Let’s Look At Some Reasons Andrew Left May Be Correct About Tesla

OCT 25 2018 BY EVANNEX 20

FIVE REASONS ANDREW LEFT COULD BE RIGHT ABOUT TESLA

One of Wall Street’s most famous short sellers, Andrew Left of Citron Research, has been trying to make a mockery of Tesla for years. Five years ago Left crowed, “By the time this [Model 3] product is even approaching market, there will be multiple other 200-mile range plug-ins that have been out for years.” In turn, Left bet heavily against Tesla — sure that the electric automaker was doomed. Then, it all changed.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla’s Model 3 (Image: Tesla)

When Tesla surprisingly pushed their Q3 earnings forward, Left got religion. He wondered, “Does anybody think that Tesla decided to move up its earnings release date because of bad news?” His come-to-Jesus epiphany was revealed in a shocking report, that left Left (no pun intended) a sudden believer in the automaker. Looking back, was there any truth to Left’s newfound contentions (and confidence) surrounding Tesla?

Contention #1: Left argued, “While the media has been focused on Elon Musk’s eccentric, outlandish and at times offensive behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being dominated by Tesla. What has changed? Plain and simple — Tesla is destroying the competition.”

Verdict: You decide. Tesla’s Shareholder Letter states, “Q3 2018 was a truly historic quarter for Tesla. Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume.” Furthermore, “Due to the ingenuity and incredible hard work of our team combined with an innovative vehicle design and manufacturing strategy, we have achieved total auto gross margin of ~25%.”

Above: A look at US passenger car sales in Q3 and the dominant position of Tesla’s Model 3 (Source: Tesla)

Contention #2: Referring to the Model 3, Left argued, “it is not just pent up demand from people on the reservation list… [more] people are spending more money to be a part of the ‘Tesla Revolution.’ TSLA is not just pulling customers from BMW and Mercedes but also from Toyota and Honda. Like a magic trick, while everyone is focused on Elon smoking weed, he is quietly smoking the whole automotive industry.”

Verdict: Left seems to be onto something. Tesla revealed during earnings, “Model 3 is attracting customers of both premium and non-premium brands… Based on trade-ins received from customers since the start of Model 3 production, more than half of those trade-in vehicles were priced below $35,000 when new. It is clear that customers are trading up their relatively cheaper vehicles to buy a Model 3.”

Contention #3: Left said, “While the media parades around short sellers (yes, Citron has been one of them) attempting to make a piñata out of Tesla and Musk… Tesla [and Musk] will, finally, after 10 years of unprofitable existence, have the ability to prove that it can be a sustainable, highly cash flow generative entity.”

Verdict: This is proving to be correct. Tesla’s earnings blew away Wall Street’s expectations. Finally profitable, the company announced, “we achieved GAAP net income of $312 million… and we had free cash flow (operating cash flow less capex) of $881 million.” Furthermore, “as we have transformed from a 100,000 per year unit carmaker into a ~340,000 unit per year carmaker, our earnings profile has flipped dramatically.”

Above: Over the years Tesla has struggled to turn a profit — that is, until now (Source: Wall Street Journal)

Contention #4: Left contends, “No OEM is even close to having Tesla’s level of connectivity and ‘upgradeability’ in its cars. Tesla is dominating the industry with no advertising, no unions, no dealer network. It has 1,100 charging stations and a Gigafactory.” He adds, “No tequila, flamethrowers, or short shorts – just a revolution in the transportation industry.”

Verdict: Forget the sideshows. Tesla announced the unveiling of, “Version 9.0 of our vehicle software, which marks our biggest software upgrade.” In addition, there are now “351 [store and service] locations worldwide… [and] a total of 1,352 Supercharger stations.” And don’t forget Tesla’s new Gigafactory in Shanghai which should “bring portions of Model 3 production to China during 2019.”

Contention #5: Left writes, “Rumors of the Tesla killers have been as constant and unfounded as Bob Lutz’s call for Tesla’s bankruptcy.” He adds, “There is NO Tesla killer. Competition is nowhere to be found… Tesla appears to be the only company that can actually produce and sell electric cars. If you would have shown us the below chart five years ago there is no way we would have ever believed it. It looks like it is the competition that is taking the Ambien.”

Above: In the third quarter, the #1, #2, and #3 best-selling electric cars in the US were all Teslas (Source: Citron Research via CleanTechnica)

Verdict: The chart above says it all. To punctuate this point on the earnings call, Elon Musk declared, “[It’s] very difficult for other companies to compete with Tesla because we are the most efficient car and [have] the lowest cost batteries… I do encourage our competitors to really make a huge investment, we’ve been saying that for a long time… [but] the fact of the matter is, we made the investment in the Gigafactory and other companies didn’t.”

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Source: Citron ResearchTeslaCNBCCleanTechnica

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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20 Comments on "Let’s Look At Some Reasons Andrew Left May Be Correct About Tesla"

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Doggydogworld

There is absolutely no Tesla killer. Tesla nibblers are coming — low volume cars like i-Pace designed to keep customers from defecting from legacy brand names. Especially in Europe. That’s a defensive strategy, not a “go forth and conquer” strategy.

MDEV

VW has 10 imaginary Tesla’s killer so far.

Prsnep

“low volume cars like i-Pace designed to keep customers from defecting”

How do you know this?

antrik

While I agree with the sentiment, I don’t think I-Pace is exactly the best example… For Jaguar, it’s not a low-volume car.

windbourne

Its funny.
By definition, ANY Tesla killer, will be gutting their own cars. The reason is that Tesla is destroying the competition’s sales and if another EV can destroy a Tesla line, then, it will destroy its own line of cars.

Sri

Did he suddenly find all this after Tesla preponed the earnings call? He is supposed to be a “professional analyst”. Better late than never, I suppose.

Doggydogworld

Left obviously prepared his research note before Tesla announced the surprisingly early earnings release date. He added the comment about Musk releasing good news early to the end of his note and published it immediately. My guess is he didn’t get a full position before the price rise started, but he got fame and glory which in his line of work is more important.

Sri

I read his reasoning and watched his interview. I could have mentioned, and was actually mentioning, every one of those months ago. He sounded like he actually started to look into what Tesla is actually doing after model 3 started selling really well. Kinda confirms belief in not listening to “analysts”

antrik

Frankly, even ignoring the lack of anything substantial in that “research note” that isn’t old news around here, the tone of his writing doesn’t sound all that “professional” to me…

ffbj

Does this mean that this site will not longer be plagued by individuals who can’t spell, write grammatically correct sentences, nor construct logical arguments, and are generally taciturn, humorless individuals?

dan

No. Your terrible use of coordinating conjunctions makes it clear that poor grammar is with us to stay.

Pushmi-Pullyu

Obviously you’re not a fan of the Victorian writing style. Furthermore, you’re confusing grammar with style. His grammar is perfectly fine.

#GrammarNazi

dan

They are called “coordinating” conjunctions for a reason. Neither/nor. Either/Or. The concept is baked into even the logic that drives your Tesla – AND, OR, NOT. Victorians didn’t have their own logic.

#GrammarDDay

MDEV

There are a lot of people form different countries in this forum who may have grammatical challenges, do not value intelligence for that. Perhaps you need to travel, is a healthy exercise.

Jiří

Hello from Czech Republic 🙂

Pushmi-Pullyu

Welcome, Jiří!

People who use English as a second language should be given some leeway, and some sympathy, when struggling with a difficult foreign language like English, for which there are exceptions to every rule.

Contrariwise, regarding those of us for whom English is the mother tongue, there is no excuse for bad spelling or grammar. It’s either laziness or ignorance. (…or my inability to proof-read my own text. Heck, I know what it’s supposed to say! 😉 )

TomArt

The I-Pace looks like a vehicle that could sell very well; however, at the volumes Jaguar is planning, it won’t make a noticeable dent in Tesla sales, particularly since the I-Pace will take sales away from Jaguar’s ICE models and from the other luxury brands, just like Tesla is. There is plenty of room for more compelling EVs for the time being. Tesla is positioned very well, even without the tax credit.

Matthew Kennel

Musk gave away the secret of the success to everyone. He drove to the heart of the matter as a physicist does, the key first principles. The key center of laws of physics and realities of economics.

It’s exactly the same as what made SpaceX successful: highest vehicle efficiency, and lowest cost propulsion manufacturing. Not mentioned: write your own operating system for the entire vehicle, don’t be lazy and attempt to integrate parts and ecu’s programmed by different vendors.

He has a habit of seeing a problem, recognizing the largest, most difficult and most expensive (initially) challenges and doesn’t give up but orders people to tackle them first, at the beginning.

Pushmi-Pullyu

We can certainly admire Elon’s ability to think outside the box and come up with innovative solutions, but he needs someone to balance his flights of fancy with a healthy dose of practicality. Elon’s determination to run a factory according to “first principles of physics,” to speed up throughput by 5x or even 10x… that didn’t work out so well. In fact, that attempt was mostly or entirely a disaster for Tesla.

antrik

The only real mistake was trying to do it all at once, instead of cranking up automation gradually. (Which is entirely unrelated to “first principles” thinking.) And in spite of all the drama about production delays, the truth is that automation did work out very well in some areas — I’m not at all convinced that the result was bad on balance.