Fund Manager: More Evidence Tesla Is In A Death Spiral

by Dave Kranzler of Investment Research Dynamics

Reuters  report in which the news service discovered that almost all of the solar cell production at Tesla’s solar factory in Buffalo, New York is being sold overseas, primarily to a large Asian buyer.  Tesla’s Solar City business was given $750 million in State subsidies to build the plant in NY in exchange for employing at least 1,460 people and spending $500 million per yer in the State over 10 years.

The factory employs far less than the 1,460 required and the State has no hope of ever seeing the $500 million per year. The factory has become little more than a solar cell production facility for Panasonic paid for by U.S. taxpayers.

Panasonic produces the solar cells in the factory that were supposed to be used in Solar City’s solar panels.  The problem is that Solar City’s sales are approaching zero.  In California only 21 Solar City roof systems are connected to the State’s three investor-owned utilities as the end of February.  Panasonic is seeking to use the Buffalo plant to fulfill demand for U.S. made solar sales from foreign buyers (foreign solar manufactures can then export the solar panels back the use duty-free).

Earlier this year Panasonic announced that it was suspending plans to expand capacity at Tesla’s Gigafactory. It also suspended planned investment in Tesla’s Shanghai Gigafactory. The decision to curtail investment in Tesla’s U.S. Gigafactory was based on declining sales in the Models S and X and on Model 3 sales which are running below plan.   Panasonic’s Tesla EV battery business had losses exceeding $181  million in its fiscal year that ended in March.  Panasonic was likely not interested in repeating that experience as a “partner” in Tesla’s Shanghai operations.

What’s interesting about the two situations described above is that, more than anyone outside of Tesla’s corporate suite, Panasonic has an up close inside look at the truth behind Tesla’s operations and financials.  It’s quite clear that Panasonic is in financial loss containment mode with respect to its relationship with Tesla.  In this regard, Panasonic is signaling that Tesla is in deep trouble operationally and financially.

Panasonic’s withdrawal from its relationship with Tesla reflects the same critical information about Telsa as the steady stream of high level executive departures over the last year, the rate of which accelerated over the last 4-6 months.  Clearly the message is that Tesla is now in an irreversible death spiral.

Just for the record, I believe that Goldman Sachs and Morgan Stanley used the recent stock and convertible bond offering to suck fees out the deal that would help offset the likely losses the two banks will incur when Musk inevitably defaults on loans he owes to both firms.  It cost Tesla $300 million to purchase derivative protection against the potential shareholder dilution affect if Tesla’s stock were to rise the conversion price of $309 in the new converts.

But those two firms know that Tesla is going to hit the wall and that the stock has no chance of sniffing anywhere close to $309 from now to eternity. It’s highly likely that Goldman and Morgan Stanley forced this hedge structure on Tesla to rake in the $10 to $20 million in fees skimmed on the derivatives used for the hedge.  It was nothing more than vultures who are closest to the carcass grabbing the choicest cuts of meat.

Ironically, Morgan Stanley’s analyst issued a ”worst case” $10 valuation on Tesla. Unless the analyst is a complete idiot with little experience in distressed situations – which is possible – the $10 dollar valuation is Morgan Stanley’s “code” for, “the stock is worthless if Tesla has to file” (which it will sooner or later).

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