Manure or Majeure? I propose manure by Musk, with @skabooshka providing the critical evidence.

Let's investigate the claims starting with production numbers.

Electrek, Tesla's preferred source of car information spin says Tesla Slightly Behind Ambitious Model 3 Goal.

That's quite an amusing spin because the article shows Tesla is way behind its stated weekly goals. There is nothing "slight" about this.

Major Shortfall

Seeking Alpha writer Anton Wahlman sums things up more accurately, New Information Implies 10%-Plus Tesla Model 3 Shortfall For Q3.

  • Photos from the Tesla factory over the last couple of weeks had indicated much lower Model 3 production activity compared to July.
  • Now, Tesla's favored PR outlet Electrek has leaked out that quarter-to-date production has been only 30,000 for Model 3 and 47,000 including Model S and X.
  • Tesla's Model 3 production guidance for the quarter was for 50,000-55,000, with sales being higher given the inventory overhang from Q2.
  • Some reasonable extrapolation from Tesla's production-to-sales ratio in the past suggests that Tesla's 3Q Model 3 sales would be between 37,000 and 47,000.
  • That would mean, by the mildest of interpretation, a shortfall of at least approximately 10% for the quarter. Is this baked into the Street's 3Q expectations now?

The Math

Here are the numbers from Electrek.

"A reliable source told Electrek that Tesla produced just over 47,000 vehicles throughout the third quarter as of last week. According to the same source, Tesla produced just under 30,000 Model 3 vehicles so far during the quarter. The company hasn’t been able to go back to a production of 5,000 units in a single week."

Numbers in hand, let's return to Seeking Alpha.

"30,000 units divided by 57 days (31 in July and 26 in August) is 526 per day. Multiply by seven, and you get 3,684 per week. By any measure, that's a lot lower than the close to 5,000 Tesla has talked about - let alone a path up to 6,000 and eventually 10,000."

20%+ Miss

3,684 is well over a 10% miss. It's a shortage of 1,316 out of 5,000 (26% miss) or 2,316 out of 6,000 (39% miss).

Let's assume Tesla will hit 4,000 with a goal of 5,000. That's a 20% miss.

Slight? No wonder Tesla likes Electrek analysis.

Force Majeure

Numbers in hand, let's investigate Tesla's last conference call on August 1. These snips are from a Motley Fool provided Tesla (TSLA) Q2 2018 Earnings Conference Call Transcript, emphasis mine.

  1. We continued to achieve 5,000 Model 3s per week, or 7,000 combined S, X, and 3, multiple weeks in July, showing that, so we're able to do this on a sustained basis. And we expect to, in the absence of aforce majeureor some very unexpected event, be able to achieve an average of 5,000 Model 3s or above for Q3 and 2,000 Model S, Xs or above per week for Q3 as well. So essentially, 7,000 cars a week-plus on average for Q3.
  2. And from an operating-plant standpoint, from Q3 onwards, I really want to emphasize our goal is to be profitable and cash-flow positive for every quarter, going forward. Now obviously, if there's a big recession or there's asevere force majeure eventthat interrupts the supply chain, that's not always possible but we're confident that in, provided the economy is roughly where it is today or reasonably good and there's not a big force majeure event that I feel comfortable achieving a GAAP income positive and cash-flow positive quarter every quarter from here on out. There may be occasional quarters, where we pay back a big loan or something, where there may be just because we paid back a big loan but absent that, it would be cash-flow positive.
  3. Is there anything we know at the end of July, it's one month in, we're highly confident of being cash flow positive and GAAP profitable in Q3 and Q4. Now therecould be force majeure like an earthquake*, touch wood but something like that or massive recession all of a sudden but in the absence of that, of really unusual.*..

Those comments had analysts scratching their heads as did the following report from Business Insider.

Shutting Down Early

On August 16, Business Insider reported Tesla employees say the main Model 3 production line has been shutting down early.

> On Wednesday, Tesla factory workers putting together the Model 3 on the GA3 line were allowed to go home early from the Fremont, California plant, leaving at 2:30 p.m. PT, instead of the usual 6 p.m., three Tesla employees told Business Insider. The employees spoke on the condition of anonymity for fear of losing their jobs.

> Typically, a worker told Business Insider, a shift is only sent home early because it met its goals for a period of time or because there is a problem that is making it impossible to assemble more vehicles. For example, one of the two lines on GA3 might be sent home if there is a problem that has prevented the progression of assembling vehicles for hours. In this case, both lines were sent home, with the entire GA3 line leaving early. According to a factory worker, the reason was not that the company had hit its production goals for the day.

> In fact, the worker said the company missed internal targets. The employee said the target is to produce 300 cars per shift (there are two 12-hour shifts per day), but on Wednesday the line produced 211 vehicles during the day shift.

It's now all starting to come together.

@Skabooshka Picks Up The Story

Image placeholder title

​​

Image placeholder title

Image placeholder title

​​

Image placeholder title

Force Manure or Force Majeure?

  • Force Majeure Definition (Investopedia): Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.
  • Manure Definition (Merriam-Webster): Refuse of stables and barnyards consisting of livestock excreta with or without litter.

Alternate Possibilities

  • Business Insider, Electrek, and Skabooshka have no idea what they are talking about, no matter how well the combined story ties together.
  • Musk has secured supplied and the alleged shortages apply to new orders and other customers.
  • Musk is sending workers home out of sudden concern for employees' mental health.

Suggestion: If it looks like BS, smells like BS, and comes straight from the mouth of a proven BSer, then it's highly likely to be more smelly BS.

And if it is more smelly BS, the SEC ought to take notice.

Disclosure: I am short Tesla via PUTs staggered from September through December.

Related Article: Tesla's U-Turn, Poor Paint, Cancellation Numbers Questioned

Mike "Mish" Shedlock

Another Month, Another Missed Tesla Goal

Tesla did not come close to its stated goal of 6,000 Model 3s per week in August. Actual production 4,300.

Tesla Misses Goals, Musk Makes More Promises

Tesla rebounded a bit today, at least so far. Elon Musk promises speedy production and no new debt offerings this year.

Tesla Stops Critical Brake and Roll Test to Meet Production Goals

Tesla likes to cut corners. Following news it eliminated 300 welds, comes news it stopped a brake and roll test.

Initiated a Short Position in Tesla Yesterday: Luck of the Draw Interview Today

I initiated a short position in Tesla yesterday, via PUTs. The NYT stock-sinking interview with Musk today was luck.

Tesla's Hail Mary Play and Convertible Bond Hokey Pokey

Elon Musk's Tweet about going private was likely an act of desperation. Tesla will not meet stated profitability goals.

Exploring Tesla Share Price vs Short Interest

On June 17, Kusk Tweeted "Shorts have about three weeks before their position explodes." Let's track short interest.

Model 3 Assembly Line: Detailed Images of Tesla's "On the Fly" Manufacturing

The New York Times has an interesting set of images and comments on the Tesla Model 3 tent production line.

Tesla Bankruptcy? Fraudulent Conveyance?

An interesting Tweet popped up on my screen today regarding Tesla, bankruptcy, and possible fraudulent conveyance.

‚ÄčTesla: Bad Brakes and Yet Another "Thrilling" Death

Tesla is one of the most popular short ideas around. Yet, it is also an analyst-loved story stock.