Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

SC Capital has over 20 years' experience covering the global automotive industry both on the Sell Side (UBS & Morgan Stanley) and Buy Side (Och-Ziff), along with a wealth of industry contacts. 

Current focus is on electric vehicle stocks & their supply chains. Aim is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well.  

From time to time. we cover opportunistic events with stocks in the manufacturing sector, food & beverage, healthcare and tech, where we also have coverage experience.

Global Automotive Stocks/EV Focus/Event Driven

Tesla (TSLA): Highlights from the 2Q18 Earnings Call - Chinese Banks to Fund Gigafactory 3

Tesla's Autopilot 3.0 Hardware - The Delusion May Be Dawning

Tesla--An Analysis of Musk's LBO Intentions and What Would Be Required

Tesla: As Musk's Reputation Disintegrates, The Only Positive for the Stock Is Disappearing

Tesla's China Problems--Price Hikes & Competition in Its Second Largest Market

Panasonic (6752)--A Global Mega-Automotive Supplier & Perfect Hedge Against a Tesla Short

Honda and Panasonic To Research on a Battery Swapping System for Electric Motorcycles in Indonesia

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

Equity Bottom-Up

<ul>
<li>
Any Other Board of Directors Would've Found a New CEO for Tesla: Elon Musk has been displaying increasingly erratic behavior both on Twitter and in action. Some of the more controversial behavior--e.g. calling a British rescue diver a pedophile on Twitter--would have led to his removal as CEO by more reasonable boards of directors at other listed companies.</li>
<li>
Erratic Tweets &amp; Behavior Lead to a -13% Slump in Tesla's Share Price this Month: What is unnerving to Tesla shareholders is the fact that Musk's questionable tweets and actions have spiked recently (see Chart-1 &amp; Table-1) and they have begun to increasingly weigh on Tesla's share price, which is down -13% this month. </li>
<li>
Musk Muzzles a Tesla Short-Seller from Twitter &amp; Blogs: Musk recently threatened to sue a Tesla short-seller who blogged under the pseudonym "Montana Skeptic". When this blogger--in response to Musk's threats--voluntarily shut down his Twitter account and bid farewell to over 2,000 of his blog readers, Musk tweeted a lewd photo of Miley Cyrus, who used to play the main character in the Disney series, "Hannah Montana", making fun of the Tesla short-seller even after he stood down. </li>
<li>
Five Attacks by Musk This Month Alone: Musk's combative tone towards journalists with a negative view on Tesla or Tesla short-sellers is nothing new, but the escalation of such attacks--there have been five this month alone--make it appear as though Musk is starting to really lose his mind--another negative aspect for the share price. </li>
<li>
Meanwhile, Tesla Executives Abandoning Ship: What is also alarming is that, as all this is unfolds, the number of executive departures is rising at a faster pace than seen before in Tesla's short history as a car maker (see Chart-2 &amp; Table-2). While there were only 8 departures of senior Tesla executives in 2016, this rose to 14 in 2017 and, so far during the first half of this year, there have already been 11 executive departures. </li>
<li>The walls are closing in on Tesla and Musk might be starting to feel the pressure, which could help explain his recent erratic behavior and the rising exodus of key executives.</li>
<li>
Model 3 Might Not Sell in Such High Volumes at Current Price: Musk has admitted that Tesla cannot profitably sell the affordable version of the Model 3 at a $35,000 price tag, which means that only versions of the Model 3 at the current price levels of around $55,000+ will generate a profit. As we've mentioned before, this will immediately reduce the addressable market for the Model 3 by around -80%, from 10.6m units (the US market size for cars priced between $25,000 to $49,999) to 1.85m units (the market for cars priced between $50,000 and $75,000).  </li>
<li>
Watch Out for Jaguar, Audi, Benz &amp; Porsche: This luxury segment that the Model 3 will now have to compete in will see a flood of competition coming from European car makers such as Jaguar (already on sales in Europe), Audi (from early 2019), Mercedes Benz (2019) and Porsche (2019). All of these models, except maybe Porsche's new EV, should be priced lower than Tesla's EVs. And the higher priced Model 3 is inevitably cannibalizing sales of the Model S, which is already 6 years into its model cycle. </li>
<li>China &amp; Norway Sales on a Potentially Long-Term Decline: Tesla exports to China and Norway--its two biggest markets after the US--made up 24% of its global revenues in 2017 and should see a decline in sales this year. In China, new 40% tariffs on cars imported from the US should dampen sales there, while in Norway, Tesla sales appear to be on a decline due to inadequate servicing (too many Teslas; not enough repairmen). </li>
<li>
Market Not Buying Musk's "Profitable Q3 &amp; Q4" Story: While Elon Musk has vowed to generate profits and free cash flow in Q3 and Q4, the market appears to be saying "show me the money!", at least from a stock price perspective. Our concern is that, once Tesla blows through the reservations for the higher priced versions of the Model 3 in Q3 and Q4, it's profitability will undoubtedly suffer thereafter from having to sell lower-priced versions thereafter. And with the competition from rivals in the luxury segment, the Models S &amp; X should face stiff competition, which is alarming as both models generated 115% of Tesla's Q1 gross profit. </li>
<li>
Q2 Numbers Should be Horrible--More Conference Call Fireworks? Tesla reports Q2 results on August 1st and we expect some pretty nasty numbers. While revenues should have surged by +55% YoY to $3.5bn, we expect operating losses of -$627m (versus consensus estimates of -$368m), which would be up not only year-over-year, but also slightly worse than Q1's OP loss of -$597m. Analysts on the conference call will be highly focused on Model 3 net reservation numbers, which are rumored to be falling. We fear such questions could provoke further combativeness on Musk's part, which would be negative for the share price. </li>
</ul>



Any Other Board of Directors Would've Found a New CEO for Tesla: Elon Musk has been displaying increasingly erratic behavior both on Twitter and in action. Some of the more controversial behavior--e.g. calling a British rescue diver a pedophile on Twitter--would have led to his removal as CEO by more reasonable boards of directors at other listed companies.

Erratic Tweets &amp; Behavior Lead to a -13% Slump in Tesla's Share Price this Month: What is unnerving to Tesla shareholders is the fact that Musk's questionable tweets and actions have spiked recently (see Chart-1 &amp; Table-1) and they have begun to increasingly weigh on Tesla's share price, which is down -13% this month. 

Musk Muzzles a Tesla Short-Seller from Twitter &amp; Blogs: Musk recently threatened to sue a Tesla short-seller who blogged under the pseudonym "Montana Skeptic". When this blogger--in response to Musk's threats--voluntarily shut down his Twitter account and bid farewell to over 2,000 of his blog readers, Musk tweeted a lewd photo of Miley Cyrus, who used to play the main character in the Disney series, "Hannah Montana", making fun of the Tesla short-seller even after he stood down. 

Five Attacks by Musk This Month Alone: Musk's combative tone towards journalists with a negative view on Tesla or Tesla short-sellers is nothing new, but the escalation of such attacks--there have been five this month alone--make it appear as though Musk is starting to really lose his mind--another negative aspect for the share price. 

Meanwhile, Tesla Executives Abandoning Ship: What is also alarming is that, as all this is unfolds, the number of executive departures is rising at a faster pace than seen before in Tesla's short history as a car maker (see Chart-2 &amp; Table-2). While there were only 8 departures of senior Tesla executives in 2016, this rose to 14 in 2017 and, so far during the first half of this year, there have already been 11 executive departures. 
The walls are closing in on Tesla and Musk might be starting to feel the pressure, which could help explain his recent erratic behavior and the rising exodus of key executives.

Model 3 Might Not Sell in Such High Volumes at Current Price: Musk has admitted that Tesla cannot profitably sell the affordable version of the Model 3 at a $35,000 price tag, which means that only versions of the Model 3 at the current price levels of around $55,000+ will generate a profit. As we've mentioned before, this will immediately reduce the addressable market for the Model 3 by around -80%, from 10.6m units (the US market size for cars priced between $25,000 to $49,999) to 1.85m units (the market for cars priced between $50,000 and $75,000).  

Watch Out for Jaguar, Audi, Benz &amp; Porsche: This luxury segment that the Model 3 will now have to compete in will see a flood of competition coming from European car makers such as Jaguar (already on sales in Europe), Audi (from early 2019), Mercedes Benz (2019) and Porsche (2019). All of these models, except maybe Porsche's new EV, should be priced lower than Tesla's EVs. And the higher priced Model 3 is inevitably cannibalizing sales of the Model S, which is already 6 years into its model cycle. 
China &amp; Norway Sales on a Potentially Long-Term Decline: Tesla exports to China and Norway--its two biggest markets after the US--made up 24% of its global revenues in 2017 and should see a decline in sales this year. In China, new 40% tariffs on cars imported from the US should dampen sales there, while in Norway, Tesla sales appear to be on a decline due to inadequate servicing (too many Teslas; not enough repairmen). 

Market Not Buying Musk's "Profitable Q3 &amp; Q4" Story: While Elon Musk has vowed to generate profits and free cash flow in Q3 and Q4, the market appears to be saying "show me the money!", at least from a stock price perspective. Our concern is that, once Tesla blows through the reservations for the higher priced versions of the Model 3 in Q3 and Q4, it's profitability will undoubtedly suffer thereafter from having to sell lower-priced versions thereafter. And with the competition from rivals in the luxury segment, the Models S &amp; X should face stiff competition, which is alarming as both models generated 115% of Tesla's Q1 gross profit. 

Q2 Numbers Should be Horrible--More Conference Call Fireworks? Tesla reports Q2 results on August 1st and we expect some pretty nasty numbers. While revenues should have surged by +55% YoY to $3.5bn, we expect operating losses of -$627m (versus consensus estimates of -$368m), which would be up not only year-over-year, but also slightly worse than Q1's OP loss of -$597m. Analysts on the conference call will be highly focused on Model 3 net reservation numbers, which are rumored to be falling. We fear such questions could provoke further combativeness on Musk's part, which would be negative for the share price. 


Tesla--Could Elon Musk's Increasingly Erratic Behavior Be a Prelude to Further Problems at Tesla?