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Tesla Misses All Targets, and That’s the Good News

Tesla held its dreaded earnings call today after market close, announcing the electric automaker has lost $702 million in the first quarter of 2019, versus the consensus view of around a $200 million loss. About 30 percent of the reported loss consisted of one-time items, the company reported.

Revenue was about $900 million below the consensus view of analysts. And with that news, the stock barely moved. In fact, it’s about 0.3% up in after-hours trading.

So a huge miss on revenue and profit is the good news, huh?

Actually, it is.

As a carmaker, Tesla is doing okay. They are producing cars, selling cars at a reasonable margin (around 25%), while remaining the best, and biggest, up-market electric car manufacturer in the world. And it’s an awfully big world for a little company like Tesla to grow.

As I noted in a previous post, short-term the company is not doing great, and could benefit from a $5 to $10 billion cash injection. This is troublesome as its stock value doesn’t really leave a lot of room for cash-raising without the danger of a death spiral. And its unsecured credit is garbage-grade.

Here’s where things get bad, however. Elon Musk’s determination to turn Tesla into a ride-sharing company, using robotaxis, is pie-in-the-sky mad hattery. It’s not impossible, per se, but what Musk is claiming to be able to do in 30 months is likely a 30 year plan.

Worse, his answers to critics are simply dismissive. He cited “regulatory approval,” yet there’s no single regulator for self-driving cars. It’s literally state-by-state and city-by-city.

Tesla claims their FSD (full-self-driving) chip far outperforms Nvidia’s, which the company has been using. NVidia disputes that claim, citing their most advanced FSD computer. Tesla’s response is that the Nvidia top-end product requires five times more power than Tesla’s, which is a big deal for EV’s. But Tesla’s chip is untested, as are its claims, so it’s vaporware. Is it worth upsetting a key supplier?

And then there’s the issue of insurance. Insurance companies don’t want to (or know how to) price premiums and risk on FSD vehicles and robotaxis. My company immediately asked if I was planning to use a Tesla for Uber or Lyft when I requested a quote. I don’t believe insurers will take on the risk for Musk’s FSD fleet.

But that’s not a problem when you’re acting like Willy Wonka selling Everlasting Gobstoppers. Tesla now says they’re working on their own insurance product. Except for the fact that Tesla, if it was an insurer, would long ago have been shut down by California regulators. Again, this is a “forward-looking” statement–vapor insurance.

The barriers to Tesla’s (Musk’s) robo fleet are simply too complex, the hurdles too high, to solve them all in a three hour presentation, or with thirty months of Millennial brainpower. If Musk continues down this path, at some point, his investors will awaken to the reality that he is selling moonshots and not delivering.

Maybe this robofleet vision will keep Tesla’s stock inflated for a while longer–bulls compare it to Waymo or Uber’s multiples. But it’s a distraction from doing what Tesla should be doing, which is making cars for people to buy. Leasing Model 3’s with a terrible lease product won’t build that robofleet either.

Tesla needs to build and sell cars. The good news is they can do that, albeit not as aggressively as Musk would like. The bad news is that Tesla is moving into everything except building and selling cars–gimmicks and tricks in many people’s minds–to keep its high-flying stock inflated.

A slow, easy decline in stock price is what’s needed; a contraction to allow the company some breathing room and attract more capital (or a buyer!). This stuff of dreams, self-insured, self-driving, robofleet, is headed for a crash.

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