Guest musings by David Middleton
#BUSINESS NEWSOCTOBER 27, 2017 / 12:47 AM / 4 DAYS AGO
Wall Street loves electric cars, America loves trucks
Paul Lienert, Joseph White
DETROIT (Reuters) – Wall Street may love the shares of Silicon Valley electric carmaker Tesla Inc (TSLA.O), but Americans love big, fuel-thirsty trucks like Ford Motor Co’s (F.N) bestselling F-Series pickups and are paying ever higher prices to buy them.
The auto industry is at a crossroads, with the future of legacy automakers like Ford, General Motors Co (GM.N) and Fiat Chrysler Automobiles NV (FCHA.MI) uncertain as governments float proposals to ban internal combustion engines over the next two decades.
But in the present, consumer enthusiasm for trucks and sport utility vehicles is strong, especially in the United States. And that is providing Ford, GM and other established automakers with billions in cash to mount a challenge to Tesla.
Tesla has ambitions to boost annual sales to 500,000 vehicles a year. But it is wrestling with the sort of production problems that old-line automakers have largely put behind them, and has reported a net loss of $666.7 million through the first six months of 2017. Analysts expect the company to post a third quarter net loss of $380.4 million when it reports results next Wednesday.Electric cars are money losers…
[…]
How much do Americans love trucks? This much:
- Ford F-Series (F-150, F-250, F-350 & F-450) Sales Data: Wikipedia and Ford
- Plug-in Electric Vehicle (PEV) Sales Data: InsideEVs
Total U.S. PEV sales are on track to catch up to the Ford F-Series pickup trucks as soon as 2033, with total PEV sales exceeding 500,000 vehicles by 2030. However, Tesla has indicated that they intend to boost production to 500,000 vehicles per year as soon as 2018… Which is probably one of the reasons they slapped a “gag order” on all Tesla Model 3 purchasers…
Tesla Muzzling Model 3 Buyers
Oct.25.17 | About: Tesla Motors (TSLA)
Summary
- Rumors of requiring NDA’s to be signed by Model 3 buyers are everywhere.
- Restrictions already existed on transfers of reservations.
- Newly uncovered terms are downright ludicrous!
Since the first Model 3’s were handed over to employee buyers in late July, rumors have been rampant of restrictions being demanded by Tesla, Inc. (TSLA) It would be perfectly understandable if Tesla was giving these cars to employees to test drive and evaluate. But they aren’t. Tesla continues to insist current buyers are paying full retail just like any other outsider. That being the case, what gives Tesla any authority to dictate terms to these buyers?
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1) Buyers are restricted from posting anything negative on social media.
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2) Buyers must retain ownership of their Model 3 for at least one year.
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3) Buyers are prohibited from selling their Model 3 for more than the original purchase price.
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This gets really crazy when it comes to enforcement. Not only does Tesla threaten employees with disciplinary action up to and including termination, they threaten the future buyer! Here is a copy of a portion of the actual form buyers are being required to sign.
(Source: CleanTechnica.com)
So Tesla is actually threatening to “reduce or disable” a second buyer’s purchased car! Seriously? How on earth could this be legal in this country? Retaliatory actions by a manufacturer towards a product legally purchased by a buyer!? God forbid Tesla does something stupid that results in an accident.
Were the recent firings a shot over the bow?
Tesla recently fired hundreds of employees. Tesla said they were for “poor performance”. However, in recent press articles quoting some of the fired employees, there are claims employees were called by phone or emailed not to return to work. No exit interviews explaining Tesla’s decision were conducted. Prior performance reviews were glowing. So what happened to change Tesla’s perception?
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Conclusion
Tesla is pushing the legal limits of force that can be exercised over employees here in the U.S. In the last few months we are seeing an increasingly aggressive posture by Tesla towards its employees. It has not gone unnoticed by the NLRB. The organization already slapped Tesla with a complaint in late August for how it reacted to employees interested in union organization.
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Top management missteps just seem to keep on coming. Next Wednesday’s conference call should be a real eye-opener. If investors thought today’s price action was bad, then they need to buckle up for next week. A much better option would be to sell ahead of earnings. That was also my recommendation at $360 which was $35 ago.
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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Let’s face it… Membership in a cult does tend to come with cult-like requirements.
Speaking of Tesla’s recent mass firing of employees on the basis of performance reviews…
Tesla cites performance reviews as it fires SolarCity employees, though workers say reviews never took place
- Mass firings at Tesla included SolarCity offices across the U.S.
- Ex-SolarCity employees said planned performance reviews never happened, but Tesla cited performance problems as reasons for their dismissals.
- The company was already in the midst of laying off 205 employees from SolarCity’s Roseville, California, office.
Lora Kolodny | @lorakolodny
Published 11:45 AM ET Wed, 25 Oct 2017
Employee dismissals at Tesla are continuing at its SolarCity subsidiary, according to six former and current employees, and are affecting SolarCity offices across the U.S.
Echoing reports from earlier this month, these SolarCity employees say they were surprised to be told they were fired for performance reasons, claiming Tesla had not conducted performance reviews since acquiring the solar energy business. Earlier this month, Tesla began firing hundreds of employees after it announced a recall of 11,000 Model X SUVs.
All the people spoke under condition of anonymity, citing fears of retaliation from Tesla.
[…]
It sounds like Tesla might fall a bit short of that 500,000 vehicles per year goal…
Tesla Slashing Model 3 Parts Orders From Supplier Hoya Due To Production Bottleneck — What Are The Implications?
October 30th, 2017 by James Ayre
Tesla will be slashing orders for parts from the Taiwan-based auto component manufacturer Hota Industrial Mfg. Company by around 40% from December onwards, according to reports from Economic Daily News.
That report quotes Hota Chairman Shen Kuo-jung as saying that Tesla informed him that firm orders would be slashed to 3,000 sets per week down from 5,000 a week starting in December — owing to a “bottleneck” in Model 3 production that apparently can’t be quickly resolved.
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Back to the news, the change makes for a fairly significant drop in orders (down 2,000 a week). Presuming that the reports are accurate, are things even worse as regards Tesla Model 3 production than has been publicly acknowledged? How much of a disparity between Tesla’s official Model 3 production goals and actual production numbers will there be over the coming months?
[…]
Prior to falling 83% short of their Q3 2017 Model 3 production guidance, Tesla had forecast “1,500 Model 3 sedans in September and grow that to 20,000 vehicles a month by December.” Tesla will be reporting their October sales numbers as early as tomorrow, but right now it looks like total Model 3 deliveries has barely exceeded 500. JPMorgan has halved their Q4 2017 Model 3 delivery estimate from 30,000 down to 15,000 vehicles.
UBS takes an even dimmer view of Tesla’s prospects…
UBS slashes Tesla profit estimates predicting more Model 3 problems
- UBS reaffirms its sell rating for or Tesla shares, saying the electric car maker will continue to have issues producing its Model 3 cars.
- “We believe the market should not ignore fundamental challenges that persist with regards to Tesla’s Model 3 profitability, stationary storage & solar businesses, and eventual need to raise cash,” the firm’s analyst writes.
Tae Kim | @firstadopter
Published 10:37 AM ET Mon, 30 Oct 2017
Tesla’s disappointing Model 3 production ramp is a troubling sign, according to one Wall Street firm.
UBS reaffirmed its sell rating on the electric car maker’s shares, predicting Tesla will continue to have issues producing its Model 3 vehicles.
[…]
“Not only does the [Model 3] miss undermine the credibility of future Model 3 targets, but it increases the near term risks,” analyst Colin Langan wrote in a note to clients Monday. “We believe the market should not ignore fundamental challenges that persist with regards to Tesla’s Model 3 profitability, stationary storage & solar businesses, and eventual need to raise cash.”
[…]
The analyst lowered his financial results estimates for the company due to the “slower Model 3 ramp.” He reduced his Tesla results forecast to a loss of $6.40 per share from a loss of $5.30 for 2017 and to a loss of $3.30 from a loss of $1.60 for 2018.
“With limited Model 3 profitability, infrastructure expansion needs, & Model Y capacity build (late 2019), we believe TSLA will eventually need additional outside funding,” he wrote. “We see increased pressure on demand as luxury automakers launch competing products in the 2018-20.”
Tesla did not immediately respond to a request for comment.
And… UBS is actually upbeat about EV sales in general, with EV’s (including hybrids) comprising 13.7% of global passenger vehicle sales by 2025… (but only 5.1% of US passenger vehicle sales in 2025). UBS forecast of BEV (battery electric vehicles) and PHEV (plug-in hybrid electric vehicles) topping the Ford S-Series as soon as 2022-23.
This brings us to…
Cobalt Cliffs and Lithium Landslides
In my previous post, we visited the “Cobalt Cliff“… an impenetrable obstacle standing in the way of Tesla building 500,000 Model 3 vehicles in 2018. Of course, now it appears that Tesla won’t have to worry about the cobalt cliff anytime soon. However, a cobalt cliff is out there, as is a lithium landslide.
The USGS is a great source for data on mineral production, proved reserves and resources.
Historical Statistics for Mineral and Material Commodities in the United States
The UBS article included a graphic of incremental metals demand in a 100% EV world. The graphic was reproduced here:
The graph makes a very simplistic assumption: If all vehicles were currently VW Golf’s, how would it impact mineral commodities if they were all replaced with Chevy Bolt’s? Simplistic, but a useful exercise. I took the incremental increases of lithium, cobalt and rare earths and calculated the amount of material per vehicle based on 2015 mineral production and made the assumption that there are currently 1 billion passenger vehicles in the world. I then estimated the mineral commodities demand that UBS’s 2015-2015 EV production forecast would yield.
Electric vehicle aficionados and other “futurists” like to use the word “disruptive” a lot. To quote Inigo Montoya, “You keep using that word. I do not think it means what you think it means.” The increases in mineral production required for just 45.6 million EV’s would be rather disruptive.
Proved mineral reserves are not fixed numbers. They are generally the “P90” number. There is a 90% probability that the proved reserves can be economically recovered from existing, developed mineral deposits. The total resource potential is much higher than the proved reserves. However, companies generally try to replace their annual production to maintain, or preferably increase, their proved reserves.
If UBS’s global EV production forecast is accurate, lithium and cobalt production will have to roughly double relative to 2014. The cumulative consumption of lithium from 2014-2015 will be equivalent to 69% of 2015 proved reserves. Cobalt consumption will be equivalent to 47% of proved reserves. This sort of production is not impossible; but it will be highly disruptive, particularly since most cobalt production is a byproduct of copper and nickel mining. According to the IEA…
“In order to limit temperature increases to below 2 degrees Celsius by the end of the century, the number of electric cars will need to reach 600 million by 2040”.
600 million EV’s would consume 907% of the 2015 proved lithium reserves and 615% of the 2015 proved cobalt reserves. That’s a lot. That’s disruptive.
| Historical Mineral Production + EV Consumption | |||
| Lithium | Cobalt | Rare Earths | |
| 2015-2025 Totals (metric tons) | 9,643,510 | 3,266,267 | 1,672,179 |
| 2015 Proved Reserves (metric tons) | 14,000,000 | 7,000,000 | 120,000,000 |
| % Consumed @ 45.6 million EV | 69% | 47% | 1% |
| % Consumed @ 90 million EV | 136% | 92% | 3% |
| % Consumed @160 million EV | 242% | 164% | 5% |
| % Consumed @ 600 million EV | 907% | 615% | 18% |
| % Consumed @ 1,000 million EV | 1512% | 1024% | 31% |
615% of 7,000,000 metric tons is over 43,000,000 metric tons. This not only exceeds the 2015 proved reserves of cobalt, it exceeds the identified terrestrial resource potential…
Identified world terrestrial cobalt resources are about 25 million tons. The vast majority of these resources are in sediment-hosted stratiform copper deposits in Congo (Kinshasa) and Zambia; nickel-bearing laterite deposits in Australia and nearby island countries and Cuba; and magmatic nickel-copper sulfide deposits hosted in mafic and ultramafic rocks in Australia, Canada, Russia, and the United States. More than 120 million tons of cobalt resources have been identified in manganese nodules and crusts on the floor of the Atlantic, Indian, and Pacific Oceans.
Mining manganese nodules from the seafloor sounds really cool and disruptive!
Disclosure:
I am neither short nor long on TSLA or F, nor do I own an F-Series pickup truck. I make my living finding oil & gas and drive a Jeep.
Addendum Nov. 1, 2017
Addendum Nov. 2, 2018
EV sales cratered in October, down by nearly 7,000 vehicles from September (21,332 to 14,598). Tesla only managed to cobble together 145 more Model 3’s.
And Tesla just recorded its worst quarter EVAH!
After releasing its worst quarterly figures ever, Tesla said it will delay the full-scale production of its Model 3 to early 2018, from December this year. Now, the company plans to churn out 5,000 Model 3s weekly starting some time in March next year, after announcing a total production of just 260 cars of the affordable model in the third quarter and deliveries of 220. Plans were to produce 1,500 Model S between July and September.
” Tesla has ambitions to boost annual sales to 500,000 vehicles a year.”
That is as may be, but they’re selling to a niche market where demand for such vehicles is finite. Notwithstanding the reported suspension failures on the model S. Link below:
http://teslabears.club/t/new-thread-keefs-complaints-with-photographs/107/44
Wholly crap! 182 Teslas sitting in junkyards with collapsed suspensions
“This kind of failure is happening at a ridiculous rate on these cars and yet few owners have filed complaints. This may be due to the fact that most Tesla owners are also shareholders.”
Also their Non Disclosure Agreements, which all Tesla ‘owners’ have to sign.
$14,000…that’s what you get in rebates from the fiscally stressed taxpayers of Ontario if you buy one of these vehicles.
Ontario’s educated and political class are no different than the rest of the world’s “enlightened”. I wonder what Bertrand Russell would have to say about this nonsense. It seems the more educated you are the more likely you are to believe in Al Gore’s message.
I like Darwall : “Global warming’s success in colonising the Western mind and in changing government policies has no precedent.”
In Ontario the Green Energy Act is directly responsible for $100 billion down the drain….and the deals are legal …they can’t stop the flow…madness, just insane madness.
The good people of Ontario have nothing on the good people of California. In California they are contemplating passing a ‘subsidy’ bill to make EVs competitive with gasoline cars by providing a rebate of up to $75,000/car. The poor/middle class are going to fund the riches ‘virtue signaling’.
I’m soon to become a climate refugee by moving out of California to Nevada. Not because the climate is getting bad, but because the local and state governments are brain dead. I can’t in all good conscious give them any more of my money to waste on frivolous green initiatives and the other insanity promoted by these far left politicians more interested in making them feel better about themselves than making the lives of their citizens better.
Serves Ontarians right for electing Liberals.
But we’d better build a wall before they all come flooding out West, trying to escape their collapsing economy.
RVs outsell BEVs in the US.
I point this out because there is a niche market for people who love the environment and get out and enjoy it.
I recently bought a new car in North Carolina. I was intrigued by the Hyundai and others plug-in hybrids. Turns out there wasn’t a single one from any manufacturer that I could drive in the entire State of North Carolina. The closest Hyundai plug-in was in the northeast. The sales rep told me they might get 1-2 plugin hybrids per year and nobody bought them.
I keep seeing electric car charging stations. Empty ones.
There are a couple right outside the Orange County Convention Center in Orlando that have never, as far as I can find, been used, except as advertising when “green” groups have shows there.
One of my friends was actually talking about buying a pure electric car, just so she could always get free parking near large buildings under the guise of “charging.”
I suspect there will be a new chapter in the Tesla/Musk story in the next couple years. Chapter 11 or Chapter 7 maybe.
Or a merger.
Or the State of Califonia will take it over and use State tax money to subsidize it.
A high probability.
Someone will buy them out on a fire sale. My guess is China.
The problem with Tesla and other “Musk Industries” is that Elon Musk IS an Afrikaner, i.e. Socialized after birth into the Afrikaner World.
Just because he migrated with this parents to Canada (avoiding legal and money fraud problems?) then illegally migrated to U.S.A. (avoiding more legal and money fraud problem of his own?) on a Tourist Passport and never bothered to “Update” i.e. a “Green Card” and not even going through that dreaded of all dreaded “Nationalization” because he has enough money i.e. “Cash” to bribe his way around does not make him a citizen of the U.S.A.!
Therefore the Boring Company, SpaceX and Tesla operate from the psychology of an Afrikaner! Musk Is That Afrikaner!
QED
SpaceX is his only viable company in the long term. There is a real reason so much smart money is short on Tesla. Its corporate paper (bonds) are rated deep into Junk territory. The bond ratings companies use sound financial analysis principles to evaluate a company’s long term ability to repay bond holders. They have spoken on TSLA.
Musk keeps SpaceX well insulated from Tesla. SpaceX would be a very lucrative and desirable buy for a private equity group. It is a very valuable asset for Musk.
Yes. Any established auto manufacturer can compete with Tesla. Right now, no-one can compete with SpaceX, and Bezos is the only one who’s likely to be able to in the near future.
Established automakers know how to weld.
And do other basic things
“I was the first one on my block to own an aluminum F-150 in 2015.”
I can tow your truck with my motor home. It has Freightliner chassis, Cummins diesel, with 6-spd Allison transmission.
When we were new to living in a motor home we thought the idea was to tow a little car that good mileage to use when the gas guzzler was parked.
What was I thinking? The idea is to tow the biggest truck you can find and put the biggest dune buggy that will fit in back which is holding three dirt bikes. All this while driving 80 mph.
I think I’ve seen you out on the freeway. Probably cursed the crazy snowbird…
Not likely unless you commute from Winnemucca to Battle Mountain.
As a snowbird, I avoid the freeway and truck traffic. What is the point if you are in no hurry and driving slow. Driving 65 mph gets 12 mpg and reduces the risk of a blow out.
There is an Tesla EV charging station where I buy diesel in Winnemucca. Never seen anyone there in the 5 minutes a year that I spend there.
I know someone was cursing me coming south. I also avoid driving at night, driving at night in the mountains, and especially driving at night in the mountains when it snowing. I pulled into a deserted rest stop on a deserted Neveda highway at dusk. My wife was concerned that we might be stuck in this non-garden spot because of weather.
My wife wanted to keep heading south, so after a snack and nap we headed out. Later I going really slow because of blinding snow (33 degrees F so no ice) and the cursing moron with bright headlights tailgating me. After he passed, he found out he could not drive any faster if you can not see.
“More than 120 million tons of cobalt resources have been identified in manganese nodules and crusts on the floor of the Atlantic, Indian, and Pacific Oceans.”
Wasn’t mining “manganese nodules” from the seafloor the cover the CIA used when they built the Glomar Explorer to covertly recover the sunken Soviet sub K-129?
It was something like that.
Yup.. Howard Hughes signed on board with the CIA as well.
My brother in law worked on that project when I was was first in the navy. He would ask me questions about radiation but I never made the connection.
He always had great stories to tell but suddenly stopped talking about the interesting things going on at work. When pressed all he said is that I might read about one day.
One Sunday just before graduating from college, I picked up the paper to see the headline, ‘Russian Submarine, CIA, Howard Hugh’.
Later he told me that he got a visit from two well dressed men who offered no identification. At the kitchen table, they played a recording of story telling in the kitchen. “Mr C, you have two choices. You can stop talking about the project and continue to work on the projects, or you stop talking about the projects.”
Does anyone have the back of the right envelope to guess what happens to the price and adoption rate of electric vehicles if the resource consumption estimates are right?
Personally, I think it prevents EV sales from ever doing what UBS forecasts. The growth won’t ever approximately an exponential function. The supply chain can only support slow, linear growth.
Have not read all of this so this may be a repeat, but one should not quote an r squared for six data points. Has no meaning. Need at least 30 points for any statistical validity. Students’-t distribution.
Say goodbye to your nickel pocket change when the price rises. The nickel in nickles already is worth more than the face amount.
It’s not that hard to build an electric car- Leno says there were 15,000 of these in NYC a the turn of the 20th century.
Still seems strange that I never hear about any concern that the heavy metals in these batteries vaporize during charge and discharge. How soon before someone like the scientist that discovered the problem with the lead emissions from vehicles was causing serious damage to health and the environment – that is still causing problems – and we have to contend with all of the problems created by these “Green” batteries? 20 years in the US Navy Submarine service, we always vented overboard when charging batteries.
Well, yes, but the real reason to vent overboard while charging the huge lead-acid submarine batteries was to diffuse and get rid of the hydrogen being generated inside the hull. The usual trickle charge/float generated far less hydrogen, and that smaller amount could be gotten rid of safely in the AMR.
Time for better railway ideas?
http://www.railveyor.com/
The top graph in this post, where the trendlines seem to indicate that electric vehicle sales will catch up to Ford F-series truck sales around the year 2032, is highly misleading (particularly the F-series truck trendline).
For plug-in vehicles, the graph only has data from 2012 to 2017, so that an apples-to-apples comparison would require calculating the trendline for F-series trucks over the same period, from 2012 to 2017 only. From the graph, if we estimate 650,000 F-series trucks sold in 2012 and 890,000 sold in 2017, the slope of the trendline would be (890,000 – 650,000) / 5 = +48,000 vehicles / yr^2. This is nearly twice the slope of the trendline for PEV (24,687 according to the graph).
Extrapolating these trends into the foreseeable future, the sales of PEV will NEVER catch up to those of Ford F-series trucks.
The graph also shows that the sales of F-series trucks hit a high in 2004, then declined sharply to a bottom in 2009, then increased ever since. Since F-series trucks consume relatively high amounts of fuel, the decline from 2004 through 2009 was in response to spikes in oil prices during the Iraq war, but the use of fracking to increase domestic oil production in the United States after 2009 reduced the price of fuel, allowing the sales of F-series trucks to increase from 2010 on.
Starting the F-series in 2012 would actually be extremely misleading. The rise since 2010 is due to the recovery from the recession. The F-Series market share has varied within a very narrow range since 1997.
F-series market share 1997-2017 = 0.4% +/-0.08%.
Well, my F150 was recently totaled while parked. My home projects are on hold. I’m feeling disoriented. I must buy another F150 sooooooon!!
I’m sorry to say this to David Middleton after all his hard work: your lithium numbers are spectacularly wrong.
I’m not sure what you have done but the historical production data available is an order of magnitude lower than what you have given. You may need to check the use of units: some commodities use speciality units like MTUs, or the numbers can be in lbs or kg. Furthermore lithium is commonly expressed as tonnes of Li2O or Li2CO3. The latter, which is the main pure product for the battery industry, may be a reason for the discrepancy since Li2CO3 contains only 19% Li.
According to the USGS 2017 survey the world annual production of lithium was 49,400 tonnes in 2015. That is in keeping with my experience in the mining industry.
If you look at the table on the last page of the linked report you will see there is about 400 years worth of lithium in known reserves at 2016 production rates. I suspect that is an underestimate as our Australian miners have been finding vast amounts of spodumene ore in Western Australia lately. Probably approaching half a billion tonnes of newly discovered ore at 1-2% LiO2 in the last couple of years alone.
We’re not going to run out of lithium anytime soon (note that I used to think that would be a problem…until geologists started looking for the stuff, which turns out to be rather common.)
The fad with EVs will crash long before lithium becomes a problem – although the cost issue is quite real because of the processing required, the high purity needed and the development bottlenecks. It can take 10 years or even more for a mine to be established due to green and red tape.
As to cobalt that isn’t really an issue since the EV manufacturers can easily use LiFeP batteries instead. The capacity is about 10% lower, which is why Mr Musk is trying very hard to avoid that move (Tesla “range anxiety” is already a big problem for him). We aren’t ever going to run out of iron and phosphorus for batteries.