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Tesla's Disastrous Miscalculation – Tesla, Inc. (NASDAQ: TSLA)

Tesla (TSLA) closed its latest capital increase on May 15, th and collected about 2.7 B of cash from a sale of 3.55 MM shares linked with a 2% convertible senior note increase of $ 1, 84B. As per the 8-K file provided in support of this capital increase, the conversion price of the higher note corresponds to $ 309.83 per TSLA share, with the issued shares being priced at approximately $ 243 per piece.After the poor 1Q-2019 finances showing a net income of $ 668 million, despite delivering 63,000 vehicles and a reduction in net cash and equivalents of 1,594 BB (after repayment of the failed 0.25% Convertible Senior Notes 201 9 – the offer) this cash injection was the regular gallon of water pulled into the abdomen by dehydrated bank accounts. Reported cash and cash equivalents amounted to USD 2.20 at the end of the first quarter, with accounts receivable of $ 1.05 B. This matched almost one to one with the $ 3.25 B balance of payments account. Halfway through 2Q 2019 and the jury are still out on whether there will be a significant demand for recovery for TSLA vehicles. We should have Insideevs.com view of May 2019 US deliveries within the next 7-10 days, followed by information on Europe and China deliveries tracked by a cadre of valued applicant Alpha contributors not long afterwards. With the various and well-documented price reductions for various TSLA models during the first quarter, at a high level, these seem…

Tesla (TSLA) closed its latest capital increase on May 15, th and collected about 2.7 B of cash from a sale of 3.55 MM shares linked with a 2% convertible senior note increase of $ 1, 84B. As per the 8-K file provided in support of this capital increase, the conversion price of the higher note corresponds to $ 309.83 per TSLA share, with the issued shares being priced at approximately $ 243 per piece.

After the poor 1Q-2019 finances showing a net income of $ 668 million, despite delivering 63,000 vehicles and a reduction in net cash and equivalents of 1,594 BB (after repayment of the failed 0.25% Convertible Senior Notes 201

9 – the offer) this cash injection was the regular gallon of water pulled into the abdomen by dehydrated bank accounts. Reported cash and cash equivalents amounted to USD 2.20 at the end of the first quarter, with accounts receivable of $ 1.05 B. This matched almost one to one with the $ 3.25 B balance of payments account.

Halfway through 2Q 2019 and the jury are still out on whether there will be a significant demand for recovery for TSLA vehicles. We should have Insideevs.com view of May 2019 US deliveries within the next 7-10 days, followed by information on Europe and China deliveries tracked by a cadre of valued applicant Alpha contributors not long afterwards. With the various and well-documented price reductions for various TSLA models during the first quarter, at a high level, these seem to have been relatively constant during the second quarter (without news of a series of price increases). However, this can change with the redemption of the last five weeks of the quarter. My opinion is that TSLA is likely on the way to a net income (loss) of ~ $ 500 MM, a similar result to Q1. A slightly reduced loss based on what I hope is a better thought and planned delivery effort on ships to overseas markets. Deliveries can reach around 67500 to 70000, with a large part of these as a reduction in deliveries “in transit” at the end of the second quarter compared to the first quarter.

Autonomy Day

Held on Monday 22 nd April 2019, the event was a future of TSLA’s future. I will not go into detail about the event (and I am not authorized to comment on the technology), but just give an overview of the presentation below about what is covered, which I have downloaded from CleanTechnica:

  • Purpose with autonomous day – the company considered that the focus was on model 3 to the detriment of the rest of the company’s story
  • Full Self Driving [FSD] Chip (presented by the Pete Bannon) system, system timeline and design requirements
  • The neural network (presented by Andrei Karpathy) – simple example of how it works, followed by Tesla specifications, limitations of self-driving simulations and inaccuracies, and how they are used to “train” the system [19659008] The software (presented by Stuart Bowers) – short on time compared to FSD Chip and Neural Network presentations, simple presentation on the links on how the software used the hardware and neural service to learn how to drive
  • Redundancies, Masterplane n and Robotaxis (presented by Elon Musk) –
    • Explanation of the layoffs built in to alleviate some individual points of failure
    • Starting of the first robot ax in CY2020 (mentions that he is criticized for overly ambitious timelines, but claims what he promises “come to life”)
    • Production of model Y and Semi in full in CY2020
    • Indicates that the vertical integration TSLA already has an advantage that no one can come up to
    • Producing 10,000 Model S, X and 3 per week at the end of CY2019
  • Physical demonstrations, etc. – are mainly provided to investors only

Let us be clear, it was a presentation that was put to the investment community, not to fans, employees and the who believes in the “mission”. As per the CleanTechnica article linked above “as the subscription begins, I notice how common the room is. This looks less like a regular Tesla presentation and more like an investor conference that is interesting.” The only purpose of this event was true it was said at the beginning of the presentation per TSLA, to focus on the rest of the story. Translated to “what we really mean”, convincing the investment community was that Tesla was still a company that would be classified and stocked and multiples of exponential growth potential.

Measured against the purpose of TSLA or by “what we really mean” language, it was a false failure. A F. A must repeat the beginner year of high school “failure. It did not” wow “and” stun “(not in the way TSLA hoped for) The majority of participants in the investment community, with some decreasing price targets before the 1Q-2019 revenue two days later after Wednesday 24 th April:

  • UBS – a 20 minute test drive with two (2) driver inputs (in a non-complex environment in fine weather) Consider that the autonomous vehicle timeline is too aggressive and short-term challenges are pressing
  • Needham – believes that Level 2 (not L4 / L5) will reach the mass market in CY2020.Septic against robo-taxi initiatives due to significant regulatory barriers
  • Morgan Stanley (Adam Jonas) – paraphrased: the time two days before the 1Q result was not insignificant, to focus the market on TSLA’s strategic value rather than just the profit Tone of presentation directed at a venture capital audience as much as a public market shareholders
  • Cowen (Jeffrey Osborne) “We see a significant amount of technology and execution risk in the strategy of switching from competing for just electrification, to Tesla also beating Nvidia in hardware, Google in software and building a better rescue service than current leader. “The test that Tesla offered after the event was” much less impressive than the rides we experienced at the Consumer Electronics Show over the past two years. “
  • Roth Capital Partner (Craig Irwin)” We saw the autonomous investor day as sublime, Tesla made bold statements which largely lacked the topic of credibility. With two attempts to redirect investors before the first quarter’s profit (first was model Y), we expect a weak quarterly guide. “
  • ISI Evercore (Arndt Ellinghorst)” We are still encouraged by Tesla’s vision and future growth prospects (brand value, global model 3 and Y TAM, Semi etc.), but there is increased uncertainty about short-term demand compared to previous high-level forecasts and growth cannot remain for a growth company. The change of recommendation and lower price target is driven by a more cautious view of demand for all models (M3 global / SR + launch), but especially the recent severe downturn in demand for model S / X “.
  • Goldman Sachs (David Tamberrino) “Headlines in and forth Without the incident, our investor talks were mixed – but more cautiously gave up incoming revenue. In the short term, there was concern over demand – not only sustainable demand levels for model 3 but also questions about drop-off in model S / X deliveries in 1Q19. “[19659008] Oppenheimer (Colin Rusch)” Beyond Model 3 demand and cost-reducing driving cash flow, we believe that the model S & X update cycle and pricing strategy are the focus of short-term investors, while the long-term story is increasingly weighted to China selling “

Analyst comments sources:

https://www.bloomberg.com/news/articles/2019-04-23/tesla-analysts-skeptical-of-bold-autonomy-plan-ahead- of results

Teslas Autonomy Investor Day – Analyst Comment

https://markets.businessinsider.com/news/stocks/should-i-buy-tesla-stock-2019-4-1028135445

Post Autonomy Day reaction

After the autonomy day failed to convince the investment fund that billions in sales and tens of thousands of vehicles produced and sold are merely window dressings in comparison to the “future” was writing on the wall. TSLA knew that the profit they would release for 1Q was terrible. The day, what can now be regarded as a 150-1 rough run (horse racing for a rank outsider in a horse race), last ran with seven furlongs, and this week would be ugly. And it did.

Underwhelmed analysts with clients to serve, reputation for retaining (perhaps with some damage to mitigate) needed to take action. And they did it. There was no main plan for the future to point out to distract the results from 1Q-2019, from what was unthinkable literally a few months earlier after having posted a solid 4Q result, which gave a similar result in 3Q.

Let’s take a look at the chart showing 25 days on both sides of the autonomy day.

 Stock price / Volume chart

Source: Yahoo Finance TSLA Historical Data

Leading to the Independence Day, even after the end of 1Q-2019, price action and volumes were dampened, in addition to the blip from $ 291 to $ 268 on 4 th April when production and delivery numbers for 1Q came out and probably came the reality of a bad quarter ahead. But even then it was an atypical “stable as you are” daily volume and the price was crowded into a channel of $ 265 to $ 275. Then Autonomy Day, and then 1Q-2019 results. A week of fines below $ 240 and up on a Friday to $ 255 after announcing the capital increase was held on the following Monday, then sliding glide to where we ended on Friday before Memorial Day.

Does anyone know that the latest free case of the TSLA share price is not related to the autonomy day? This was meant to razzle and dazzle and convince the investment community to “keep the line”, to divert from the poor 1Q-2019 results. Don’t look at what we’ve just done, look at what to do, and not in five years, but in a year or less! It was a complete patent error.

The capital increases almost a year late

The perfect time for the capital increase would have been 2Q-2018 to 3Q-2018 when the model 3 ramp was about to lift off. It would not have meant that Elon had previously said that TSLA could grow organically or did not need any other capital increase. He has said a lot of things that have proved to be optimistic (or late in timing), and many of them seemed to have had minimal or almost no impact on him as CEO or TSLA as a company and how TSLA was seen by the investment fund at that time.

It was not that investors would have believed it as much as the insurers could have sold it. But there were still many believers in 2018. Many would criticize this for another instance of “see what I do, not what I say” from Musk. In order to burn the growth story, based on phenomenal model 3 reservations and interest rates, a capital increase could have been defined for future Gigafactories and the development of future models. Hell, right now they could also be called sun and storage! Spend some time developing the Powerpoint images, developing the story (“story”) you sell and selling. My own opinion is that they could have (should have!) Raised another $ 3B to $ 5B, a split of equity and debt (a mix of convertible and 2025 + bonds). This would have deferred cash balance fear, bought time for the company to wipe out and solve the production efficiency and not handle the business in a higher level / crisis situation, which seems to be how TSLA works.

The diagram below plots Cash flow from financing activities per vehicle produced since 2008 (rolling 12 months since 4Q-2010) and cumulative net cash from financing activities. The previous capital increase was in 3Q-2017. If TSLA would continue to burn the growth story, 2Q-2018 through 3Q-2018 was time to do so. The TSLA share price fluctuated over $ 300 from June 2018 to August 2018. The investment market was waiting for the model 3 ramp. Surely all signs of a capital increase pointed to the benefit of TSLA riding high?

 Cash flow financing

Source: TSLA 10-Q, 10-K, 8-K

Wise counsel vs tin ears

Finally, some speculations from the author of former CFO. Someone so deep into the TSLA finances that former CFO Deepak Ahuja would surely have raised this with the CEO? He had been neck deep in TSLA longer than most senior executives and would you think has the best understanding of TSLA financials by anyone? Surely he would have flagged the chance to take advantage of the high TSLA share price and the upcoming model 3 ramp? His time to leave immediately after the Q4-2018 payout release (announced with a bungled comment in the tail end of Elon’s redeemed calls) might have thought excitement at management level. I don’t know, maybe, maybe not. I know from my own experience working with more billions of capital projects, which do not have a proactive leadership at the higher level to hunt and secure the right financing, whether it is the decision on sanction / final investment decision or annually more to screw with sound management practices than knee knee decisions and reactionary comments.

It’s about “putting the table” for success. Failure to have the right funding on site at project level can handle all decisions. Failure to raise additional capital by mid-2018 at the perfect storm of timing for TSLA was a catastrophic error assessment. Most of the SF (Special Forces) branches in different countries exercise armed forces an exponential amount of scheduling assignments / operations compared to the time required to perform them. British SAS (Special Air Service) is known for applying Six-Ps in mission / operation planning – Proper preparation prevents Piss Poor Performance. TSLA could carefully consider some of these advice and spend more time planning. TSLA has also learned in recent weeks that the investment society is not always your friend.

Disclosures: I / we have no positions in any listed shares and no plans to start any positions within 72 hours. I wrote this article myself and express my own views. I do not get compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional Information: Author’s Additional Information: Investors are always reminded that before making any investment, you should make your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial advisor before making any investment decisions. All material in this article should be considered as general information and not invoked as a formal investment recommendation.

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