received over 500,000 orders worldwide since its release at the end of March 2016. In July last year, Tesla Model 3 officially began production. The first batch of 30 vehicles was delivered on July 28 last year. Since then, the output of this model has been unsatisfactory. Taking the third quarter of last year as an example, the brand originally planned to produce 1500. Model 3 models, but the final actual delivery only stayed at 220 units.

With the “quiet” turn in the fourth quarter of last year, Tesla still failed to give a happy reply. According to data released recently by Tesla, Model 3 produced only 2,425 units in the fourth quarter of last year, and only 1,550 units were delivered to consumers, far below the target of 5,000 units of Tesla's weekly production. For this reason, Musk has twice postponed the schedule of producing 3,000 Model 3 per week, and plans to complete the target by the end of the second quarter of this year.

What we add here is that in addition to the above-mentioned production capacity in the implementation of mass production risks, the quality defects or problems that are exposed in the entire train system (high and low end) should also be counted as a reflection of the risk in the implementation of mass production.

According to existing and former employees of Tesla, Tesla Model S cars and Model X SUVs are often required to be repaired before they leave the factory, that is, in the Model S and Model X that undergo quality inspection after assembly. More than 90% are often flawed, Tesla employees cited this data from the Tesla internal tracking system last October. Although Tesla denied this, Consumer Reports and market research firm JDPower also pointed out defects in the quality of Tesla's cars, including door handle defects and body panel gaps.

At the same time, Tesla owners also complained in the online forum that the car would make annoying clicks, the software had loopholes, and the bad seal led to the infiltration of rain into the car. Another Tesla pre-inspector said that defects in production of Tesla Motors after the production include "doors cannot be closed, trimming of materials, missing parts, water seepage, etc. We would like to say that Tesla has been since 2012. It has been the production of Model S, and the occurrence of water seepage so far this low-level error has really caused the industry to have to worry about the quality of Tesla cars, especially the low-priced Model3, because the mainstream consumers of Model 3 are potentially paralyzed. Tolerance is not as high as that of luxury car owners.

Unfortunately, recently Tesla engineers estimated that 40% of cars produced at the Tesla plant in Fremont, Calif., are defective and need to be rebuilt. It is precisely because of the large proportion of rework that has led to delays in the delivery of the Model 3 electric vehicle. Another employee of the plant stated that Tesla’s production of automobile products was so insufficient that it could not achieve its expected production target.

In response, Matt Girvan, the founder of MAG Consulting and a well-known manufacturing expert, said that even if a car manufacturer begins to sell automobile products to consumers even if it is scheduled, the manufacturer should not appear. The need for large-scale restoration work. If it can only show that there is an internal quality problem, it is not common for most automakers.

If the above is the argument that Chanos’s negative cash flow and production risk for Tesla's shorting are being fulfilled, the analysis of Tesla's use of the famous Atman Z-score model in the industry indicates that Chanos’s Another argument for Tesla's shorting is that Tesla’s short selling arguments for 2020-2021 or bankruptcy are also showing up.

Mentioned the Atman Z-score model, which was established by Professor Edward Altman of New York University in the late 1960s. The Altman Z-score model takes into account multiple variables, including stock prices, working capital, retained earnings, and other variables. According to this model, Tesla scored 1.26, setting the lowest score for all quarters since 2014, and given that Tesla is a private manufacturing company, according to the criteria of the Z-score model, if its score is greater than or equal to 2.90, then Impossible bankruptcy; if the score is less than 1.23, the company is very likely to go bankrupt; if the score is between 1.23-2.90, the probability of bankruptcy within one year is 95%, and the probability of bankruptcy within two years is 70%. What needs to be emphasized is that studies have shown that the prediction accuracy of this model is as high as 72%-80%.

For the time being, we will not mention the Z-score model's stock price, operating cost, and other data (already mentioned above). Just because bankruptcy and Tesla and competition between traditional and startup companies were put together in Chanos's short-sell reasons, we will only mention technology and market competition factors.

As we all know, referring to the competition with traditional car companies and startup companies, what the industry thinks more about is automatic driving. Recently, a new report from consultancy Navigant attracted widespread attention from the automotive community. This report lists and ranks 19 representative driverless car companies. Tesla ranked bottom.

In response, Navigant explained that since the first launch of Autopilot at the end of 2015, Tesla's autopilot system has stagnated or even regressed in product application. Over one year after the launch of the second version, the autopilot still lacks some of the original features, and the user feedback system has a lot of unpredictable behavior. For the May 2017 TED speech, Musk stated that he is building a Level 5 automatic driving system. "That is to say, before 2019, only a software update will be fully automatic.

In response, Navigant concludes that this is an unrealistic conclusion because Tesla's current system lacks several key components needed for full autopilot, such as keeping sensors clean and unobstructed in inclement weather. Configuration, and most redundant systems.

More crucially, even if Tesla can really achieve autonomous driving in 2019, it won't necessarily be a winner in any arms race in automotive technology. Because most of the mainstream auto companies are investing heavily in the development of the same technology (such as the Navigant's report that the majority of the traditional car companies, as well as leading their own technology companies such as Google and Uner, etc.).

In addition, some companies may also use component suppliers like Tesla, resulting in no difference in technology. It should be noted that Tesla’s open source of all its patents in 2014 was equivalent to completely abandoning the competitive advantages it could have obtained through proprietary inventions.

The last is the realization of the so-called fragile arguments for investor confidence. Reflected on stock prices and shareholdings, Tesla's share price has stagnated since the stock price soared last year to drive the market value to catch up with General Motors. According to statistics, since the start of production of Model 3 9 months ago, Tesla’s share price has fallen by approximately 14%. The latest quarterly shareholders’ documents show that three of Tesla's top 10 shareholders have already sold Tesla shares in the near future. For example, Fidelity Investment is the second largest shareholder of Tesla, second only to Musk. It holds nearly 10% of Tesla shares and sold nearly a third of its holdings in the three quarters of last year alone.

Of course, in addition to the above, Chanos also stated that Tesla CEO Musk will withdraw from the company in 2020 and focus on his private space exploration company SpaceX, which will not only make Tesla’s financing more difficult. It is also a serious blow to Tesla’s development and it is also used as an argument for Tesla’s failure.

Although this argument has not yet been fulfilled, from this year's Marske’s unusual attention to SpaceX and its response to resigning from Tesla’s CEO rumors, Musk’s “has never actively or passively” looking for a new CEO for Tesla, But to a certain extent, he may be willing to appoint a person to replace him, and he himself will play a different role, focusing more on the product development and engineering fields," and subsequent Tesla's decision to give Musk $ 2.6 billion. The stock option rewards hope that Musk stayed in Tesla seems to have proved from the side the reliability of Chanos's short arguments, and also confirmed another crisis in Tesla's existence.

In fact, since the departure of Tesla’s former chief financial officer Jason Wheeler in April 2017, the company has triggered an “avalanche” executive departure. According to Bloomberg statistics, as of now, Tesla’s former executives also include Muske’s cousin Peter Rive, who left Solar City; original Apple’s software expert Chris Lattner, joined Tesla Just six months later, it announced that it had left Tesla’s automated driving software research division. In September last year, Diarmuid O'Connell, Tesla's vice president of business development, announced his departure from Tesla. Entering this year, within a short period of one week, the disclosure of the two financial executives undoubtedly revealed that Tesla may be experiencing an unprecedented “crisis”.

In summary, we believe that Tesla once again attracted the attention of the big short-seller Jim Chanos this year because Tesla’s actual and potential performance is confirming the reliability and authenticity of Tesla's arguments for his being short. In this regard, Musk is facing the short-sellers like last year, saying that they just wanted to see Tesla's demise “fool”, or responded silently to short sellers with actual actions and performance. Perhaps the latter is the last word.