Tesla: The Big Short and Asking for Cash Back

Tesla is coming out with earnings on August 1st, tomorrow. It seems like a nice time to write on a couple interesting stories that popped up recently.

Via CNBC we learn that Steve Eisman of "The Big Short" is now a bear on Tesla stock:

The portfolio manager called the company's founder Elon Musk a "very smart man" but raised concern about the CEO's ability to follow through on lofty ambitions. "He's got execution problems," Eisman, portfolio manager at Neuberger Berman, said in a Bloomberg Television interview Friday. "He's nowhere in autonomous driving, as far as I can tell, and big competition is coming in his space next year."

I think there is no doubt that Musk is a very smart man. He's built 3 electric vehicles. But then he's also a person who likes to over-promise. And then there is the building cars in under a tent situation.



As for the big competition comment, Green Report has a list of electric vehicles coming out in the near future (or already are out) that includes brand names such as: Jaguar, Audi, Mercedes and Volvo. Though it should be notes that via Business Insider that Jaguar is delaying delivery dates for those who are buying the standard version. So isn't just Tesla that is delaying orders. Though I do believe Tesla admitted that they were delaying orders for the standard version as those versions wouldn't provide enough profit while Jaguar is saying that the standard versions are being delayed due to high demand. I suppose it is just wording as Jaguar is likely pushing out the premium versions first as they do provide better margins. Either way, competition is here and arriving.

Steve Eisman may or may not be correct in shorting Tesla, but he obviously did his homework in researching the housing crisis.

I suppose the big interesting story is how Tesla asked for money back from suppliers. Via the Wall Street Journal:

The Silicon Valley electric-car company said it is asking its suppliers for cash back to help it become profitable, according to a memo reviewed by The Wall Street Journal that was sent to a supplier last week. Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016, according to the memo. The auto maker’s memo, sent by a global supply manager, described the request as essential to Tesla’s continued operation and characterized it as an investment in the car company to continue the long-term growth between both players.

To me, it seems strange to ask for a refund for work that has already been done. I could understand wanting to renegotiate deals, but asking for money back seems to carry an air of desperation. I could see it as an attempt to avoid having to go back to the capital markets, which they've already said that won't need to do in 2018.

Tesla did respond with the following to The Street:

Negotiation is a standard part of the procurement process, and now that we're in a stronger position with Model 3 production ramping, it is a good time to improve our competitive advantage in this area. We're focused on reaching a more sustainable long term cost basis, not just finding one-time reductions for this quarter, and that's good for Tesla, our shareholders, and our suppliers who will also benefit from our increasing production volume and future growth opportunities. We asked fewer than 10 suppliers for a reduction in total capex project spend for long-term projects that began in 2016 but are still not complete, and any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in Q3. The remainder of our discussions with suppliers are entirely focused on future parts price and design or process changes that will help us lower fundamental costs rather than prior period adjustments of capex projects. This is the right thing to do. 

That seems to me to be carefully worded PR.