This was originally submitted as a set of comments on a separate article on WT, but will re-submit directly to my page here, with light reworking (and some additions) to fashion it into a post. Despite Tesla’s ~20% fall from the latest addition to my short position at $370, I’m not taking profits. They can’t raise debt in any material quantity – current bond yields are already 7%-8%. Raising equity is difficult when under SEC investigation from multiple angles because there is both financial and legal risk on part of banks and lenders. This company’s primary business model is selling equity jawboned upward by the constant flow of audacious lies of its CEO. It has a secondary business of selling electric cars at a loss. * Why has Musk continually been rewarded for his flagrant overestimations of earnings, production schedules, and other matters surrounding the company? A big part of it is that tech beat reporters tend to be very bullish and optimistic about the industry in general. Accordingly, they tend to buy into the fantasies and mass movement even in cases when they have very limited basis in reality. The sell-side is largely not helpful because their primary function is to help build relationships and procure business for the investment banking division, which leads to bullishness due to the conflicts of interest. Solar and electric car manufacturing It is also an industry with plenty of virtue signaling, such as “clean energy,” and is thus there is much political energy and bias behind it. Tesla’s accounts payable are ballooning – days payable outstanding is 82, an incredible figure, and each one-day reduction costs Tesla $50 million. That’s why you see an uptick in suppliers asking for cash-on-delivery and first liens. They know it’s an increasingly precarious financial situation and don’t want to get screwed. Total number of mechanics liens are 14. Suppliers are already providing financing and the obvious answer as to why is because willingness among traditional lenders is dwindling and any terms would become increasingly onerous. These problems are only exacerbated by a formal SEC investigation over, securities fraud, Model 3 production disclosures, among other issues. Private lawsuits are mounting. The $420 “funding secured” tweet was an obvious lie and constituted securities fraud if the law is applied by the book. There should not be a set of rules for some types of people and a set of rules for everybody else. Not only do the mechanics of the “$420 deal” make no sense, as I’ve elaborated on at length elsewhere, but why would anyone buy the company now or any of its IP (all virtually replicable) or other assets when you can simply buy it in bankruptcy for cents on the dollar. The NYT interview also doesn’t reflect the state of a mentally or emotionally healthy individual. The Tesla board is aware of Musk’s recreational drug use and have been leaking their concerns publicly regarding his erratic and irascible behavior. In terms of the competition, you have at least eight other cars manufacturers selling electric vehicles (a niche product) with MSRPs that undercut the Model 3 – Chevy, Fiat, Nissan, BMW, Kia, Mitsubushi, Smart, Hyundai, plus higher price point offerings from Jaguar, Mercedes, VW, and Karma. The company has no moat. Tesla can’t sell the Model 3 at $35k, a lie that it used to draw funding, because it loses $5,000-$6,000 per vehicle at that price. More competition is soon rolling out that will pressure demand for it going forward and make its $49k-$80k selling prices on the Model 3 untenable. And the difference between Tesla and these companies is that the competition actually has other automobile lines that produce cars at a profit and can mass produce them. The $420 offer puts TSLA at a 90% premium to Ford and 35% premium to GM and those companies produce almost 7 million and 10 million vehicles per year, respectively, all at a profit. Tesla can’t even produce 5,000 finished cars per week. It grew weary of the criticism regarding its production and manufacturing failures so it simply decided to change the definition of what production entails to “factory gate” or partially completed vehicles. It’s unbelievable how much dumb money is inside this stock. Didn’t anyone learn anything from Enron? Among other issues: 1. Tesla’s board is trying to hire a #2 executive / COO. Musk says there’s no active search to his knowledge. Good luck to any individual willing to accept the position to take on a company with a broken balance sheet and massive litigation risk that can total in the billions because of the following: i) Aug 7 “funding secured” Tweet contained untrue, misleading info ii) Juiced stock from ~$355 up to ~$387, the total range of that move being some $5.44bn in market cap iii) Losses that were at least temporary/paper/mark-to-market were well north of $1bn, around $1.5bn using a diluted share count of 170M, excluding the value of derivatives and other securities holders (bonds) which is going to add a lot more to that total iv) Investors will look to seek liability over said losses given the information that moved the market was untrue 2. The board has leaked their issues concerning Musk’s erratic behavior publicly, including his chemical dependency issues 3. $2bn was open to Tesla in the form of the Saudis taking a private investment in public equity (PIPE). Musk said no. Why? Because when money like that goes into a PIPE they get info that is otherwise not released to the public in exchange for not being able to trade their shares. That money is still subject to diligence and the Saudis can still back out and create negative headlines for the company if it were to occur – e.g., “Saudis back out due to issues unknown to the public” 4. As abovementioned, the $420 tweet was a complete lie, almost 40% above the current price. He made the misleading tweet because of his petulance and irascibility as it pertains to short sellers (if you have a legitimate business, it doesn’t matter). This is securities fraud because no such plan existed. Afterwards, when lawyers told him of the potential legal ramifications of his tweet – that it wasn’t just another garden-variety lie of his because it sets up himself and the company for litigation risk – he began to backfill and claim some take-private plan was in the works at that price, which, as I’ve expatiated at length on here, is completely untenable and would require tens of billions of extra debt being attached to a company with no cash flow, earnings, or pre-existing liquidity to service it. It would be financial suicide. 5. New whistleblower complaint to the SEC alleges: (i) $37 million in unreported parts theft, (ii) drug trafficking, (iii) concealing info from the Drug Enforcement Administration, and (iv) spying on employees by hacking into computers and cell phones and wiretapping them. Does it mean anything? That’s for the SEC to determine, but it’s yet more litigation risk on top of the billions of dollars’ worth it’s potentially already facing, as these are very serious allegations.