Decoder Model Portfolio Update: Full Self-Frauding
Publishing note: The model portfolio update for Wednesday, May 1, had a broadcast delay. We are sending it now with Thursday's commentary to arrive later in the day as normal — apologies for the delay.
In this week's model portfolio update:
As we said some time ago, and others have said before us, Tesla's real product is the stock price, not the cars. The actual cars don't matter — the name of the game is keeping the inflated stock price up. But that game is coming to an end.
Cars were once key to the narrative. At Tesla's peak valuation of $1.2 trillion in 2021, the rental car company Hertz had just committed to purchasing 100,000 Teslas, and in 2022 Elon Musk talked of "scale that no company has achieved in the history of humanity," implying production volumes of more than 25 million cars per year.
But the scale aspirations are clearly no more, as evidenced by brutal job cuts. Musk is not just downsizing Tesla, he is cutting off limbs with a chainsaw, as evidenced by the firing of the entire Supercharger department and all 500 employees within it. Musk further fired 10% of Tesla's workforce on April 15 — some 14,000 workers — seemingly out of the blue, with workers telling horror stories of being locked out without warning and long lines of employee vehicles waiting at the factory gates.
The chainsaw playbook is more appropriate to private equity investors or distressed asset managers trying to squeeze blood from a stone after purchasing a gigantic, bloated company in a leveraged buyout; it never makes sense for a company that is supposed to be in growth mode. The car side of Tesla's business is now in full-on implosion mode, which means only full-self driving (FSD) is left.
The real problem for Tesla is that selling impossible dreams is far more profitable than selling actual products, especially clunky ones like cars. Witness Musk statements like one from 2019 suggesting Tesla owners could send their vehicle on robotaxi runs and reap an 80% annual return ($30K per year on a $38K vehicle purchase); he might as well have promised a self-financing perpetual cash machine in every garage.
FSD was Tesla's original breakaway hype device — the thing that took the electric vehicle side to a whole new level of cult-like devotion, juicing the share price by an order of magnitude beyond what a pure EV car maker could have achieved. But now the promise of FSD, "just around the corner" for a decade-plus, is all that Tesla has left (the humanoid robot stuff is an extension of the FSD assumptions).
Dustin Moskovitz, the founder-CEO of tech company Asana and multi-billionaire co-founder of Facebook, has called Tesla an outright fraud in the style of Enron; per Moskovitz Tesla is pushing fraudulent data in its FSD claims and otherwise doing things that will lead to lawsuits and possibly jail time.
We don't know if Moskovitz is right, but we can observe that, were FSD real or close to being real, various aspects of the business model as it stands would make no sense — and nor would the visible red flag of multiple top Tesla executives fleeing in recent weeks, cashing out hundreds of millions in shares as they go.
What's more, were the FSD promises real — not to mention the China hype, which was more or less a publicity stunt — it seems clear Tesla would be hiring workers, not firing them, because FSD as an AI-enabling product (Teslas are supposed to be like mobile data centers) would usher in such a profitable future that Tesla should want as many FSD-deploying vehicles on the road as possible, even if the profit margin on the actual car — just a container at this point — is zero.
Instead, Musk slashing jobs with wild abandon and, according to Bloomberg reports, wanting to cut 20% of Tesla's workforce because Tesla's sales were down 20% — a kind of bizarro "this number should look like that one" line of reasoning — ultimately gives the game away. Tesla has vaporware, not real tech, and reality is sinking in as evidenced by Musk's China gambit (FSD in China, wow!) failing to get more of a pop than it did.
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