Tesla: Who Is The Enemy Now?
CEO Elon Musk spent the weekend battling Bitcoin fans on Twitter after his shocking and very expensive about-face on the cryptocurrency he made Tesla buy only months ago. Who is he really fighting?
Tesla (TSLA) CEO Elon Musk has been sparring for days with Bitcoin fans on Twitter after his shocking and very expensive negative turn last week sent Bitcoin currency and Tesla stock into tailspins.
That’s when Musk announced, via Tweet of course, that he suddenly was concerned about severe damage to the environment caused by bitcoin mining (see my client note What Elon Learned While I Was Working).
It’s near impossible to believe Musk, self-proclaimed DogeFather, was not already well aware that cryptocurrencies have a bad reputation as acute consumers of energy, largely produced by the dirtiest fuels.
So who is he really fighting?
Whatever It Is, Elon’s An Expert. Just Ask Him.
This is the guy who formally advised the SEC back in March that his title was changed to Technoking of Tesla. Whatever that is.
He’s also called himself an engineer. He’s not, per his BA degree in Physics and BS in Economics from the University of Pennsylvania. But at least this embellishment doesn’t threaten lives and livelihoods, unlike many of his more notable claims.
Elon Musk is not a doctor or infectious disease specialist. But he spread dangerous misinformation and false claims about COVID-19, including debunked data and treatments, made explicative-laden rants against community safety protections, defied health official orders, endangered his workers who were threatened with firing and loss of unemployment benefits if they didn’t come to work during the pandemic when, as they feared, the factory wasn’t safe.
He’s still making false claims about Tesla’s flagship Autopilot capabilities, as he has done for years, which feature in many of dozens of ongoing investigations by US regulators into crashes which resulted in serious injuries and deaths (see We're Not Surprised Tesla has Quietly Delayed Deliveries of "Refreshed" Models S & X on 4/7/21). This adds to more than 10 investigations underway in China related to “out of control” crashes from potentially defective brakes.
Many of Musk’s more consequential claims to investors have faired little better. Musk told investors he had Tesla sold with funding secured (a lie), that Tesla’s stock price is too high, that timing was not right to raise capital even as Tesla’s bankers were preparing for offerings a few days later to raise $3.5 billion in sorely needed cash selling bonds, stock, and warrants which would only provide a few more months of liquidity.
Musk finally was able to declare Tesla as profitable despite chronically unprofitable core operations thanks to billions of dollars in energy credit sales—which Tesla is about to lose (see Tesla: So Long, Free Money on 5/6/21).
Fans have endured years of acute volatility in Tesla stock, losing billions in evaporated market cap, as a result of bombastic statements, obnoxious tweets, and outlandish stunts by Musk.
Last week Musk followed up his cringeworthy showing as host of Saturday Night Live by dissing Bitcoin—in which Tesla still owns a roughly $2 billion stake at his direction.
So Tesla stock is down another 16% in a week to $565 and down 37% versus its peak in January. Bitcoin is down 26% in a week in which it lost $360 billion in market value thanks to Elon.
Tesla Cult Meets the Bitcoin Cult
Elon Musk has flirted with the bitcoin crowd for years, even calling himself the DogeFather of DogeCoin. We’ve since learned, which was confirmed by Musk, that he has been working with Dogecoin developers since 2019 to create a faster, cheaper alternative to Bitcoin by speeding up transaction times—which still, presumably, increases energy consumption via increased volumes. Musk also offered funding and access to his extensive contacts.
So Musk was clearly aware of longstanding concerns that cryptocurrency mining is acutely destructive to the environment given its astronomical consumption of energy which also is mostly produced by coal—the dirtiest of fossil fuels.
Nevertheless, as I noted again last week, Musk had Tesla buy Bitcoin at the end of January:
Tesla, maker of energy efficient electric cars and solar powered energy systems to help wean the world off fossil fuels and save the planet,
Spending almost all of the $1.6 billion netted from selling energy credit subsidies
Which have been the primary source of all of Tesla’s manufactured “profits” since Q2 2019, as I noted in Tesla: So Long, Free Money, leading to:
Tesla’s recent addition to the S&P 500 Index
and its mythological equity valuation
and its ability to sell stock at grossly inflated prices
and its artificially inflated credit rating which lets it borrow with impunity at cheap rates.
Tesla used $1.5 billion of that cash To. Buy. Bitcoin.
What Elon Learned While I Was Working, 5/12/21
Recall also that Tesla took advantage of the resulting spike in Bitcoin triggered by Musk’s promotion and Tesla’s purchase to sell part of that stake just a few weeks later. Musk said this was “to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet.”
Except this is like comparing apples to bread fruit—and Bitcoin trades easier than both without Tesla’s assistance.
Meanwhile,
Tesla netted a 61% gain on its Bitcoin trade and a $101 million (23%) contribution to reported net profit of $438 million for the first quarter which was otherwise entirely generated by $518 million in energy credit revenue, masking a $200 million net loss (see Tesla Goes To Record Extremes To Create Q1 "Profit" on 4/28/21.
Musk also announced in March that Tesla will accept Bitcoin to purchase a car.
Just last week reports surfaced that Musk’s company SpaceX will go to the Moon in 2022 carrying a mini-satellite for Geometric Energy Corp., paid for in Dogecoin.
Musk asked the Twitterverse last Tuesday if Tesla should accept Dogecoin for payments.
So, Yes. He Knows
Musk has known for years about Bitcoin, Dogecoin, and cryptocurrency in general, warts and all. He knew it in January. He knew it in March. He knew it last week.
He also knows how money works. Just ask him.
Except Musk was fired from PayPal not long after its predecessor merged with his company X.com and one of PayPal's actual founders, Peter Thiel, took over as CEO.
Much like Musk was not the co-founder of Tesla as he has claimed. He was an early investor and subsequent Chairman who sued the actual founders, whom he pushed out, for the right to call himself founder of the company years after it started with the flagship Roadster. That’s like an editor claiming credit for a book conceived and written by the author.
Musk Likes Credit, But Not Accountability
Musk loves to take credit, unless something goes wrong. Then he and his company are quick to dodge responsibility.
Like blaming victims of Tesla crashes and dangerous defects—dunking Tesla into hot water in China—and weaseling out of warranty work, and charging warranty expenses to goodwill to mask rising repair costs and juice net income, and so on.
So Musk, incredulously, suddenly decided late Wednesday to be concerned about Bitcoin’s negative environmental impact, as if Bitcoin is uniquely responsible and he just discovered it:
Musk then spent the last several days proving why Bitcoin is bad using data well known for years, long before Musk had Tesla spend $1.5 billion buy Bitcoin in late January (see Tesla Is Falling and It Can’t Get Up on 2/27/21).
So What Is This Really About?
Tesla stock has been falling all year on disappointing financial performance, troubling sales performance in all its markets, and creeping liquidity pressure, as I last discussed in Tesla: So Long, Free Money on 5/6/21.
The trouble is Musk’s penchant for throwing out shiny objects no longer seems to divert sufficient attention away from Tesla’s dulling luster.
That’s bad news since, as I long have warned, Tesla is under increasing pressure in all its markets and it’s running out of easy comps versus weak, pandemic-impacted results last year plus incremental delivery contributions and energy credit sales to juice revenue and reported profits.
Is Musk deliberating trying to trash Bitcoin to make the price drop just enough so Tesla can be free to sell? Such trades could be be executed just in time to net sufficient gains to plug reported “profits” going forward, for example.
Is this his passive aggressive backlash at China, given the excuse that most bitcoin mining occurs in China and is fueled by coal? Musk has always been petulant and he bristles at criticism. He rarely fails to attack perceived enemies; short sellers, government officials, the SEC, even a hero who rejected his unnecessary (and press-seeking) help.
In China, however, now Tesla’s most important market, he hasn’t been able to fire back. Tesla sales are struggling in China and the company remains in deep discord with China’s government and consumers who have rejected Tesla’s typically poor build quality, its arrogantly unresponsive customer service, and its general disregard for regulatory guidelines and requirements (see Tesla's Troubles in China Are Heating Up on 5/12/21). Tesla was essentially required more than once to formally apologize and promise to make amends—a rarity indeed.
Who knows what Musk is up to? That’s the problem. He’s mostly driven by ego and he gets more desperate when he’s losing. We can’t believe him and we can’t trust him. Tesla’s feckless board won’t or can’t stop him.
He’s the fuse and the powder keg.
Talking Heads - Burning Down the House
Tesla's 5.3% senior notes due 2025 inched lower since my last report and continue to trade near the call price at 103.6 (1.3% ytw; 84 bps). This offers no credible upside, particularly given good odds that the bonds get refinanced soon and likely at an inordinately cheap, unappealing yield. There’s perhaps 5 points or more in downside risk in the old or refinanced bonds if Tesla’s operations & financial condition deteriorate as I expect. The bonds remain excessively valued versus, for example, even the BoA High Yield general index yield of 4.36% as Tesla is a weak B3/BB- issuer with “CCC” quality metrics on its underlying core profitability and leverage. Maintain "Underperform."
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