More Muskapades

It’s been an eventful few weeks for our Elon. His new corporate counsel departed after barely enough time to warm his seat, because Elon (whose Twitter free associations the GC was charged with monitoring) tweeted a forward looking statement (“clarified” after a few hours) about 2019 output without the GC’s approval. The SEC then moved post haste to get a judge to rule Elon in contempt of his previous settlement agreement. Then, apparently believing he hadn’t twitted the SEC enough, held an invitation only call with select analysts–a facial (in the Marv Albert use of the term) violation of the SEC’s Regulation FD (“Fair Disclosure”) .

But we’re not done. Tesla announced–at long last!–that the long-promised $35K Model 3 would soon be available.

Yay!

Not so fast. In typical Elon fashion, this was just a garnish on a crap sandwich: in addition to the Model 3 announcement Tesla said, oh-by-the-way-we’re-closing-all-our-sales-outlets-and-laying-off-thousands-and-cutting-prices-6-percent-bye.

This is hardly what you would expect to see from a demand constrained growth company. In typically weasely Tesla fashion, the company said that the closing of sales outlets cut costs and allowed it to cut prices. Uhm, that’s not the way it works.

The price cut is particularly telling. This wreaks of a company that needs to generate cash in a hurry (and is hence willing to burn some goodwill), and has an overhang of inventory on its hands. This price cut has also infuriated recent buyers. And the future effects may be quite damaging: people may well hold off buying, in anticipation of buying cheaper later.

The Wall Street Journal said that Tesla is going into “uncharted territory” by closing its showrooms. Not really: bankruptcy is pretty well-charted.

And of course, desperate times call for desperate measures. So right on cue, Elon/Tesla said that an announcement regarding the launch of the long-awaited crossover Model Y was only weeks away.

Just where is the cash for the capex necessary to build a new vehicle going to come from? How to reconcile this with the capex diet that Tesla has been on in recent quarters?

Methinks that this is really another financing ploy intended to keep the balloon aloft a little longer. With the announcement, the company will be able to take deposits, use the cash for other purposes, and then dawdle on actually, you know, building and delivering cars. (Check out the lag between deposit and delivery on Model 3s, and the difficulty those trying to get back their deposits face.)

This act is getting a little old, but it still works to some degree. So expect Elon to continue his muskapades until reality inevitably rears its ugly head.