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It is difficult to say exactly what is happening in the most controversial society on the market, but from what we can say, it is probably not great. In the episode of this week's Focus industry: energy, host Nick Sciple and analyst Motley Fool John Rosevear inform listeners of the current state of You're hereof (NASDAQ: TSLA) swirling carousel of news, and the many red flags that it raises. What should investors do with this increase? Why did a Chinese mobile phone company blow Tesla off several billboards in Times Square? What happens with the sales numbers of model 3? What will happen to Tesla if the demand for its cars is not really infinite? Why do 40% of board members leave in the next two years? All deserves the announcements of the Day of autonomy? Log in to learn more about these and other stories.
To watch full episodes of all The Motley Fool free podcasts, visit our podcast center. A full transcript follows the video.
This video was recorded on May 2, 2019.
Nick Sciple: welcome to Focus on the industry, the podcast that plunges every day into a different area of the stock market. It's Thursday, May 2nd, and we're talking about Tesla. I'm your host, Nick Sciple, and I'm joined today by John Rosevear, Senior Automotive Analyst at Motley Fool, via Skype. How are you, John?
John Rosevear: I'm fine! How are you, Nick?
sciple: I'm fine, John! Tesla, one of my favorite companies to follow. For our listeners, a full disclosure, I have long broadcasts on this company that I started to buy a few months ago. I will try to be as objective as possible about it, but keep that in mind when we talk about it.
John, we talked about Tesla on March 7th. Many of the things we talked about, today, the stories continue to play out. We talked about price cuts, demand slowed down. They had their store closure strategy that, at the time, we interviewed, it has since been withdrawn. We see where they are going to manufacture the Y model, speaking of the production guidelines, the Musk / SEC case has been solved. We had Tesla's Independence Day, which gave us additional insights into self-reliance. And we asked if Tesla would raise funds. That's where I want to start today.
This morning again, Tesla issued a prospectus allowing it to raise up to $ 2.3 billion in cash through the sale of convertible bonds and a secondary equity offering. Based on these figures, they suggest raising $ 640 million in net proceeds from the sale of 2.7 million shares, including $ 10 million for Musk, and an additional $ 1.35 billion in convertible notes. expires in five years.
John, when you see this document, he came out this morning. What is your early reaction?
Rosevear: That they are plugging a hole here. They had a large working capital deficit in the first quarter. This will cover. It will not cover much more. It is interesting to note that "we will not make an increase, we will not do it", and that is what happens. I come back to something we talked a lot about on March 7: there is a hell of a story going on behind the scenes. One day we will know what it is. [laughs]
I'm looking at this, you see people Twitter celebrate. "Yes, now they can finance the model Y! They can finance the semi! They can finance this and that!" I'm like, no, it's just going to keep the lights on for a while. Unless something big is turning around from what happened in the first quarter, it is to keep the lights on.
sciple: Yeah. We can enter the first quarter results now if we wish. We received these results a few weeks ago. The report left something to be desired. Revenues down 41% from the fourth quarter. The company mentioned the difficulties encountered in the delivery of their vehicles abroad. They said they delivered more than half of their vehicles in the last 10 days of the quarter, highlighting some weakness due to seasonality. Of course, some decline in sales due to the expiration of the US electric vehicle tax credit. The problems they face – I think if you look at the first sentence of their earnings press release, you can see how the environment around this company has changed. You look at Q2 2018. Tesla: "We made significant progress on the Model 3 ramp during the second half of Q1, and this dynamic continued until early Q2." Q2 2018: "It is fair to say that no production ramp of any other product has been as monitored and debated as the model 3." Q3 2018: "Q3 2018 has been a truly historic quarter for Tesla." Q4 2018: "Last year was the most decisive in the history of Tesla." The last quarter of 2019, their last quarter: "We started the quarter with cash and cash equivalents of $ 2.2 billion, a reduction of $ 1.5 billion from 2018." The story, as Tesla says, has gone from a growth story driven by the Model 3 ramp to "We have enough money to keep the light on". It reflects what you said, John.
When you saw this report on Tesla's income, what did you really hit? What are the important things that have jumped to you?
Rosevear: They lost a ton of money. [laughs] It's just the way Musk guided the benchmarks during the quarter, and then boom, surprise, it was a big loss. I mean, they argued these weak arguments: "Well, we sell tons of cars, we just have trouble delivering them because XYZ." But we really feel that the demand has decreased and that we now find that Tesla is reduced from the point of view of manufacturing for perhaps more cars than it will be able to sell on a continuous basis . And in the auto sector, where the fixed costs are high, and we can say all day that Tesla is not a car manufacturer, but at present, Tesla is basically a car manufacturer and their costs fixed are extremely high because they have for a demand that does not seem to materialize, it increases the cost per car and reduces margins. We can talk about gross margins all day, but at one point, Tesla needs a profit from operations. [laughs] And they had nothing to talk about. They certainly did not do it in the first quarter, and then they got hit. And now we are again talking about burns, a cash increase, and so on. It's an 18 year old company and we are always here. I think that's my delivery here.
To take a step back from that, clearly, watching the stock trades over the past two weeks, the story seems to have changed. The feeling has changed.
sciple: Yeah. You say that they lost a lot of money. To give you some context, they had lost $ 4.10 in earnings per share compared to the $ 0.75 estimated by consensus analysts. Really, a significant lack. And as you mentioned, the response of analysts to society seemed to be evolving. The very first question about the earnings conference was a Goldman analyst, go really well to Tesla. After the publication of 10-Q, we had more criticisms. The main gross margin of Tesla's press release on results showed a gross margin of 20.3%; However, they did not disclose in this press release, prior to 10-Q, that more than $ 200 million of its sales came from these non-zero tax credits for EV likely arising from the recent transaction disclosed to them with which Tesla and his partner Fiat Chrysler pool their vehicles sold in Europe to help Fiat avoid certain fines. But some analysts were upset that they were not disclosed. If you cancel these zero emission vehicle tax credits, which are in fact 100% gross margin sales, if you restore them to the actual auto margin, you get a gross profit of 15%. %. This is another 5% increase that worried analysts.
Capex is well behind. They have a range between $ 2 [billion] and $ 2.5 billion for the year. However, in the first quarter, they announced investments of $ 300 million. That's 12% of their annual forecasts. So it really has to skyrocket in the second half of the year. This new capital, it's just not going to create the money needed for that, John.
Rosevear: Even at a high level here, Tesla's story for years is this: "Yes, of course, they do not earn money because they reinvest everything in the area." Well, they cut the capex up to the bone here. [laughs] Where are these clouds going, guys? It's just not selling enough cars.
sciple: I will say that Tesla called and said that there were some problems to get things abroad. They think that in the next quarter, as things normalize, shipments will normalize further. They reported that the Model 3 is still the best-selling luxury vehicle, I believe that they stated that it was 60% higher than that of the car closest to its category. So model 3 is very popular –
Rosevear: Let's go back. It sells less than luxury sedans, but sedan sales are down in the industry because people are turning to the SUV in the showroom. [laughs]
sciple: Right. And model 3, obviously, you can say that the demand went down, and that there was a huge boom in the middle of the year; However, you can look at the S and X models. These are the vehicles that have been around for a long time. They experienced a sequential decline of 45% in their growth. Sales dropped to 12,500 from 25,000 per quarter over two years. And these are the higher margin vehicles. Really, a few question marks there. We will see how things go.
Obviously, Tesla has maintained its forecasts in the second half of the year. They expect the demand to increase. It's something that they continue to watch as we enter the second quarter.
We also found that Tesla has started qualifying some new battery suppliers. In their 10-K on page 10, they said they qualify only one battery provider. But if you look at the 10-Q on page 53, they say that they are qualified for a very limited number of battery suppliers. There have been reports in recent weeks, I think I talked about it at the top of the series with Lou Whiteman a few weeks ago, Panasonic has stopped investing more in the Gigafactory. It seems that Tesla is looking for new suppliers. As you can see, it looks like Tesla is looking for and qualifying new battery suppliers. Elon tweeted that Panasonic had been a strain on their production since the summer. Maybe a few weeks ago, he tweeted that.
As you see Tesla start qualifying as new battery suppliers, what does it mean for you as the company's watcher? Is it encouraging for Tesla?
Rosevear: What I hear – first and foremost, we hear mostly one aspect of history. Panasonic has dropped some things in the Japanese economic press, but they have not said much yet. They announce what will be the end of their fiscal year on March 31st. I think next week I think it will be next Thursday. I guess we will hear a lot more about the status of the relationship with Tesla.
On one side, yes, of course, Tesla may need to get batteries from multiple sources, as other automakers moving in the electric vehicle sector seem to be. The other is, man, they built this fabulous factory in the desert with Panasonic, and it does not work, so they buy batteries from anyone, just like everyone else. The Gigafactory is part of the story. "Only Tesla will have enough batteries!" Only Tesla this, only Tesla that. And that sounds like the Gigafactory – I mean, they call everything a Gigafactory now – but THE Gigafactory, the one that makes gigawatts of batteries every year, does not work.
Tesla is a company that has long had a hot relationship with its suppliers. I wonder if we finally reached the point where they burned Panasonic. The most famous is Mobileye, which provided key technology for their advanced driver assistance system autopilot, which virtually disappeared after this horrible accident a few years ago. And Musk tried to make it turn out as a benefit, etc., but for the people who were really watching, what was happening here was clear. They are just hard to work. The company has never been good at building relationships in the ecosphere of existing car manufacturers. And they reach a point where fewer and fewer companies want to do business with them. And Panasonic, who made this huge investment, this very public and very visible investment, seems to be about to deviate. This is extremely important.
And yes, of course, battery cells become commodities, and Tesla can buy them elsewhere. But the Gigafactory has been presented for years as a key part of the strategy, one of the reasons explaining the success of Tesla in this space, despite the failure of traditional builders. And it does not work. Once again, when you move away from the details, it's a big anomaly in the story.
sciple: Yeah. If you look back, in 2016, Tesla also cited the problems associated with battery production as a constraint to their scalability. Since we are three years later and these problems still arise … to be fair, Tesla has significantly increased its production of vehicles. Obviously, Model 3 is a much larger vehicle than the S and X models. But these are still problems that society faces after, as you said, that has been around for a long time. While they are beginning to qualify some new providers, this could possibly solve some problems. They are not so dependent on Panasonic. But, something to keep watching. As you mentioned, Panasonic has been a key supplier of Tesla throughout its history. There are advantages and disadvantages here. We will just have to see how things go.
The other thing I wanted to remember, is that in the 10-Q, the indications were slightly modified. If you look at the 10K, Tesla on page 16 of the 10K was targeting an annualized production rate of 500,000 Model 3 vehicles between Q4 2019 and Q2 2020. However, if you look at the most recent, there is a change of language here. Instead of an execution rate of 500,000 models 3 during this period, they now claim an execution rate of 500,000 vehicles during this period. Is it important to you, John? Or simply Tesla realigns his advice with what they are able to provide?
Rosevear: It's about realigning Tesla's guidelines on what they can provide. The question is whether they will find 500,000 buyers during this period. And that is more and more a serious question. The assumptions around Tesla have always been that there would be unlimited demand here. We talked a lot about it in our last podcast, about the idea of going through the chasm separating the first enthusiastic users from the mass market. The signs continue that they have not quite succeeded. Will they find 500,000 buyers?
Traditionally, in the automotive sector, setting production targets and then offering them to dealers to sell at the price that suits them best is not good for margins. [laughs] Especially in a certain economic uncertainty, maybe. I mean, China is in crisis right now, at least as far as auto sales are concerned. This could be an establishment for a fire sale. We have already seen them lower prices, what, three times this year? Four times this year?
At some point, you do not sell vehicles for profit. I think they've already significantly reduced their margins. Regardless, the first quarter report shows a gross margin, in the real world, when we start looking at operating margins, the situation worsens and does not improve. I think that by continuing to target the production targets while assuming the demand is unlimited, they find themselves in a trap.
sciple: Right. For companies like this, you talk about the idea of operational leverage. The operating lever works in both directions. As you grow and demand continues to increase, you can increase your margins. But if the demand starts to collapse, it starts to play against you.
Rosevear: And in the auto sector, where the fixed costs are so high, the product starts acting quickly against you, even at a level that might look good. If you have increased your activities a lot more, you are in trouble.
sciple: Yeah. So, again, something to watch with this company. The last thing I want to mention with respect to the 10-K 10-Q language change revolves around compliance with financial covenants and restrictive covenants. Tesla says at page 109 on page 109: "As of December 31, 2018, we are in compliance with all covenants relating to financial debt." In 10-Q on page 22, however, the wording has been changed to essentially respect all covenants on financial debt. Again, John, is it important? How should we look at this change of language? Or is it just a hamburger?
Rosevear: I was in a heated debate on Twitter to find out if it was important or not. The answer is, we do not know. One of their debt holders may be willing to present circumstantial evidence of non-compliance, and they said, "You know what, we're not going to worry about that, because we want to keep our place. In the queue here if and when things go kablooey. We do not want to force things because we always hope to be 100% paid. "Or maybe, I'm still sitting with the possibility that there's a new partner at the law firm, [laughs] and they were responsible for that section, so they edited it a little bit. I do not know. We do not know if adding the word "material" before the word "compliance" constitutes a significant change.
We do not know if it is a significant change. Again, it seems possible that there is a behind-the-scenes story, but I do not know if it's a big story or a little story.
sciple: Yeah. Again, something to keep watching. Obviously, figures released during this quarter indicate that the company will continue to play. We will see how things go. Tesla has the merit of having said that if they overcame these problems and shipped their vehicles abroad, things would clear up and the trajectory would begin to line up to the right. We will have to see until the next quarter to see how that goes. But something to keep watching.
Again, that same week, in the income report, I want to move on to Tesla's Independence Day and talk a little bit about what's going on with Tesla from an autonomous point of view. Tesla organized a day of autonomy on Monday before declaring his winnings. On Monday, they had the day of autonomy, and then Wednesday they reported their earnings. Really, the day of autonomy really seemed to be as follows: "The future of our society is brilliant. Do not worry about these short-term problems. We really have great opportunities. "I want to talk about what they revealed during this presentation and your reaction, and as a person who has been following the car industry for a very long time, she really 'autonomy to try to be as well informed as possible, so we will go one by one.
The first thing Tesla unveiled was really impressive, they revealed their new standalone processor. They said that it would be able to process 2,300 frames per second, 21 times better than the currently used processor, designed by the old Apple engineer Pete Bannon, who is now working at Tesla. Musk has objectively qualified the world's best chip. When you look at what they've revealed, what should investors know about this chip and what does it mean for Tesla?
Rosevear: I do not know. [laughs] It uses less energy than the NVIDIA equivalent. The equivalent Nvidia has more computing power. There is a Intel mobilized solution to come that we have not seen yet. We do not know how this will fit into the next generation of Mobileye's solution. I do not know.
Again, going back to a higher level, I do not know how to handle that. [laughs] We have people like this, the Arc Investments boutique, who is on Twitter saying, these guys are four years ahead of everyone because we have analysts to tell us; and then, the people who spent a lot of time monitoring the status of autonomous vehicle development in several companies said that Tesla was not really there at this stage. I do not know what to do with it. Truly not. The engineers seem to think, OK, if it gives, it's legitimate, it's a candidate. We do not know
sciple: Yes, that's the real question. All of Tesla's history in terms of autonomy has only been two opposing poles. You have a group that says, "Tesla is so far ahead, that it can not stand to go against the consensus, they are so far away that no one else has. another can not understand how they are doing. " Then there is this other side of the market that seems to suggest that they are full of it. This gulf was really not closed by this day of autonomy. I think people saw what they wanted to see in this report.
To come back to the chip, some people have wondered: Is the computing power the bottleneck that prevents autonomous driving from starting? The criticism of Tesla's autonomous driving does not stem from their computational power, but from the question of whether their current sensor set is capable of the kind of data observation needed to achieve reliable autonomous driving. I want to talk a bit about their strategy and also get your opinion, John.
Rosevear: Energy consumption is actually important. You install a data center in the trunk of an electric car, this will attract a lot of energy. Obviously, consuming less energy is better because it gives you more autonomy for your autonomous car. This is significant. Many investors and people do not think about it yet, but the discussion will be very animated as these things begin to materialize. Yes, of course, we have this large autonomous system, but the computer consumes so much energy that it has only 80 kilometers of reach and it must enter and recharge every few hours. Tesla seems to have a small step forward on NVIDIA for the moment. Again, we do not know how this will be structured once the cars begin to unfold, however. But it is important. Energy consumption is more important than what people are currently doing.
sciple: Yeah, okay, exactly. So, when Elon says that the chip is objectively the best in the world by measuring both the cost and the computing power of the energy needed to run the chip, this chip is one of the best in the world, if that is just there. a class apart. Really a significant advance.
Rosevear: If they deliver on the claims.
sciple: Yes Yes. And that's where some members of the self-government industry, more generally, responded to the questions they asked Tesla, and that Musk responded that Tesla's strategy is based solely on the use of cameras and a forward-facing radar. chart to observe the world and perform its self-driving functions. Elon rejected the LIDAR and HD cards used by the rest of the industry as crutches. He said that humans use their eyes only to drive. Again, other members of the autonomous vehicle community questioned whether it was prudent to pursue a strategy of not using LIDAR and HD cards or using a controlled, geo-fenced area to operate your autonomous vehicles. We'll see how the strategy will work for Tesla, but that was the point of questioning.
Rosevear: People I've talked to around this question think, "OK, you can squint and see a way here, but it's a lunar-like way." Maybe they are coming out in 10 years and they have made it work. This is not one, it is going on the market with a high level of security next year. And with vehicles carrying people, much of the thinking about autonomous vehicles from other companies is inspired by the same kind of thinking we have about aircraft when they fly autopilot. You need redundancy, backup, belt and suspenders and maybe a parachute. That's why LIDAR. LIDAR, with 3D maps, these are vehicles essentially limited to the mapped area. The LIDAR takes measurements that tell the car where it is on the map, with great precision, a few inches or less. Is it a crutch, if you have a really sophisticated system with a lot of cameras? You can sort of take a look and see what that might be, or at least what more people in this field are telling me. But again, it's a cannon shot. It's a goggle, to be able to remove this.
sciple: Right. The real question is this: It's not that difficult to equip a car with the system that it can use for driver assistance systems, track cars, keep the aisle, that kind of thing. compared to a level five system that can handle any type of system. occurrence that can happen. This is where many industries have said that to reach this first level of autonomous driving, LIDAR and all the rest may be superfluous; but to arrive at 99.999, this extra confidence interval that these additional observations give you, is what Waymo and Cruise have cited as being very important. We will see how the Tesla system will unfold. It will take some time for their inference systems to continue to learn.
Rosevear: Waymo and Cruise, and I talked to senior officials from both companies, or at least to GM. I did not speak to Kyle Vogt, the CEO of Cruise, but I spoke to Dan Ammann, his boss. We believe that security is so essential here, because everything will depend on the acceptance of technology by the public. It could easily go in the direction: "Robot cars kill people, I will not take one." And then all the business is bankrupt, it's gone. At least for a generation. They are so careful. Waymo and Cruise are racing, but with great caution. En parlant simplement aux gens de GM, ils avaient dit: "Nous pensons que nous pourrions le publier 2019". Maintenant, ils disent: «Nous allons le sortir quand il sera prêt. Nous le sortirons quand il franchira nos barrières de sécurité. Nous ne nous inquiétons pas trop de savoir quand. sortez-le de ce qu'il passe nos portes de sécurité. " Avec Waymo, ils ont commencé un peu de déploiement. Mais encore une fois, c'est le même genre de discussion. Il faut que ce soit sûr, ils doivent savoir que c'est sûr, ils doivent lui faire confiance.
Et Tesla dit: "Nous allons faire un bond en avant de toute leur technologie et nous allons tout avoir là-bas l'année prochaine." Je ne sais pas, mec! [laughs] C'est une vraie chose différente! [laughs]
Sciple: L’autre avantage cité par Tesla, c’est que leur puce leur confère un avantage, car ils pensent que le reste de l’industrie utilise un système qui ne sera pas aussi évolutif, utilisant le LIDAR, entre autres. Tesla a également parlé de l'avantage qu'ils ont de leur flotte du point de vue des données. Waymo et Cruise, vous devez utiliser des pilotes de test pour faire des observations. Je tiens à dire que Tesla a des centaines de milliers de véhicules sur la route. Ils peuvent leur rapporter des données, puis les étiqueter et les utiliser pour apprendre.
Rosevear: Mais il reste à savoir combien de données sont réellement rapportées à Tesla et combien de traitements peuvent être effectuées autour de ces données, etc. Il semble assez clair qu'ils ont des données, mais ce n'est pas l'avantage qu'ils ont essayé de jouer.
Sciple: Yes. La dernière chose, ils ont appelé ce réseau Tesla dont ils parlent depuis un moment, que les propriétaires de Tesla, ils achètent le véhicule, puis via l'application Tesla, laissent leur voiture conduire de manière autonome, conduisent les gens quand ils sont ne pas utiliser la voiture. Elon a annoncé qu'ils disposeraient d'un million de taxis robo de niveau cinq sur la route dotés du matériel nécessaire à l'auto-conduite d'ici à 2020. Pour voir si cela a été rendu. Tesla a d'abord annoncé que ses véhicules étaient dotés d'un matériel capable de fonctionner de manière totalement autonome en octobre 2016. Nous sommes ici aujourd'hui en mai 2019. Si Tesla livre ses résultats, cela représente un avantage énorme pour la société. De toute évidence, cela va stimuler la demande pour eux d'acheter les voitures, s'ils livrent cette offre. Et Tesla doit stimuler la demande aujourd'hui. Être vu.
Une dernière pensée? Une fois que cette auto-conduite complète est réalisée et que Tesla adopte une structure de flotte, l'entreprise doit-elle changer pour l'adapter? En supposant que tout se passe comme prévu, à quoi ressemblera Tesla dans cinq ans?
Rosevear: Tout d’abord, les voitures doivent changer. C’est la première chose à laquelle j’ai pensé: tous les gars de Tesla se moquent de la Chevy Bolt parce qu’elle est droite et ennuyeuse et qu’elle a un intérieur en tissu robuste qui n’est ni doux ni sexy comme les sièges en cuir et tout le reste. Bien devinez quoi? Le boulon est un taxi. Le boulon a été conçu pour cette application, il a été conçu pour Uber /Lyft devoir d’utiliser leur idée comme plate-forme de conduite autonome. Et que ce soit un taxi autonome dans le temps, et qu’il devienne un taxi. Et en fait, c'est là que GM va. Le véhicule de croisière est un verrou fortement modifié. C'est un type de voiture très différent. Lorsque vous concevez un véhicule pour parcourir un million de kilomètres en service de flotte, vous concevez l'intérieur de manière très différente, vous concevez la forme du véhicule très différemment, vous concevez la ligne de toit très différemment, vous utilisez des moteurs différents, vous utilisez des tissus différents, vous utilisez différentes techniques d'assemblage, dans la mesure où votre voiture autonome est équipée d'un tableau de bord, car il y a toutes sortes de grincements et hochets possibles. Personne ne va me convaincre que vous prenez un modèle 3 et que vous y parcourez un million de kilomètres et que quiconque voudra s'asseoir dessus. Surtout s'il s'agit d'un million de kilomètres en taxi.
Tout d’abord, Tesla ne peut obtenir des pièces de rechange pour les voitures qu’elle a en temps voulu, ce qui pose de plus en plus problème à une adoption élargie. Vous allez mettre ces voitures en service 24 heures sur 24 et nous dire que vous allez les parcourir un million de kilomètres, sans rendre vos pièces disponibles? Ils ne sont pas prêts pour ça. Ils n'ont pas réfléchi à cela. Je veux dire, ils n'ont pas réfléchi à la question avec des gens qui comprennent réellement les problèmes, c'est clair. C’est une autre de ces choses dont nous avons parlé le 7 mars: Elon vient de proposer cette chose, et ils se sont démenés pour en tirer quelque chose. Ils n'y ont pas réfléchi. Le modèle 3 n'est pas le produit que vous souhaitez pour cela. Le Model S n'est certainement pas un produit que vous souhaitez pour cela. Cela ne va tout simplement pas au travail. Cela ne va certainement pas fonctionner pour 0,18 $ le mile ou quoi que ce soit dit. [laughs] C'est juste pas! Il existe un peu de scepticisme quant à savoir si quelqu'un gagnera bien moins de 1 dollar le mille, même avec des véhicules construits à cet effet et relativement peu coûteux à fabriquer, etc.
Sciple: Yeah. Dans le même ordre d'idées, au cours des deux dernières semaines, trois sociétés de location de voitures ou de voitures différentes utilisant Tesla dans leur flotte ont cessé leurs activités dans trois pays différents. Vous avez eu une compagnie chinoise, Shenma Zhuanche. Je ne vais même pas essayer de dire le deuxième nom. Ils ont loué trois panneaux publicitaires sur Time Square indiquant qu'ils avaient eu des problèmes avec 20% de leurs Teslas dans leur flotte, ce qui les avait conduits à perdre de l'argent chez EC-Rent, une société basée aux Pays-Bas qui louait Teslas à la journée. Ils ont déclaré avoir dû arrêter leurs activités en raison de défauts techniques croissants avec leur flotte de Tesla. Also, a ride sharing company in Sweden, Umea Eltaxi, filed for bankruptcy, blaming in part the Model S that are operated as part of its fleet. Again, we're going to have to see some proof out that these cars can function over a long period of time as autonomous taxi vehicles, that the maintenance is going to be there for this to be able to work at scale.
But, you know, time will tell. Elon has achieved things that are very incredible that people doubted in a very serious way before. We'll just have to see.
I want to move on, John, we're running late on our podcast, so we'll run through a few things quickly. The SEC settlement, we got that finalized last Friday, I believe. There's been a lot of hype around this, but it turned out to more or less be a nothing burger.
Rosevear: Yeah, it's sort of reminding him what he can and can't say without permission. [laughs] Without prior approval.
Sciple: Yes. The original settlement had said that Musk couldn't tweet about things that would materially impact Tesla's stock. There were some questions about what material meant there. With this new settlement, the SEC essentially enumerated, you can't tweet about securities, you can't tweet about very, very specific things. The guidelines are much more tightened down. The judge really wanted the SEC and Musk to settle it on their own, and that happened. We'll see how things develop. But there's much more clear guidelines on what Elon can tweet, and that's what the SEC has done.
When we talked March 7th, we talked about the Model Y and the questions around where that might be manufactured. When we heard the Q1 earnings conference call, Elon confirmed our suspicions that Tesla does not yet know where they're going to manufacture it. They're choosing between Nevada and their factory in California. What's interesting there, though, is Elon said that they've already ordered the tooling that will go into the factory. Any thoughts on that, John?
Rosevear: Yeah. Who'd they order the tooling from? [laughs] They haven't ordered it from any of the big companies. If they have, it's been kept very, very quiet. And, how do you order tooling without knowing the space the tooling is going into? You don't. At least, you don't order all of the tooling. Maybe they're having dyes made or something like that. But it's not like they're going to be ready to install a production line anytime soon. And even then, if it's going to be at the Nevada Gigafactory, they've got to build a paint shop. That's an essential component in a car factory. It takes time to build, it takes money to build, and there haven't been any signs that they've started doing anything like that yet. Maybe they've ordered some tooling. Maybe they've gotten price quotes on some tooling from some company somewhere. I would take that with a grain of salt at this point.
Sciple: Sure, yeah. If you don't know the box that the tools have to fit in, I don't know. But, we'll see. Elon's a lot smarter than me.
Two more things. First, there's been some changes around how customers can order the Model 3 standard range. That was the $35,000-$36,000 Model 3. You now have to either call or go to a Tesla store to order that vehicle. As you see Tesla changing the way customers can purchase that lower-end Model 3, any thoughts or response to that?
Rosevear: You have to go to the store and whisper the double secret password, if you can get one. It allows Tesla to claim they're selling it, but I don't see too many getting bought. And of course, you go to the store and whisper the double secret password, and they say "Hey, the short-range model doesn't come with all these features that you see on this car right here. Don't you want to pay a little more and get something a little nicer?" [laughs] Something that will actually deliver some margins to Tesla, which I'm not sure a $36,000 car does.
Sciple: Something to follow. Last thing I want to talk about, and this news has gotten swallowed up in all the other news around Tesla, but on Good Friday, Tesla dropped a filing announcing that 40% of their board is going to be leaving at the end of their term. Board members Brad Buss and Linda Johnson Rice will be leaving after the 2019 annual meeting, and Steve Jurvetson and Antonio Gracias will be leaving after the 2020 annual meeting pending and approval for Gracias. And from what I've seen, there's no intention to replace these board members. They're going to downsize the board. Thoughts on that?
Rosevear: Again, there's a story here that we haven't heard yet. I don't know if this is Robyn Denholm, the new chairman, coming in and saying, "Look, we're going to do corporate governance differently around here." There was some sense that these folks represent the Elon clique on the board, along with Kimbal, Elon's brother, Kimbal Musk. Obviously, Kimbal isn't going anywhere because he's Elon's brother and he's a significant shareholder. But this was maybe, as part of a discussion with the SEC, or somebody, or maybe just to try and pre-empt an unfortunate discussion with the Justice Department or something, [laughs] that they're trying to institute some more serious corporate governance controls here. That might mean reshaping the board. Again, I think we're not going to know the full story for a while, but we'll know it eventually. Somebody will write the book. But right now, it's yet another one of those Tesla things where, "Oh, that's interesting!" We can develop hypotheses about what happened. The bearish people will develop their hypothesis, and the bullish people will develop their hypothesis, and there'll be just enough evidence that you can't tell who's right. [laughs] So many things with Tesla boil down to that.
Sciple: Yeah. It's interesting to me, the SEC had the company increase the size of its board by a couple of members back in the fall, and now we're seeing the shrink, turning back around the other way. Again, something to follow. Something to lay into the greater tapestry of what's going on with this company.
As we go away, John, this company, it's the most divisive stock in the stock market, and it's not close. People on either side of this company are very convinced that their viewpoint is correct. That's what makes the market, right? There's buyers and sellers every day, and I think that's really important. I'll say, for my view, there's just a lot of red flags with this company right now that I'm personally not comfortable with. As I said off the top, I own some puts. We'll see how things play out.
But, John, any advice for folks looking at Tesla today? How do you think people should view the company moving forward?
Rosevear: It's priced for perfection. Even at $240 a share, it is priced for perfect execution and market dominance within a decade. If you can step away from a fervent desire to see their mission accomplished and just look at the execution of this particular company, it is awfully, awfully hard to see that happening. It's just right. That doesn't mean Tesla is going to go out of business. But I keep thinking about the resets we saw around some of the more hyped stocks during the .com boom. I'm old enough to have been an investor in 1999 and 2000. I remember that well. And I keep thinking, there is a future for Tesla, where the stock completely blows up and the thing trades at $15 for years and years. I think investors looking at buying in at $240 or holding at $240 or whatever it is by the time this podcast runs later today, [laughs] it's around $240 right now, I think — you really need to think about that. I hear people talking about taking out home equity lines and putting it into Tesla stock and stuff. We saw a lot of this in a more compressed time frame in 1998 and 1999. And that ended badly for a whole lot of people. Just think about what you're doing here. It is entirely possible to support the mission of Tesla, to support a global movement toward zero emissions transportation options, and to say, "Holy smokes, this company is way overvalued."
Sciple: Yeah. And for me, the car, it's a really impressive car. Electric vehicle, the performance, the way it can accelerate, they really created this market. They started doing over-the-air software updates that now the entire industry is starting to adopt. They created an entirely new look for the vehicle. They smartly realized, "We don't need this front grille on our car. Let's make this smooth so our car looks totally different from every car on the road."
But again, as you look at the business from a fundamental point of view, it's really hard for me to see a clear path to growth here. I hope I'm wrong. I hope they succeed. But we'll see. John, we'll have you back on, I'm sure, to discuss. This story is far from over.
Rosevear: All right. Thanks very much, Nick!
Sciple: Yes. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass! For John Rosevear, I'm Nick Sciple. Thanks for listening and Fool on!
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