Hi everyone! It’s been a while since we talked about Tesla. If you’ve followed the blog for a while you know that I bought Tesla since 2012 and rode it up through that time, but I got rid of my Tesla position in August, and bought shares in lithium producer, Albermale Corporation instead. My reasons for getting out of Tesla were three fold, the first was that I needed cash to pursue an opportunity in real estate, the second was that the company was getting riskier by the day with production difficulties, scale issues, a heavily stretched balance sheet and a crazy valuation. In fact, I sold at the peak of the enthusiasm over the Model 3 launch and while the company may yet pull things off, I’ve made super solid returns on the stock over the years and there are easier, less stressful ways of making money. The third reason is that Tesla is going to be facing increasing competition in the coming year, as I implied in this post.
It looks like I got out at the right time. The stock hasn’t ended the month with a gain since August, it’s bonds are not doing too well but the worst of the bunch is that Model 3 production has not gone well at all. I haven’t been following them as eagerly as I did when I was a shareholder but I did some digging around to understand why there was such a huge delay in their Model 3 production and apparently it’s really bad. Here’s a quote from one of their suppliers, who supplied them with parts for both the popular Model S and what was supposed to be the mass market savior of the company, the 3.
“I have to be careful about what I say but it’s a big mess.,,we were on a conference call with their production team and Tesla’s manufacturing lines are not working. The issue is the body welding, they have no one who can run the robotic welders, they’re finding it impossible to regulate and apply the right amount of heat for high speed welding. They have the right robots but the specialized skillset needed to make them production-ready and use them effectively is what they don’t have.” They claim Tesla has asked them to reduce their supply of parts for the foreseeable future, and produce to order, not high volume. They clarified that the Model S and X production lines had been plug and play from the old Toyota factory and since everything had been low volume, they did not need to do much differently. With Model 3, everything is new, and geared toward mass production and Tesla just didn’t have what it takes and were naive about how much effort it would require to try to mass produce cars like a Model 3 with all it’s technological innovation.
Now this is a challenge and every innovator and entrepreneur faces one. It may be possible to solve this, to strike a deal with a bigger carmaker and I’m sure Elon will find a way but the question is whether the company will have enough money to see it through this process. As it is, the company has gotten this far through sheer financial artistry, lucky saves, capital deals over the years but all of those have kind of come full circle. This was supposed to be the point where Elon hits 500,000 car production levels and justifies all the billions burned over the years. If he fails to deliver, I’m not sure many people will have the appetite to give more capital to Tesla. They may have to sell, merge or something.
Mind you, I’m not crying wolf. Tesla might pull through. I want them to. But sometimes, it’s also good to know what the situation is, and what should be done about it. Am I going to short Tesla? Nope. I don’t like naked shorts and I don’t have any position that a Tesla short will help me hedge so I’ll just sit back and observe.
A big picture lesson from this if there is one is that at the end of the day, everything boils down to people. You might have the right tools, technology, loads of money, a plan and even a process that works. If you don’t have the right skills, the right people to run the machine you’ve built, you’re going to have problems. And that is an insight that you can apply to any endeavor you have. People matter. A lot. A whole lot.