In recent articles, from both outside and within SA, authors continue to point to the Tesla, Inc. (TSLA) Supercharger network as Elon Musk’s ace in the hole or “Moat” (here), (here), (here), (here), and (here).
Anyone daring to question this logic has been pretty much tarred and feathered in responses to their articles. But I keep poking this hornet’s nest to try to get investors to see the Musk “Matrix” for what it is. Every day it seems more readers are taking the “red pill”. Hopefully, this article will cause a few more to make a similar choice.
Tesla has spent somewhere between $ 250 million and half a billion dollars (Tesla has not provided exact numbers) and needs to spend $ billions more on a still-growing network of high-powered Charging stations they have named “Superchargers”. It can get confusing in articles because authors tend to use the same name for both the individual stalls and the collective grouping at one location. Currently, Superchargers are for the exclusive use of Tesla customers around the world because of a unique port design.
Rumors have been floating of Tesla expanding access to other manufacturers presumably to reduce the costs of the program. It would make sense since most of the electricity is currently being given away for free. Yes investors, I said free…forever. Combine this with unlimited mileage warranties on Tesla Model S and X battery packs and drive motors and it is hard to picture Tesla ever achieving an annual profit.
In my previous articles, I have referred to the Supercharger as equivalent to the laserdisc, the first high-quality replacement to VHS tapes. As co-owner of a small chain of video rental stores in the early 90’s, I convinced my partners not to invest in these expensive discs that required special players while only offering a small selection of titles. At the time, I had read a new disc format (that would turn out to be the DVD) was being developed by Sony and others. We all know how that story ended, for both VHS and laserdisc. Pretty much the same story for cassette tapes versus CD’s. I have theorized new standards for charging ports would emerge that would be used across all EV brands, perhaps all countries, mirroring the past deployment of the DVD standard. As you will read, we are now there.
A couple of Tesla milestones have reportedly been reached earlier this month – 1,000 global locations and 7,000 total charging stalls are now in service. Remember that number. Just 1,000 global locations (416 in the U.S.). The race is still underway to reach Musk’s promise of 10,000 global stalls by year end.
Note the pace of growth in the above chart. It has taken almost five years to hit the 1,000 location mark. How is the growth rate of these locations supposed to keep pace with Tesla’s goal of 500,000 deliveries in 2018? That would be a seven-fold increase from 2016 deliveries and a five-fold increase from 2017 estimates.
China out in front, again
Monday we received new information from Tesla that they are redesigning the charging ports on all Model S and X vehicles for Chinese export to accommodate the growing number of CCS chargers in China, expected to become the “national standard”. (surprise, surprise).
Electrek (here) shows the new dual port design.
As the electric vehicle industry is maturing, automakers and charging network operators are trying to work together on open charging standards while adapting to specific requirements in different markets.
Tesla’s new dual connector charge port design appears to be the company’s solution to navigate those markets starting with China.
The Chinese government developed its own charging standard ‘GB’ and now Tesla has the standard built into its cars:”
The article continues talking about Tesla’s SC network in China…
Tesla has been building an extensive charging network in China and this is not changing anything about Tesla’s own Supercharger effort, but it will enable an easier access for Tesla owners to the growing public charging network in the country.
China has a new ZEV mandate to deploy 5 million EVs by 2020 and to support that, the government will deploy itself 12,000 new charging stations across the country. They are also working on an incentive plan for EV buyers to install home charging stations – they are planning to unlock $ 20 billion in financing for 4.8 million residential charging stations. (all emphasis by the author).
That “extensive” Tesla Chinese charging network Electrek refers to was reported in September (here) to be 150 locations with just 700 total stalls with the goal of 1,000 stalls by the end of 2017. 150 against a proposed 12,000 coming online by 2020. Extensive?… Who is Tesla kidding?
The New York Times ran a story last month that quoted a Chinese consulting firm estimating that by 2020 China will have spent $ 15 billion on public Charging Stations for EVs.
Folks, Tesla should not spend another dime on Supercharging in China and instead piggyback on China’s network. Henry Ford never ran around saying he needed to build a network of gas stations in order to sell Model T’s. He recognized others would do that for him. This is just a precursor to what will be happening globally. To quote the title of a hit song by popular singer JoJo, this is a case of “Too Little, Too Late”. The lyrics are something investors should be singing to Elon Musk.
Tesla’s Supercharger network in the world’s largest vehicle market just became irrelevant exactly as predicted. The “moat” will be drained in short order. Tesla should have been putting these funds to work where they would have produced better results. Other major nations will have no choice but follow China’s lead establishing national standards for all manufacturers, similar to USB ports. No one wants to have to carry a bag full of adapters depending on the charging source.
With countries pushing for ever greater adoption of EVs for environmental reasons, it is only logical commercial charging stations will soon be appearing in greater numbers all across the globe. This is precisely what the major manufacturers have been waiting for. Despite being accused of indifference to climate change, or pollution, they were actually making the smart move. We can expect commercial charging to grow in sync with buyer acceptance of EVs. Just watch how fast new models get announced in China by legacy builders as a result of this new infrastructure plan.
Here in the U.S., it is no surprise that Warren Buffett’s Berkshire Hathaway (BRK.A) has bought a large stake in Pilot/Flying J that is scheduled to grow to a majority interest in the early 2020’s. Pilot currently operates 750 travel centers across the U.S. and Canada. Berkshire also has a large stake in Chinese electric vehicle manufacturer BYD already building trucks and buses in the U.S. Combine the two and you have the perfect place to launch a network of EV charging stations. Much like movie theatres’ concession stands, Pilot’s profits are made inside their stores and restaurants, not out at the pumps. EV owners should be their obvious next target and Buffett will be right in the middle of this growth.
It has been interesting over the last year to watch the ever-changing “bull” story. This time last year it was a momentary push to profitability (since vanished). Then it was “growth”. That died with Q3 and likely will be minimal through Q1 2018. Sadly, bulls are focused on the wrong growth model. The growth of deliveries is only positive when that growth is profitable. With growth dead for now, the current road to prosperity was Supercharging. With that now losing steam, I guess next month it will be the Semi or Model Y? Unfortunately to date for Tesla, the more cars they sell the more money they lose. That is not going to change anytime soon.
Q3 will undoubtedly report the worst production losses in company history. Yesterday, Barron’s commented on Oppenheimer’s analyst Colin Rusch’s note to investors after his meeting with Tesla management last week. (How come we were not invited to this “insider” information?) He has now increased his expected losses for 2017 from $ 4.95 to $ 7.02 per share based on the meeting. That is a whopping 42% increase in projected losses.
Electrek’s story on the same Oppenheimer report did not include the loss projection (here) but did include Rusch’s estimate of just 3,005 Model 3 deliveries in 2017. Ouch! That is a long way from Musk’s promise of 5,000 units per week by year-end, and a very long way from Musk’s previous estimate of 100-200,000 Model 3 deliveries in 2017. (It is interesting how you need to read multiple articles on the same report to get the whole story).
However, I believe Rusch is lowballing the losses. Tesla will already be well above $ 1 billion by the time they report Q3. I see a double-digit per-share loss in 2017 being much more probable. This stock should have a warning sign: “Toxic: Do Not Touch!”
Disclosure: I am/we are short TSLA VIA PUT OPTIONS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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