22
May

QTR #105 – Montana Skeptic



yeah what is up ladies and gentlemen today is March 2nd 2019 and you know we got something good to talk about today if my ass is up here on a Saturday doing some work but I would not be doing this work if it wasn't for my kind patrons the people that sign up on my patreon and help support the podcast ladies and gentlemen those are people like my friends over at quantum eyes com qu A&T am i ze check out my brothers and my sisters over at quantum eyes it is an AI based quantitative research platform it helps the individual investor like you and like me discover your next big investment and check this out in January their daily top stock ideas generated a nine and a half percent return for their subscribers which I'm not sure what the S&P did but it probably beat the out of that in February they're already up over 5% at least from when this guy emailed me on the 21st of February and also their platform was recently called the number one alternative to a Bloomberg terminal by Ben Zynga so if you don't feel like shelling out for a Bloomberg terminal check out my brothers and my sisters over a quantum eyes also my friends over at the behind the bid daily pre market podcast it's a youtube show for stock traders and investors every morning they're gonna cover eight tickers with news and sentiment on Twitter they spend about a minute per ticker in the morning it is a quick easy non way to get a little bit of info you can make it part of your morning routine the behind the bid podcast links to both of those John's or in my podcast description with that out of the way I want to shout out a couple of my newest patrons on top of that of course always want to take a second from my brothers over at Corvis gold my friend Nathan Mashhad from investors underground my homie Chris bead Ken our Chris BOE ass my kind friend Russ Valenti and Nathan Weiss Andre Gagnon you guys are really helping the show out in a huge way my buddy Mike mcg 2:12 you know I see you Matt Moreau Chris Jess E Collins and some of my newest patrons like this kind brother or sister Piggly Wiggly fine purveyor of rare yam trees I don't know what that means but whatever it is thank you very much my Gregg Blackburn recently just checked in my homie Rahul Desai also checked in bottles and models capital my brother's over there I appreciate you guys I see you my homie David Hanson recently just reuptake Hanson Roy pinion Christopher James jr. Alexander Ivan Johnson can't forget Peter Rozelle certainly my homie Lyle Angle thank you guys so much and just a couple more patrons will get him out of the way so we can get on with the guest of the day I know you're not here to listen to me folks you're here for the old Montana skeptic he's coming but not after not until rather we shout out my friends over at flow I'll go comm also my friend Chris bunting oh you grad zero five value trap is in the house could follow him on Twitter rob CR ease in the house edita agar walls still in the house I appreciate you man I got some great supporters just want to let you guys know all of you even if you don't get a mention I just kind of do this randomly but if I haven't shouted you out I just want you to know that I I genuinely appreciate you my homey Mike Fenderson still hoping that you're doing well brother Bradford Kyler is in the house still Don Kelly's in the house how about James Tom Bohr and sandeep kumar both have been in the house since October 11th appreciate you guys rolling up on the same day Robert cope from cope systems is still in the house I appreciate you of course Cooper Sinclair my homey max Mulvihill is still hanging can you guys take one more let's do one more how about my brother Dave Osten I always see him on Twitter and finally finally the very very very last one Nick's isness what's up brother I see you mix is this okay with that out of the way two more things and then we'll move on to the skeptic first and foremost this is not investment advice don't you dare listen to this podcast and do anything based on what's going on here basically what this podcast is is a bunch of degenerates and a bunch of drunks hanging around you know take this less like advice that you would receive in a financial office and more like I don't know something you would hear from a drunk person wearing dirty clothing and an Irish pub at 2:15 in the morning on a Wednesday alright so you start to think about the show like that becomes a lot easier to not take it as investment advice I hold no registrations no series six seven eight nine ten whatever the whole thing is I have no registrations no licenses for all intents and purposes folks I was serving beer for a living eight years ago all right that's all you need to know the last and final thing is what the hell is the last thing I can't even remember I did the patrons I made it clear that I am NOT an investment advisor Oh obviously the most important thing and hold on as I lead by example this podcast has a two-drink minimum and if you don't like to drink a to whatever minimum whatever you're into folks get loose why do I say that folks because on a Saturday live from an underground secret bunker 55,000 feet below the earth's surface I have the one the only Montana skeptic on the line sir I feel like you were just here yet I am so stoked to have you back on the podcast how are you I would it was just a week ago or so wasn't it and the amount of things that has happened just in a week is staggering I can hardly keep up and great thanks it must be because you are always very calculated about spacing out your appearances and only coming on when you have things to say and so when I spoke to you this week and you were like all right let's do it I was like you know I think this is the record in between in between shows well I mean here's the thing I read the 10k and I thought okay so I'm pretty clear on what Tesla's entire marketing strategy is at least for the coming year because I read in there how they've established and continued to grow a global network of stores and galleries that's a direct quote and how they explain that they market and sell their vehicles through their company owned stores and galleries because they think that enables them to better control the cost of inventory and manage their warranty service and pricing and maintain and strengthen the Tesla brand right and obtained rapid customer feedback so there we have again those company owned stores and galleries that's a direct quote those stores and galleries are the highly visible premium outlets in major metropolitan markets and so so that was pretty clear that's how they're gonna continue to market the company and in fact that was gonna cover their residential solar and energy storage products too they were going to use their stores and galleries there it's all in the 10k and then only ten days later ten days later they do a complete about-face they intend only ten days they strategically whip up an entirely new different radically different strategy and announce it you know on Thursday evening followed by a sort of impromptu secretive press conference and who could have guessed all that what happened so rapidly yeah there's a million ways I want to go with that but first and foremost I want to talk about the fact that on Thursday when they made this announcement that they were going to be releasing the $35,000 model 3 and that they were closing all of these stores as part of their new strategy which apparently they figured out somewhere in the in the preceding 10 days that they held a secretive conference call were only select members of the media and I'm guessing select investment professionals were also on the call and there was no transcript made readily available in fact what I read was that people were discouraged from recording the call and also to the best of my understanding and based on what I've read on Twitter which I guess you would call unconfirmed because I haven't heard of myself they issued what sounded like some very material guidance on this call not only in terms of their production for the coming year but also in terms of profitability for q1 musk saying they're not going to be profitable so here you have this company that is really under the watchful eye of regulators right now because of the way it's CEO has been making disclosures and they come right out and they hold a conference call where they only share the results of which or the disclosures they're making with a select group of people I mean is that insane yeah well I someone pointed out it's it's a mere reg FD violation as opposed to their usual 10 B 5 violations so yeah that was Carson block that said that on CNBC I thought that was funny but there's some there's a guy at Twitter who's one of my favorite people named Paul Hutton or hu e TT NER yup and he's a certified financial analyst and his handle is something like at Paul under slash M under slash Kutner and he had got a recording of this thing you know the bootleg tape of the Rolling Stones from 1968 or something and he transcribed it and he's posted it on Twitter and it is you know just wild the stuff that musk says we can talk about more of that later because what musk said was especially in light of the pending contempt motion so astonishingly reckless that it did it he must simply think the SEC cannot possibly touch him that's all I can imagine yeah if you're looking for that guy's Twitter handle its if you go back in my tweets I put one out I think on Friday suggesting that people follow him because he did take the time to transcribe the call from scratch and he is a very very sharp analyst he's usually one of the first to the punch when it comes to Tesla's legal things that wind up hitting the dock head him in plain sight are both they both keep up very well with what's going on yeah terms of dissociation I agree and you know hudner also had done that great work on the convertible bond that just paid off and did a brilliant job of calculating the volume weighted average price which was the way that that the conversion was gonna work and had some very astute analysis there so I learn a lot from that guy I'm looking back at this one quote that musk made on the call at one point one of the analysts asked him yeah Elan thanks for taking the call a couple of questions you mentioned the range extension on the long-range model three what about the mid-range model three and also you also mentioned that the company put out a release saying that there may be full autopilot software for $5,000 full self-driving is that actually full driving portal-to-portal the other question is those who paid $5,000 for EAP and musk interrupts the analyst and of course this is all according to a transcribed transcript by this gentleman mr. Hutton er and is not definitively what I'm what I what was said I'm basing this on the transcript but musk interrupts him and says hang on hang on let's just do one question at a time here hang on let's just do one question at a time here you have one question pick one and the analyst says well my first question is what about the mid-range are you extending the range of that and musk says nope next next questioner yeah I like that I like where somebody says they're gonna be layoffs sorry we're not here to discuss that and but I want to talk about them too anyway when you look and see suddenly that they're now pulling out of their galleries right they're gonna close down these galleries they're gonna shed yet more workforce and they're gonna be selling only directly online that is just a massive change in their strategy and it has a few implications one of them is this they've spent all this money building these galleries out leasing them and putting the improvements in so now they're gonna have to buy their way out of those leases right off the improvements negotiate with the landlord's if some of this is in mall space and it's not it's not like we're seeing mall space you know with overwhelming demand these things there's lots vacant space even their high-end balls so how much money are they really gonna save there's a guy at Twitter named andy cat who sort of balled it and he said well you know looking at the Tesla filings appears they have about a hundred and fifty of these delivery centers and galleries and let's say they can close 75% of them and let's say they're an average of 2,500 square feet each and let's say the rent and this is obviously your guess is about thirty bucks a square foot and let's say the average excuse-me remaining term and I'm gonna just drink the coffee here is his three years so that he totes it up and that's about 25 million dollars in rental obligations a year plus you know a lot of jobs that you're gonna be cutting and if you work out how many jobs that is maybe you get to 70 million a year maybe so that's maybe a hundred million a year in savings and is that worth all the hit you're gonna take to your reputation and your brand by closing these stores plus you're gonna have to pay these landlords you're gonna have to continue to pay rent or you're going to be sued if you want a sublease there's lots of restrictions on subleasing and that takes time in all events and good luck with that so it's it's a shocking change in strategy with benefits that seem marginal unless you are really terribly strapped for cash imagine also Tesla with all the people who left in the c-suite who's gonna handle all these dozens or scores of lease negotiations with sophisticated landlords on the other side they're they've gutted their executive ranks they don't you know everyone there is has so little experience it's it's just an amazing amazing step for them to take and in only 10 days time to change course like that I mean usually these lease reductions are done in a as part of a bankruptcy reorganization far less expensive to do it that way right far less expensive much more sensible people are easier to work with but this is like the bankruptcy reorganization outside of bankruptcy malloy I wonder how the board what where's the board where's any evidence that they considered this you know where's the big plan here how did it board in ten days approve this kind of change of course it's just amazing well one explanation would be that the board is not calling the shots what I'll say is you know what it reminds me of it reminds me of the tenth because it's just further proof to me and I speculated this on one of my solo podcasts that I did probably six months ago it's just further proof to me that the company is flailing it is without a plan it does not have a long-term plan that's reasonable that it sets goals and then adjust its plan according without considering its planning while its setting its goals you know Neil Baudette from the New York Times put up a great put up two great tweets on the 28th of February when this call happened and the first one quotes a Tesla tweet from December 10th okay which was not that long ago we're talking about two two and a half months ago and that quote says 11 new Tesla stores opening this week and it lists them stop by for a test drive no appointment needed okay so that was two and a half months ago they were opening 11 new stores all right so when you talk about this type of restructuring that you're talking about that would many times take place during the course of a bankruptcy usually it's something that requires you know six months of planning nine months of planning outside advisors to come in and run the numbers to see what the cost savings will be to see what where the synergies are and where the synergies aren't so to make that type of pivot even to give him the benefit of the doubt and say two and a half months instead of ten days is asinine and what Neil Baudette wrote on Twitter was this is not an adjustment to strategy this is a total reversal they had a retail plan two months ago and concluded they had to tear the whole thing up and come up with a radical new plan what does that say about the company right and the second you know go ahead yeah go judge I'll just say this a big difference from a year ago is a guy like Neil Beaudette at the New York Times and a guy like Russ Mitchell at the LA Times major publications writing it and killing it doing such great reporting yep coming alive on Twitter paying attention to this story with really solid tight yup hoarding you know with great sized articles really doing a great job I mean the coverage is looking thicker and thicker and it's he's doing such an impressive job I just those tweets were were very astute and spot-on yeah they were and it's I'm sorry you were gonna read the second one sure yeah but I mean just to your point it's becoming so obvious well not not obvious but you're watching literally these people that have covered the company sometimes in a bit of a you know I guess assuming the best-case scenario type perspective you're watching the light switches go on in these guys heads one at a time bang bang bang the circuitry is starting to turn on and they're starting to see this company from the perspective you know that people like you have been looking at it from for years and another another perfect example is another tweet that Baudette put out on the 28th this is very simple right he says just to keep things straight Elon Musk said on the call Tesla could make up to 420 to 600,000 cars this year um last week he said around 500,000 that got him in trouble with the SEC January 30th earnings report said production range three hundred and sixty thousand to four hundred thousand right so those deviations and what musk is saying are so egregious and so wild and just so nonsensical these guys they really have no choice but to catch on to this after not saying that they're not intelligent in the not thinking critically because I think they are but I think that's just how bad it's getting out there yeah listen I want to come back to that what musk said on that call and his just all over the he was all over the highway like I'm like Tesla autopilot on a backcountry road here but I do just back to this this new change in strategy um you know a lot of people come to the store and yeah a lot of people have just bought online and must said like 82% of our sales have been just online well how do you know those people didn't come to the store first to look at the car you know a lot of them did I'm sure second of all the fanboy collection is gone man every fanboy in the United States that wants this car has this car and now you you're selling to a different category of buyers a lot of them you know want to kick tires and see the car and instead you're just you know they're gonna have to pay for it first and yes you can return it in ten days would that ought to be interesting um especially given how hard it's been to extract refunds from Tesla but who has thought this through who has done any market research on this how did you do that in only 10 days Elon Musk and then musk says on this recent call you know there's a problem here right like in a lot of states you cannot sell online that's you know that's the what that lawsuits going on in Michigan about right now and Michigan's defense has been well you know we have these requirements about dealerships because it's important for people who buy cars to be able to get them serviced promptly with a good network of servicing and man as Tesla done everything possible to develop an impressive evidentiary record to support that contention in the last year right but musk says I'm sure the franchise dealers will try to oppose us in some way but this would be a fundamental restraint of Interstate Commerce and violate the Constitution so good luck with that I'm quoting from that transcript what Elon Musk is also trained as a lawyer specializing in constitutional law the guy is so amazing he's an engineer with no engineering degrees a rocket scientist who would struggle with advanced calculus and now he's a constitutional scholar too you know I've read the Michigan case and I happen to think that these dealership laws are wrong you know because I'm a little bit of a libertarian and people choose to buy online they should be allowed to but the idea that it offends the United States Constitution to have these dealership laws it's just wrong okay that the Tesla's gonna lose that lawsuit in Michigan and if it doesn't it'll be reversed on appeal because they're just wrong on the Constitution the Constitution allows you to pass stupid laws unless they offend some really deeply fundamental principle and this one does not anyway just just wanted to cover a few more things that are strike me as mind-blowing you Marcus you march strategy you march in here with the JD in law from Yale University and three decades of experience and you think you can just start throwing around legal interpretations you think that's how it's gonna be on this podcast huh yeah well you know sure I could be wrong and you know what the courts finally do who knows but the idea that Elon Musk is pontificating about this give me a break is there nothing you are not an expert in sir I guess not he's not I mean it's just so clear again to go back to the tenth right it's so clear that the cart is so far in front of the horse with this company and that the tail is wagging the dog and not the other way around you know look we're gonna set this production goal of X amount per week oh by the way our automation and our assembly line can't handle that oh well just put up a tent and build another one outside you know like all right and it just feels like the same thing oh we need to cut cost just close all the stores close them all sir we just opened them two weeks ago and I don't give a close them all well it's we've got a lot of lease obligations gonna cost a lot of money you know it's like you Spaceballs when he's like ludicrous speed go well let's talk let's unpack a little bit of that you know a lot of this fantasizing about how many cars Tesla can produce this year is in a way really irrelevant because the demand simply is not there okay hey they exhausted their demand from these high margin u.s. cars last year their January and February deliveries have been pathetic in the United States if you've seen the inside of you numbers I mean terrible they're struggling to deliver these things in Europe where they have probably 20,000 or so orders for the all-wheel-drive cars that they're peddling over there because to make any money that's what they need to sell there and now we learn some updated guidance on this secret impromptu press conference that oq1 is not going to be profitable after all you know color we stocked right so you'll not only have lower deliveries in q1 you're gonna have a quarter that's unprofitable and then you will have not only exhausted your US demand book you'll be exhausted your European demand book and so now you're down to the lower cost cars right the cars where you earn any margin demand gone and you know fill the Bo asked in this some in this conference call the unconference press conference the other night he asked Elon Musk about how the demand looked relative to the reservation list and must said something like I don't know what demand is I don't know what demand is we'll see and we'll find out and then he told LeBeau that it's foolish to focus on the reservation list yeah and and Filipino Aziz focused on it in 2016 when you tweeted about 15 times on between March 31 and April 1 about all the reservations coming in and now you're telling us it's foolish to look at the reservation list okay well then let's look at what actually happened in the United States you're out or demand okay you got cars stacking up all over the country watch all over the country you peddled exactly fifty-seven hundred or so model trees in all of February in the US you know so I think we we have a great idea how bad demand is on on the model three and so now we'll throw the Hail Mary pass well we'll cut the price to the point where we can't make money so we have to fire people well not only that but Charlie great Charlie grant from Wall Street Journal pointed out after the last conference call that that number of reservations was on the front page of a prospectus used to raise money for a pond so it was certainly relevant when they were trying to tap the debt markets right and by the way and I should by the way I should have mentioned Charlie grant by the way when I would because he was here long before Neal bhudev and Russ Mitchell we're doing the reporting though he writes as you know heard on the street he's the financial guy not the news reporter yeah a journal Charlie grant has done a fantastic fantastic job but also let me just go back you know the worst part about that answer he gave Phil the bow is that Phil a bow is just fine with that answer you know like that's a perfectly acceptable answer to fill the bow Phil the ball listen when but Linkous departed he gets on TV and says well you know the general counsel leaving after a few weeks were I know like that would normally normally be concerning but put it in perspective everybody's leaving it Tesla so it's nothing to worry about you know and then he's back at on TV again with some recent development maybe it was this it was the morning it was the morning after the conference call the stock was down to like 306 in the pre-market session and he was on again doing a little bit of a puff piece and then that was followed by later in the day Wilfred Frost who tried to spar with Carson block who is a heavyweight and made a total ass of himself yeah yeah that was disconcerting I read about that I didn't see it but LeBeau had more excuses for why Tesla isn't doing what it's supposed to do you know there's bad news and he'll come on spinner White's not so bad but even so and it's not like it's not like you know we're expecting guys like LeBeau to go out there and trash the company but how about just a little bit more of a shift toward neutral I mean I think to come out and this is again one of my problems with financial mainstream media this happens all over the map not just with Tesla but for this guy to come out and start to make excuses for musk like he owes him a personal favor a favor rather is you know far left of being neutral he's coming out and you're doing there investor relations work for him there PR work for him that's at least how it appeared to me yeah yeah really I'm disconcerting anyway the these price cuts are a big part of what we just learned about right and that that should set off alarm bells for Tesla logs and it evidently it did in the trading that we saw on Friday but you know musk a few weeks ago was saying we'll you know we need to keep cutting and keep cutting and we hope by midsummer we've got our costs down to the point where we can finally afford to sell this thirty-five thousand dollar model 3 and by the way it's not $35,000 anymore it's thirty six thousand two hundred dollars oh and by the way it doesn't come with a full federal tax credit any longer the seventy five hundred dollars has been cut in half so now it's 3750 but finally here is and you know it feels to me like have quickly improvised dancing by Elon Musk here right and it's not just a model three that they've cut the costs on but there are huge cuts on the s and the X I don't know if you saw the listings but I mean major slashes in the prices because these things are not moving and this is creating instantly ripples everywhere in Europe you know there's a fourteen-day right of return when you buy a car and the Europeans if you read Twitter and the message boards people are furious to learn that the car they just paid for is suddenly depreciated by five thousand or nine thousand dollars they're just stunned you know and you're gonna see returns in Europe because of this and those buying model threes are also saying wait you can now buy the model three four for thirty six thousand two hundred dollars in the United States and I'm paying you know fifty or sixty thousand euros or whatever I'm paying for my car I want to I want the cheaper one and it's gonna it's gonna create problems over there and they don't have the financial infrastructure they don't have the delivery infrastructure to handle the returns that they're about to be slammed with I have a feeling and here in the United States there's a lot of unhappy owners who bought their car you know they've suddenly seen their cars depreciating while they're watching right yep yeah don't know if you catch those two guys have you ever seen father and son oh they have no clue what they're talking about you know they're watching the stock fall in the after our session and the kids like well these are definitely shorts these are definitely shorts and the guy the father starts saying these are some shorts make up some huge phone calls I mean these guys are clueless yeah and the tweet that I put out is if you're short Tesla and you're wondering who your counterparty is merry Christmas because you know watch this minute long video and I just want to say real quick I want to go back to the call and according to one of the other tweets as this gentleman Paul Hutton are put out I wanted to get your response to a question that came from Forbes because you're talking about the cost now and reportedly it was asked on this call what is Tesla's profit margin on each and every $35,000 model 3 sold and Musk's answer to that question and why this is acceptable to the Securities and Exchange Commission is beyond me let alone acceptable to investors and analysts but reportedly his answer was yes we're not gonna answer questions like that next question he's asking about the profit margin could you imagine the CEO of General Motors or coca-cola responding to a question like that about margin yeah well I think it's obvious okay it's almost obvious Tesla is breaking even or losing money on these cars it hopes it can break even it's gonna lose money why would Tesla choose to lose money because otherwise it's gonna have to shut its factory down it right now has promised it probably got price concessions from lots of parts vendors based on you know a promise of high volume and so it's got all this volume of parts coming in and it can't sell the cars we and also of course has huge volume commitments to Panasonic on those cells that are made at the Giga factory so the the decision is made well we'll sell cars at a loss because for us having deliveries is much more important than making money I mean if we have to choose between the two it's it's not a Sophie's Choice for us it's easy will choose losing money every time like we have every year and that's what they've done and that's why Chris when you put it all together this sudden change in strategy the evidence of really weak demand these price cuts the end of the growth story for the first time I am finally hearing the death rattle of Tesla you know the fundamental problems have been there a long time but now the death rattle is audible now it may you know it may be a death that takes a while like an operatic death you know in act 3 the the baritone father discovers his soprano daughter expiring from from some wound inflicted by another and is distraught and heartbroken but suddenly he this she comes to life and she's still alive and able to sing a little bit more and they put together a five-minute Aria where she hits some high notes and crosses two or three octaves and you know it's a beautiful debt and it it's extended death but it does finally end and so this this death of Tesla may take a while there may be price spikes there maybe there will be more stock pumping but this the the lady has sung and if you're not if you're not into the Shakespearean side of things it's akin to the guy on the cart and Monty Python and the Holy Grail when when they're dragging around the cart of dead people and the one guy pops his head up and he's like oh I'm not quite Dead Yet and they just to hit him over the head with a with a club and then he said you know yep yeah so one you know getting Becca's Zack and Jesse for just a second there's a great moment and there I watched the first podcast ever of these guys just this week and there's a moment near the end where where the father says to the son you know well of course Tesla just cut the price of the cars we bought and they're now worth less and the son says yeah I could buy mine for $5,000 less today but you know I'm good with that well I'm glad you're a good well a lot of people are just not good with that and Tesla has has just done such a project of brand destruction by turning out defective cars having no way to get them repaired having no parts available making people wait endlessly for service centre appointments for refunds and now watching their cars depreciate in front of their eyes and you know there's another implication to this price slashing as well and that is Tesla has a big inventory of his cars that it accepted you know these leases were ended the direct leases Tesla had done and Tesla has the cars back and it's a bunch of them are still in inventory a guy named Corky llama at Twitter made note of this and said why would you not first unload all those car you possibly could right before announcing this price cutting but Tesla did not it's just bizarre they also have you know remaining liability for the so-called resale value guarantees and residual value guarantees and it's these are there are a lot of hidden costs here to what they just did and and we'll see them play out those are a few of them I think well just to go back to what you were saying about the company running through its backlog of cultists and the type of people that are blindly going to support the company you know perhaps it has run through that list of individuals who would be ok with their vehicle depreciating $5,000 you know overnight when they just purchased it but the new concei are like you said the type of individual that's gonna want to kick the tires and you know ask questions about the wheelbase and the the educated consumer the critically thinking consumer the people that aren't just blindly following the company they're gonna have beef with that and and not only they're gonna have beef with that in my opinion but this idea that the company you know risked it all to get the delivery number and to get the production number out there to make that the excuse me the sole and central focus of things instead of profitability or instead of you know really building out their service network or things like that that is gonna cost them with this new consumer I believe it'll cost them with people that already own their vehicles and that I will be having trouble getting their vehicles serviced but what is the savvy consumer the guy that's actually gonna think about these things before he makes a purchase what's that person gonna think about when it becomes evident to them that Tesla has pretty much I don't want to say given up but you know pretty much ignored developing things like servicing vehicles in favor of just pulling orders forward and doing everything they can to put a bay on the situation now without really considering how it's gonna affect owners several years down the road and how it's gonna affect these new types of buyers that are gonna think about these things critically yeah I agree I mean I certainly strongly agree to hope what about car buyers how many car buyers you know don't want to drive the car before they buy it who who wants to pay thirty six thousand two hundred dollars for a car with cloth seats maybe some truck drivers and and with a manual seat adjustment your only adjustments with the sheet on them on that cheap car are gonna be forward and back you're gonna have really plasticky trim everywhere more plastic even than in the model threes you see on the road today your steering column now has manual adjustments Wow I mean and and your your range is 220 miles which you know good luck with that and cold weather especially good luck with that if you want to turn on the air-conditioning it's it feels improvised and you know then Elon Musk sent out to some email so to the employees Thursday night I don't know if you saw the text of it but I did not the NBC put a guy named Salvador Rodriguez at CNBC has an article up where he quotes from the email that musk sent to his employees basically saying we're excited to be doing all this and it's the culmination of our mission and we have to overcome the fact that our products are still too expensive and so I'm gonna have to fire a lot of you people the email is so poorly written and is littered with typographical errors and grammatical mistakes it's astonishing to me that any investor relations department would let something that half-baked get out the door I mean it's really it's it's um it was hard to believe I've never seen anything that poorly done come out of Tesla but it's feeling like they are shaking and begging more than ever just to keep the doors open it's like mustn't Roden what it's like must wrote it on his iPhone you know in between you know between a trip from the from his house to the store or something and just it's it's really poor it's really poor I mean I get the sense that he's trying to cuz to me it what it feels like it feels like he's trying to micromanage everything and it feels like the people that he should be delegating to in this case you know his investor relations team who I'll give the benefit of the doubt and say that they're probably capable people and probably great writers and you know better than that better than that you know if it were up to them and they were being delegated to would not let something like that go out the door but what it feels like with musk and how it's felt for a while is that he's calling the shots and the people that he should be delegating to are likely to nervous to stand up to him and say hey let's change this or you know you want to do it this way or I mean D get that impression he's famously difficult to work for right I mean his rage over things when people don't instantly do what he wants or do the impossible or agree with him it's been reported and it's easily believable I get the feeling the company is more than ever in chaos I get the feeling that even management is in chaos I get the feeling that the Board of Directors is not at all in the same place on a lot of these issues this the if you wanted to close all these stores and take these steps the smart thing to do would be a reorganization it's almost like somebody said musk said well I'm not gonna I'm not gonna agree to a reorganization right say what we'll do we'll go ahead and close the stores it's uh there is the you know they spent the board has spent years practicing indolence and apathy and serving it well right now because this is the sign of an indolent and apathetic board and this guy is who's running the company is you as I some people of SETI's driving that car at a hundred miles an hour may be ludicrous mode 140 miles an hour straight into a brick wall and I think what these latest changes mean is that it's not going to be a chapter 11 anymore it's gonna have to be a seven and that's a shame it's truly a shame imagine the morale among the employees of that company you don't even know if you're gonna be the next person fired you this guy has a press conference where he announces these price cuts and all these changes and you're not even told later what your fate is gonna be it's it's a it's just gotta be demoralizing yeah we saw a lot of it with Solar City right when Tesla absorbed Solar City a lot of people that had previously worked for Solar City wind up losing their jobs and I you know these young kind of bright-eyed and bushy-tailed individuals who went to go work for Tesla retail thinking that they're working for Apple retail or you know at least a company that's generating cash is gonna be able to do right by them woke up the next morning and many of them are finding out that they don't have a job and that becomes I mean I remember reading Twitter accounts from people that worked for Solar City that were like-minded and thought ideologically that they were out there doing the right thing and they were baffled when they woke up one day and they just didn't have a job and it's like well how can that be if we're out there doing the right thing so unfortunately there's gonna be a lot of I think good people with good intentions that not just you know investors that are gonna suffer from this type of mismanagement and it just to me buddy it feels like at this point any other company would be at that stage of maybe retaining an outside third-party to start helping it look at what its options are from moving forward right right well I'm not trivia of course to what goes on among board members but if some of them are not deeply concerned right now then I would be surprised because there are a few board members with some experience in corporate governance and they got to know things do you think they even know like when you watch a media appearance from a guy like Kimball musk like do you think that guy is lucid do you think he understands the precarious position that this company is in or do you think that he's just out there I just get the impression from Mimi doesn't have any clue what's going on okay but you know of course he doesn't he's Kimball musk however the same is not true for example James Murdoch okay the guy has serious business people counselling him and lawyers counseling Yemen yeah Kimball is a blithering idiot he's also a multi multimillionaire thanks to Tesla and thank you very much who's smarter you were or or hand me or him for them right so go plant the seed and see how it feels so I know you blended I know you wanted to talk about panasonic for a second also to which we mentioned briefly but do you know I want to talk about the contempt motion after that – if we could sure sure do you know I know Panasonic is interesting simply because it's Tesla's largest vendor right making the cells and a few weeks ago Panasonic revealed and some of its filings that it's losing money and it's in its Nevada operations it's losing money at the gigafactory can you just explain first for somebody that may be listening for the first time what the relationship is between Panasonic and Tesla before you get into it sure I mean in the beginning say go back to 2010 or 2011 when Tesla was building the Model S and X and possibly the Roadster – uses Panasonic cells I know remember but Tesla would buy it cells from Panasonic and they are the so-called 18 650 cells I think that means 18 millimeters radius and and then 665 millimeters in length so possibly that's diameters that our radius but in all events the 18 650 cells were brought from to Asia under some very standard agreements called supply agreements and that was with 10 E you know Panasonic has several different divisions that it calls companies and it's energy company was selling Tesla those cells then in 2014 Tesla and Panasonic announced together that that they were gonna go in on this Giga factory and involved in a multi-billion dollar commitment from both of them and actually panasonic has spent a lot more money than Tesla has because Tesla just you know builds the factory which is not a very complex structure but the real money is in all the equipment that is in the factory to manufacture the cells and so that was a major undertaking for Panasonic because the way Panasonic was gonna be paid back for its investment in all that equipment was by Tesla committing to buy a certain number of cells a minimum number of cells such that Panasonic's would be able to you know amortize the cost of all that equipment plus get a return on its investment plus get its cost back for the actual cell materials right and that agreement was signed there was a letter agreement in July of 2014 that said we have agreed to agree to all these beautiful things and that's when all the gigafactory and announcements were made and the person who signed that letter agreement for panasonic was a guy named Yoshio Ito okay and he is a director at Panasonic and he's in charge of the automotive and industrial systems company so it wasn't the energy company anymore now they've moved it into a different division of Panasonic and it's a much bigger undertaking and later all the big a few months later the various Giga Factory agreements are signed there's four or five different agreements that came out of that letter of intent and you know that's a long term big capital commitment by Panasonic and for Panasonic to come out ahead in that field Tesla's got to succeed it's got to have massive volume in these cars that use the bigger cells I think they're called 2170 cells and it hasn't worked out Tesla's demand for the model 3 is tinier than anyone imagined at the time that it would be and the energy products haven't needed the Panasonic cells in fact they've been using Samsung cells for some of them so suddenly Panasonic is in a bad way Tesla isn't making nearly enough cars to soak up all its cells that may be another reason why you cut the price on the Model 3 just to soak them up your cell purchase obligations from Panasonic but anyway this week we learned that Yoshio Ito has resigned as a director has resigned as an officer is gone from Panasonic and you know I think there's good reason to suspect that maybe because these agreements are such catastrophes for Panasonic that he has been essentially forced out of the company there was that a good enough explanation yeah I mean I what are you basing that on anything than other than a hunch no my evidence is he was the grand architect of the gigafactory arrangements the gigafactory arrangements had been a colossal mistake for Panasonic it is going to become a worse mistake and we suddenly see the guy suddenly depart right that's just very unusual and I could be wrong it could be that he's just decided he wants to spend more time with his family or you could be right you know I just wanted to make clear as to whether or not you know you we were just circumstantial no you know on top of that Panasonic revealing that it's losing money doing this stuff right and and now you know with Tesla's demand so much smaller than it was anticipated for these model threes you gottem know that Panasonic's worried about how it's gonna get paid for these cells that Tesla agreed to buy it will be able to recover the cost of all this equipment it's um not a good spot to be in if everybody if you know if there were a lot of other people using cylindrical cells and their electric vehicles no problem but most other automakers who are making v's prefer the pouch or prismatic architecture for the for the cells instead of the cylinders right the cylindrical cell is the Panasonic cell and the pouch or prismatic is what Samsung and some of the others are making so you've got a factory you've got a factory you've got equipment you know panasonic has the right to stay it can keep making cylindrical cells except for Tesla who's gonna buy them so yeah this problem that's a great question I want to ask you about the contempt motion too but before we go there I just wanted to touch on autopilot real quick if it's okay with you I wanted to know it I wanted to know if you saw this recent news article I think that came out yesterday about the accident in Florida where a model three wound up getting running into or running under the back of an 18-wheeler I guess under the the trailer portion of the 18-wheeler I wanted to know if you had seen that news and and I saw subsequent to that that the NTSB I think is investigating that accident so I wanted to get your thoughts on that and if you had anything else on autopilot and I'm not I'm not tying the two together because I didn't read anything that suggested that that driver had autopilot engaged I think the investigation is still ongoing there so I want to be clear about that however there was a similar accident I think some years back where auto pilot was found to be engaged so I wanted to get your take on the accident and anything else that you had on autopilot at the time sure well yeah I saw the news account and of course we don't know exactly what happened but it does feel a lot like the accident a few years ago involving somebody named Joshua Brown I think though I may have that name wrong but what was amazing about this accident was that the model 3 had its top sliced off by going under a trailer at full speed and continued for a half a mile after that with the driver dead of course a half a mile right after the collision yeah so from that well is that right that's what's in the news reports and of course so it could be wrong but Wow reporting so it does feel like it's possible that autopilot is implicated and I understand that it's gonna be investigated and I'm glad to hear it will be investigated you know my view is that Elon Musk has said terribly reckless things about the capabilities of Tesla quote auto pilot even the name is reckless now I notice that Tesla just refined what actually full self-driving means it doesn't mean full self-driving anymore it means a lot less than that what they're now selling is they're full self-driving and by the way they're tossing that out as a bone to the people in Europe saying hey sorry we slashed the price on your car but we'll throw in FSD or you know enhanced you know driver assistance or whatever they are gonna do I don't think that's gonna fly I don't think that's gonna let me you know make too many people happy but we'll see well the swage the anger over there but the it's good that this is being investigated it's terrible that must continues to make these claims about auto filing it seems hugely reckless to me we don't know exactly what happened in Florida so I don't want to pretend that I do right but I would ask you to do this there's a there's a great letter as it were to the person that Tesla responsible from autopilot written by a guy named let's rebel and this handle is at let's Revell one on Twitter and he posted it this morning and this writer knows a great deal about artificial intelligence knows a good deal about you know automated driving and he lays out a lot of facts and technical knowledge and asks the guy at Tesla if he's comfortable with you on musk making these really fantastic absurd claims about autopilot that are encouraging people to believe that they can run it with their hands off the wheel and do so watch movies and all these other things so when you put this podcast up I hope you'll link to that thread good morning I'm happy to send you at the link but it's it's important and that's all I have to say about well and one question I want to ask you too is if you're unfamiliar similar to the way you kind of unpack the Panasonic stuff if you're a first-time listener to the podcast or you're one of these people who this you know the light switch is just kind of flipped on in terms of Tesla you know one of the things that it took me a while to do was differentiate between autopilot and full self-driving and I was wondering if you would be so kind as to just take several minutes as you're refilling your coffee which is what I'm guessing you're doing is what it sounds like I was wondering if you could just take a minute to kind of roll through the difference between autopilot and full self-driving as it was when the company conceptualized both of them versus the difference between them now yeah I've explained to you I'd like to drink the coffee is that what it was am sommore have some awesome pics of my coffee cups yes it is coffee you Chris very truthfully I am not the right person to do a detailed explanation of the you know there are level levels one through five of the so-called autonomous driving with five being the full self-driving where no human needs to be involved in fact a human does not even need to be in the vehicle okay and Tesla is maybe at level two as I understand it where you can't take your hand off the wheel safely musk sold full self he promised his cars had full self-driving Hardware and then eventually the full self-driving software would be there and people could pay for this upgrade and he did and there's still no such software available and some of them have brought suit saying I paid for something that I did you need to have on your podcast someone much more versed in the technical aspects of this you know there are a couple of people and Niedermayer knows a good deal about it and there's another person who drives with Niedermayer on his jaunt across the country or through India I'm trying to remember his name very knowledgeable guy about cars and especially about autonomous driving he said niedermayer's you know driving buddy you can easily find his name he posts on Twitter oh okay that would be a terrific guy to have on the show and explain about these issues I'm sorry I'm not I'm just not the right person for know it's okay and I think a good way to kind of break it down and you can correct me if you hear any of this is being blatantly incorrect but from the get-go I know that you know autopilot is and was and is you know this enhanced cruise control feature and full self-driving was going to be as you said something that that the hardware you were paying for the hardware right on full self-driving and that at one point once regulators allowed it to once regulators allowed it to be implemented on a wide scale basis if you had already paid for the cars to be enabled to do it it would just be flipping a switch from Tesla headquarters and your vehicle at that point would be able to would be able to take on this full self-driving and and I think what you're saying is people have brought suit saying they paid for this stuff to be in their vehicles and there's no real I think even musk has said himself there's no real runway for this stuff to ever be implemented on any type of wide scale basis and in fact I think isn't I don't know if you know about this but isn't Cadillac I think ahead of Tesla with this yeah here's some things I do know okay we do know that Navigant research you know stacked up all the different autonomous driving competitors they had 17 or 18 in the stack and rated them on a variety of categories and Tesla came in last place we do know that the company that came in first place was I believe we mo I think it's a Google company called Remo and they we do know that way mo says full self driving is a decade away maybe optimistically okay so Musk's claims that it's around the corner or nonsense we do know that people who bought these cars that were said to be equipped with full self-driving a hardware that that hardware is almost certainly insufficient for full self-driving anyway even if they kept the car for 10 years the Tesla's gonna need to upgrade or replace the hardware or send them entirely new cars so the in that's not the that's just a matter of people being ripped off and believing musk stories and that's bad enough but it's not terrible but what is terrible is giving people the impression that they are buying a car where they can turn on autopilot and stop paying attention and suddenly you know they're decapitated in their cars a half mile down the road or they're incinerated and they can't get out of the car I mean that's what's roar worse they've killed somebody else that's what I find to be repugnant and repulsive about the entire auto pilot spec yeah and I think at one point it was years ago that somebody asked Musk a question I'm not sure if somebody asked him a question publicly if it was a reporter that asked him or if he was giving a presentation but his a you know his quote paraphrased was something like you know you'll be able to sleep you'll be able to watch a movie in your car and I mean that was that was years ago I think that he said that as I as I said please do post that let's repeal thread when you put this podcast up I definitely will so let's let's finish now let's talk about the contempt right with the contempt motion okay yeah I so as you know that what prompted it at Musk was taunting the SEC forever after signing the consent judgment by saying you know I do not respect the SEC and continuing to do things on Twitter that seemed pushing the line then he did the tweet where he talked about how Tesla was going to produce 500,000 cars this year and then had to walk it back and the SEC filed a contempt lawsuit I think they and they just had to do that or you know their ability to require companies to be truthful in all material respects is terribly eroded if they let the celebrity CEO of all time get away with this kind of stuff so now musk and Tesla have an important decision to make with it with the SEC asking the court to MIT to force you to appear and explain why you should not be held in contempt you know that has implications it's gonna be hard to raise capital for instance with that hanging over you and look what happened Tesla just repaid 920 million dollars instead of going to refinance it or raise capital these these things matter Tesla needs the cash instead it's firing people and slashing costs and excuse me slashing prices because it's so in such desperate shape so you know Musk's recklessness behind the scenes is causing a lot of damage so you would think it would want to put this latest contempt motion behind it and the way to do that would be to have Elon Musk quickly file a response to the contempt motion and say you know what I did this and it was wrong and I'm sorry and yes I know you're gonna have to do something to me please just make it quick and relatively painless so I can put it behind me and I've really learned my lesson this time instead no he he tweets on Monday that the SEC forgot to read the Tesla earnings transcript which clearly states that 350 to 500 thousand how embarrassing he sounds like Donald Trump they're sad then on Tuesday like at 4:00 in the morning he says something is broken with SEC oversight for 25 in the morning each we've set out by the way come on you know this guy is local time who else by the way who has local time who else tweets out at 4:25 a.m. by the way somebody another see we know about has a bigger bigger role than the aunt musk anyway um so and any hole talking about I'm talking about our the the chief executive officer of the United States of America okay guys so it's at this impromptu press conference he says you know we're gonna build somewhere between 300 and this is after having to walk it back and saying I'm sorry our guidance really was three hundred sixty thousand to four hundred thousand dollars this year now he's saying well we're gonna do three fifty plus seventy that's that three plus CS MX or five hundred plus a hundred so he's he's doing it again I need edit a press conference where his remarks are supposed to be vetted it's like he sang to the SEC you can't touch me so you know he leaves and Connelly as you know has withdrawn and he has new counsel and why Williams and Kylie withdrew is not clear it's possible they do have a conflict because they used to represent just Lusk and then rush Minkus became general counsel for the company and maybe the company now has a position of conflict with must that's all I can think of right or maybe they just got sick and tired of having a client who won't listen to them anyway and makes life more difficult at every turn and it's very hard to represent somebody like that but in all events they're gone he's gotten new attorneys and they're gonna fight they're gonna be tough well great go ahead and fight to me the contempt is a bit of a sideshow it's not the reason why I hear the death rattle okay but it does enhance the chances of something really bad happening like a DOJ indictment or something like that it does make it impossible for the much more difficult for the company to raise desperately needed capital we still haven't seen by the way an 8k friend shanghaiing factory financing so and and behind this behind all this remember is the 420 funding secured that's what gave rise to the SEC a suit so forget the SEC forget that forget what happens there that funding secured Fiasco gave rise to a bunch of class actions that have now been consolidated in California and the potential damages there are in the hundreds of millions of dollars and even if you get the SEC to go away you've now created that huge overhang on your company and those those lawsuits will you know be in the motion stage for another year or so but once discovery starts if Tesla survives that's a huge drain on the company's resources on their time on and you know it makes anything anything short of a bankruptcy to to pare down these liabilities how did the question so that you know the contempt is just a symptom of a bigger problem here in allowing Elon Musk free rein yeah and I was I was just thinking as you were saying that as you were talking about the mounting costs of the company's legal liabilities and really to just tie in everything right to tie in everything that's going on in this where you kind of see the growth story over and the demand drying up you just can't help but think how much of this could have been prevented if it wasn't for Elon Musk's hubris right I mean now it's starting to look shaky I think to the general public a little bit I think in five years ten years when we look back at the case study of what's happened you know like Carson blocks it yesterday on CNBC I think the company will go bankrupt I don't know when I don't know how but I think it's an inevitability I think when we look back on this as a case study I think the one thing that's gonna stick out is his hubris his inability to say no to things his inability to be proven wrong on things his inability to concede when he has been incorrect about things or perhaps has been off-base about things and it's been my personal experience that working for somebody of that mental state where it's not an option at least this is my psychoanalytical analysis you know this isn't I'm not speaking of definitive 'he's here I'm just giving my piñon but it's been my experience that working for people in that mental state it's it's not a question of if it's just a question of when well he's a double-edged sword he's the charismatic inspirational progressive hero of our time and hates the narcissistic egomaniac screaming at the people on the production line and you know Tesla could have taken a lot of different directions at a lot of different times but it didn't now it's trying to be this mass-market company with the most inefficient manufacturing operation and you know decrepit infrastructure imaginable very tough what I was thinking last week is I find it interesting that JB Straubel is still there you know anything about him well I know he's you know he's been associated with the company for a good long time and I have no reason to think ill of him he is a very capable guy yeah I agree which is what makes it mystifying to me that he's kind of held on through all of this but listen you know Jesse and Zack say everything is fine everything is great if the ships would simply be if the SEC would start prosecuting all these evil short sellers it would all be fine and you know this guy is pulled rabbits out of the hat forever and even though I hear a death rattle who knows he may have he may be back from the dead like Lazarus so we will have to wait and see they'll have to have a story in q1 about yeah our numbers are down our deliveries are down our revenues might be down and our profit we've just swung to a loss and actually it's gonna be a big loss but just you wait till next quarter and maybe maybe the investors will buy that maybe they'll struggle with it it may be that we have to wait until the q2 results come in to see really truly that there is simply no plausible way to say that the tesla Grethe growth story has continued that it's clearly over and i think by the time you see the q2 numbers the delivery numbers and especially the financial results it will be clear that the growth story is over but like I said an operatic death this could be a long and beautiful Aria that will be son mr. skeptic I want to take one second again and publicly just thank you very much for not only sharing your perspective which of course is always well thought out and very calculated and very measured and fantastic to listen to and extremely analytical but also for coming on to the podcast to share it here with my listeners who almost all of whom I know appreciate it as well so I did want to thank you and thank you for taking time out of your Saturday to speak with me my pleasure enjoy the rest of the weekend all right we'll talk soon bye bye that was the one the only Montana skeptic ladies and gentlemen reporting to us me you and the rest of us qtr podcast listening degenerates live from an underground bunker 555 trillion miles under the Earth's surface I want to thank him so much for coming on and of course most importantly want to thank my patrons for continuing to be the capitalistic engine that keeps this podcast alive and for you mr. or mrs. qtr or ms QT our podcast listener that's tuning in right now to give me the play give me the listen thank you so much and it's something that I take very seriously and I really genuinely appreciate and I want you guys to know that but for now it is Saturday ladies and gentlemen time to take the headphones off and go out and experience real life and if that frightens you you can still kind of qualify if you want to go to a bar and just sit somewhere in a corner and have a beer by yourself at least you're getting out of the house that's what I tell myself for now ladies and gentlemen I am the out of here peace

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