A lot of Tesla watchers and owners are perplexed at Tesla’s new habit of cutting prices in the last year. This is something that they’ve haven’t done much of prior to late 2022. So why start now? Is it all “part of the plan”? ​

​No, price cuts are definitely not what Tesla wants to be doing. Regardless of what they’ve said in the past, a business never wants to cut prices. The main reason is that even if you secure a short term bump in sales, the pain that it causes you in future gross margin erosion greatly outweighs that benefit. The problem is that once customers get accustomed to certain price point, they resist paying the higher prices. They’ll then “wait you out” if you ever try to raise prices again. It’s a vicious cycle. 
 
This is why Apple generally never cuts prices. And the iPhone is a great example of a product that is in equilibrium with its demand. There is no need for Apple to ever cut prices and Apple continues to gain higher and higher sales globally every quarter. 
 
Now contrast that with Tesla. Their growth essentially stopped about a year ago. That’s when Tesla was forced to roll out significant price cuts across the board to keep their growth story alive. 
 
But here’s the thing that most people don’t get. Tesla has to drop prices to absorb their fixed overhead costs. It’s not just about trying to keep growth alive. Even if Tesla suffers a small sales decline in 2023 despite the price cuts, they still perfect financial sense. 
 
The reason the price cuts make sense is due to the the fixed costs for all their new factories. Whether Tesla produces cars or not, these factories are still going to burn huge amounts of cash every month. People forget that the cost of building those factories doesn’t show up on the income statement while it’s being built. And it’s not just the building, it’s every high priced piece of equipment inside that building. Plus any engineering work to install those machines or design the manufacturing process. All those costs are capitalized (parked on the balance sheet) when the factory is complete. They come back to the income statement in monthly installments.
 
Tesla has to spread those factory depreciation costs over a great number of cars to keep in the black. If they simply allow car sales to fall due to softening demand, it doesn’t take long before Tesla is reporting losses in their quarterly earnings releases. The high cost of auto manufacturing is one reason why it’s such a brutal business. 
 
Is Tesla hurting their gross margins by cutting prices? Yes. But is this better than the alternative of letting fixed overhead costs simply decimate the income statement? Also yes. 

The problem with being overly involved with a brand is that you can easily throw away logic and interpret all news as being favorable. If you don’t believe me, just look at Tesla fans ​

​It is obvious to everyone that repeated price cutting in 2023 is not a bullish sign for Tesla. Can you imagine what would happen if Apple started cutting iPhone prices for 4 months in a row? They never have. Why? Because the iPhone has more demand than there is supply. It’s a good bet that Apple will probably raise iPhone prices again this fall. 
 
Check out this doofus from Twitter. 

As usual with Tesla statistics that purport to show a huge advantage for Tesla, the stats are carefully gerrymandered to show Tesla favorably. Does Tesla have a huge gross margin advantage. Only if you compare retail revenue to wholesale cost of sales. Does Tesla have the best selling car in any category? Only if you carefully construct the rules to leave out any model that beats Tesla. Does Tesla make the most profit per vehicle. No, not even close.
 
Problem #1 with this graphic is that everyone is in market penetration mode. That means that they are all deliberately undercutting Tesla to steal market share. And the fact that Tesla is cutting prices means that the old line automakers are being quite successful at stealing customers. 
 
Problem #2 is that, like all Tesla stats, it is carefully constructed to show a false narrative. It is deliberately omitting all car models EXCEPT the EVs. But all other automakers make the bulk of their profit from gas-powered vehicles. 
 
The only car company in the negative is Ford. But the stat is constructed to omit the fact that they have the best selling vehicle in America, the F-150. And they are making an average of $13,000 in profit on every truck that rolls off the line. That is over 35% BETTER than Tesla. And GM is making roughly the same, if not better margins on their Silverados. Tesla isn’t even close to making the most profit per vehicle. 
 
The reality is that the old line automakers can afford to wage a price war with Tesla because they subsidize their EV pricing with profits from their bread-and-butter lines. But the Tesla idiots are clueless because they keep hearing from their propaganda websites that Tesla “has the best gross margins in the auto industry”. As I keep repeating until I’m blue in the face, Tesla is comparing retail revenue to wholesale cost of sales. 
 
Tesla’s gross margins are overstated in comparison. That is why the old line automakers can beat Tesla on total net profit. They have much lower SG&A. Tesla is saddled with huge customer support and selling expenses that Ford or Toyota don’t have. Tesla has no dealership network which means that they foot the bill for a myriad of things other automakers don’t have too. Plus, the supercharger network is a giant cash sucking sink hole.  Can you imagine if Chevrolet or Toyota had to resort to paying for free gasoline if you buy one of their cars? 
 
Tesla peaked in 2022. With the onslaught of competition from every direction and lower selling prices, Tesla’s profitability is only going to deteriorate from here on out. And no, the tiny volume bumps aren’t going to help them when the price of material, labor, and overhead are all going up. If you’re invested in Tesla, I have only two words for you “Get Out”. While you still can. It’s going to get ugly. 

There are so many people killed by Tesla these days that I don’t really post about them or this would simply become the Tesla Deaths blog. But this couple particularly caught my attention because it seemed so tragic. They had just left their son’s house where they had celebrated their first grandchild’s first birthday. And these were vigorous healthy people who were well known in their long-distance running club. They had many years ahead of them to spend time with their grandkids. 

Tesla Accused In Lawsuit Over Crash That Killed California Couple

But for some unknown reason, their Tesla slammed into the back of a parked tractor trailer. They’re gone. They’re dead. Their grandchild will never know them. 

If your smartphone glitches out maybe you have a call dropped or your app crashes. But if your car glitches out, you’re pushing daisies. 

If they had been driving a BMW or Mercedes Benz they’d be alive today. 

The Tesla stock story is like the 1997 James Cameron movie Titanic. It’s going to end in disaster but there will be a seemingly never ending drama before hand.  And many characters in the story will erroneously think it’s unsinkable. ​

​2022 was already disastrous for Tesla shareholders that bought in January. Those poor souls lost about 70% of their investment. And now in 2023 the share price has recovered in January and February. But these unlucky buyers are probably on course to lose most of their investment as well if the information coming out about Tesla this week is any indication. 
 
Check out this tweet by the always level headed Montana Skeptic.

The Tesla stock price is valued at total market domination not being just another car company. In fact, it’s actually worse for Tesla. The market cap is so high that analysts from places such as JP Morgan have models that actually priced Tesla as dominating other industries like ride-sharing and energy. Why? Because even if Tesla put all the major automakers out of business, there isn’t enough profit in the entire auto industry to justify the market cap. 
 
The aforementioned stock price recovery of Jan/Feb came after Tesla made some fairly drastic price cuts. Now that alone was alarming. Decreasing demand necessitating price cuts is nothing to warrant optimism. But the optimistic take was that this would lead to Tesla stealing market share and lowering costs via greater volume. 
 
Surprise! It’s not working. Not only is Tesla failing to steal market share, they are actually shrinking. Nothing is more kryptonite to the Tesla stock price than the end of the growth story. And just wait til the market finds out that Tesla has destroyed their gross margins by lowering prices in a period when raw material prices are going up. 
 
Tesla is priced so high that you can’t win betting on it. But before we get to the big finale where the wreckage sinks to the bottom of the ocean we’ll have to sit through hours of a fat bozo dancing for dollars in a futile attempt to stave off disaster. 

I stumbled on this grossly misinformed tweet by a Hedge Fund manager who fashions himself as a tech expert. It is misinformation like this which can lead retail investors down the road to ruin. 

The crux of the matter is the same old problem anytime these “analysts” try to compare Tesla’s gross margins to the traditional automakers. Tesla is a retailer but the other automakers are wholesalers. 
 
In this case, the difference is who pays for customer service and support. Traditional auto makers sell their cars to a dealer network and it is those independent businesses who handle a great deal of the customer service, not the manufacturers. Not so with Tesla, they own customer service and support from top to bottom. 
 
That’s why if you do a quick comparison of just total SG&A as a % of sales between Tesla and GM, Tesla has a rate that is about 27% higher than GM. This is the part all the Tesla propagandists leave out when they crow about those Tesla gross margins. 
 
But SG&A is only part of the story. It’s actually a lot worse for Tesla. Tesla most certainly has an advantage in general and administrative costs over all the traditional automakers. G&A includes the people costs of the corporate headquarters. And this Tesla advantage is is being greatly outweighted by their disadvantage in selling costs. My point is that Tesla is a lot worse than 27% higher than GM if you only look at selling costs.
 
So does Tesla capture $1,500 per car that traditional automakers let go to the dealers. Probably. But my point is that this is not all free money. Tesla isn’t getting anywhere near that in terms of a net benefit to the income statement because they have other costs that traditional auto makers don’t have. 
 
Think of all the trips that customers make to dealerships for small things like squeaky windows or misaligned parts. Tesla pays for all of that. But GM? Probably not because the dealer will handle it. And it’s not all charged back to the manufacturer. 
 
I see a tweet like that from Alok Agrawal and I can laugh out loud. But for people who aren’t steeped in financials as their day-to-day job and have no frame of reference to question the logic it might look reasonable. Alok’s tweet makes absolutely no sense and is completely misleading. I just wish more people could see that. 

Here’s the full context of that joke of a tweet…

Tesla fan boys are wondering why all the doom and gloom from financial analysts regarding their 42% year-over-year unit delivery increase. So I thought I’d explain it to them. I know many of them frequent my blog.

Q4 Shows Weakening Demand Heading Into 2023
Perhaps Tesla’s problem would be easier to understand if I use the housing market as an example. The Housing collapse is a few months ahead of the auto collapse. 

If you compare housing stats for 2022 versus 2021 everything looks great. More houses sold at higher prices. However, the bottom started falling out in June. So even though the YoY stats look great, you’d be hard pressed to find anyone forecasting anything but pain in 2023 for the housing market. 

Higher interest rates have decimated the housing industry but sales were so strong in the first part of the year that the YoY comparisons don’t tell the full story. 

I predicted that higher interest rates would do to luxury cars what they did to luxury homes. And I was right. Tesla’s Q4 shows a huge slowdown and unsold inventory piling up. That’s even with Tesla giving huge discounts on their cars. 

But wait, that’s not all. Analysts were lowering their guidance for Q4 almost every day. And Tesla still missed against all of the lowered expectations. This is going to rattle Wall Street. 

Tesla’s Market Cap Is Based on Dominating the EV Industry
The Tesla fans don’t understand Wall Street. And that’s partly Musk’s fault. He said that the “fundamentals are sound and don’t get distracted by the market craziness”. 

But what Musk didn’t say is that if Tesla’s stock price was based on its fundamentals, it would be about $15 per share, like Ford. Musk conveniently leaves out the fact that the stock price is based on Tesla eventually gobbling up the whole car market. Further, for Tesla to justify it’s market cap, it would also have to expand into other industries like ride-sharing, energy storage, and residential solar power and grow these into huge hundred billion revenue generators. That’s never going to happen. 

Slowing demand means that Tesla may never dominate the auto industry but may remain just one of several companies sharing the pie. There are great EV alternatives coming from Kia, Ford, GM, Volkswagen, and BMW.  The stock price didn’t expect this to happen. Some Wall Street analysts 2 years ago were literally saying that the mainstream automakers were going to start going out of business one by one. 

So my dear Tesla fanboys, it’s not enough for Tesla to make a small profit. Because if that’s all that they do in 2023, this stock is going down the toilet. But even “a small profit” is doubtful in 2023. Skimping on R&D and going into 2023 with an obsolete product line, horrendous build quality, and the worst customer service in the industry is going to finally catch up with them. 

And I haven’t even mentioned any potential margin loans that Musk may have taken against his Tesla stock to finance Twitter. Because if Twitter starts to implode and Musk needs to sell more stock to meet his margin calls it’s going to be “Katie bar the door” time. 

​I watched The Glass Onion on impulse last night after my house finally emptied out after the Christmas festivities. I was so glad I did because it was a thoroughly engrossing movie that was a blast to watch. It’s nice to find an intelligent movie that doesn’t rely on car chases or shootouts to keep the audiences attention. 
 
But I had no idea the whole movie was a big lampoon of Elon Musk. The movie was about a tech billionaire, Miles Bron, who is actually an idiot but got his billions by stealing the innovation of others.
 
And it doesn’t really matter when the movie was written or even if the writers deny having Musk in mind. Because everyone is coming to the same conclusion. And it’s due to the following:

​Miles Stole the Company from it’s Founder
This smacks of Elon Musk taking over Tesla Motors from the guy who actually founded the company, Martin Eberhard.  No, Musk didn’t found Tesla or PayPal. In fact, PayPal fired him after only a few weeks because he was a disaster. 

​Miles Isn’t Very Smart
Musk isn’t very smart either. Anyone who’s watched him flail over the years sees a never-ending stream of bad decisions and quick retreats from this guy. He doesn’t think or analyze before he acts. The only time people think that Musk sounds smart is when he expounds on a subject that you’re not knowledable about. But when he starts getting into an area in which you know your stuff, you know he’s an idiot.

​Everyone Saw Miles as a Big Liar in the End
The movie mocks how Miles portrayed himself as a messiah figure out to “save the world”. But he was actually just out to make money and didn’t care that he was harming the world. 
 
Ask documentarian Michael Moore what he thinks about Elon Musk’s attempt to save the world by peddling EVs. He’ll tell you it’s all a big money grab which uses guilt to sell cars. When in fact, electric cars do nothing to help the environment. It takes more hydrocarbons to build EVs and the electricity that powers them mostly comes from fossil fuels. 

​Electric cars and reusable rockets were done long before Musk came along. They were ideas which were discarded due to poor economics and even today, it’s dubious if they make financial sense. But that’s too long of a subject for today. The point is that the rest of the world is finally seeing that Musk is just another scam artist trying to snag some investor cash.  

​This is no surprise to long time Tesla watchers. We’ve been trying to tell all y’all for years now that Musk doesn’t know how to run a company and shouldn’t be allowed to manage people. The guy is a textbook example of what not to do. 

Look no further than the quality of the products that Tesla churns out. Tesla EVs are regularly at the bottom of the Consumer Reports quality list for problems of both a mechanical or fit & finish nature. And this won’t change until Musk is no longer running Tesla. Why do I say this? Because Musk thinks the Toyota manufacturing system is stupid. 
 
At Toyota all employees down to the lowest paid hourly workers are empowered to stop production if they identify any recurring quality issues. The entire plant will focus on solving that problem before production resumes. And Toyota puts big red buttons every 10ft on the assembly line so that there is no excuse not to do it. Meanwhile at Tesla, Musk empowers all employees to “ignore stupid meetings or rules” to keep production running. And guess who drives most meeting and rules? Yeah, the quality department. Musk effectively empowers his employees to ignore the quality people if it hurts their production quota. 
 
Then there’s the time that Musk decided he was going to shut down all the retail stores. A few days later they backtracked and opened up half of them. What an idiot. He’s like a college intern who just starts pressing buttons without knowing what will happen. But you could fill a thousand page book with examples of Musk making stupid decisions or reversing them. I wouldn’t hire Musk to run a McDonalds restaurant. 
 
But the latest example of Musk’s stupidity is his ultimatum to employees that they “go hardcore or go home”. That just doesn’t work. 
 
Again I return to the Toyota method. One of the most profound things that I learned while studying the Toyota manufacturing principles was this. Relying on “exceptional performers” to keep a system moving is a recipe for disaster. Because it is difficult to find exceptional performers and eventually even your exceptional performers will get burned out. You will cause them to leave once they get too tired. 
 
At Toyota they believe in setting up “exceptional systems” for average to below average people. Toyota strives for systems full of checks and balances in which you could drop almost anyone into a job and they could do it with a high level of quality. This allows them to flex their workforce more easily when volume is up or down. And a relaxed pace will keep workers happy and errors down to a minimum.  
 
And Musk’s ultimatum of “go hardcore or go home” is stupid for another reason which I’ve witnessed. Those with the strongest resumes are the ones who leave. It is the people at the lower end of the bell curve who stay. That’s because they have weak resumes or a spotty history. As a consequence, they don’t leave because it will be difficult to find another job. But the best and brightest people who have a stellar work history will quickly jump ship. What has Musk done? He’s gutted the collective brain trust.
 
So yeah, Tesla watchers knew that Musk was going to bring his typical chaos and stupidity to Twitter. But I think even we didn’t realize how bad it would it be. There just doesn’t seem to be anyone in Musk’s orbit who can tell him when he’s making a mistake. 
 
If you didn’t catch the reference in my article photo, that is the character Gavin Belson. The show tried to create a composite character of self-centered and egotistical billionaires who are narcissistic. Everyone around Gavin Belson is afraid to tell him that he’s a complete loser and total moron. But when you watch the show, you swear that the character is based on Elon Musk. 

There’s been a lot written about the flaming wreckage that is Musk’s takeover of Twitter. But I find it odd that no one has written about how the first people to be let go from the company were the accounting and legal people. ​

​Getting rid of the CEO is a given. Nothing weird about that. But the CFO and Chief Counsel? That’s just downright weird. In my almost 30 years in business, I’ve never seen anything like that. I’ve been through multiple takeovers and I’ll you what usually happens when a new CEO takes over, the existing CFO and Chief Counsel become indispensable to the new leadership. 
 
From what I’ve seen, a good new CEO leans on the existing CEO and Chief Counsel to show him where the bodies are buried. Who better to get you up to speed on how things work than those who have a deep understanding of how the company works? 
 
But a good CEO possesses a certain level of humility and self-awareness. The ability to admit that you don’t have all of the answers and to lean on others for advice. Apparently, Musk falls far short of the standard. The accounting and legal groups are like the state department or FBI in the federal government. It doesn’t matter which party controls the presidency. These non partisan government agencies help bring the new president up to speed. They are supposed to be an aid, not an adversary.
 
So why did Musk feel the need to begin his firing with this group? Could it have anything to do with the fact that this is the one group within a company that can and will stand against a CEO if his plans will bring harm to the company or put people in legal jeopardy? It’s interesting that Tesla’s big turnaround didn’t really come until after Tesla’s experienced CFO retired and Musk promoted a 38 year old Zachary  Kirkhorn, a young accountant with relatively little experience. If Musk wants to influence the quarterly financials, there isn’t really anyone to stand against him at Tesla. 
 
And anyone who’s watched Tesla over the past few years will tell you there has always been a very strange dynamic at Tesla when it comes to turnover within the accounting ranks. Teslas financial turnaround came after a massive exodus of high-ranking experienced financial leaders. Make of that what you will. 
 
As I’ve written before, accounting is typically a low turnover department where people are content to stay a while, except for Tesla. And making the turnover even stranger at Tesla is that high ranking officers like former Tesla CFO Jason Wheeler were walking away from a ton of stock options. Those with an inside view of what was happening at Tesla came to the conclusion that their stock options were worthless. And this has happened over and over again. 

Someone who's invested in Tesla stock is like someone who's jumped off a hi-rise building. If you ask him how he's doing at around the 30th floor he'll say he's doing pretty good. But yet, you know he's about to get splattered in the very near future. 

Tesla, like Netflix, has been valued as a tech company and not like their peers in their industry. Netflix is currently going through a stock price revaluation as the reality finally sets in to their investors that they are really just an entertainment and distribution company. That same type of revaluation is coming to Tesla sooner or later. . 

Why do I say this? Because now even Musk is dumping Tesla stock. And the current stock price bump, which just so happens to coincide with Musk needing to sell his stock is right on schedule. 

It's speculated by many that Musk is somehow involved with illegal stock price manipulation behind the scenes. That speculation only got louder after the fall of Archegos which is now known to be involved with price manipulation via the options market. And Archegos was a close ally to Cathie Wood's ARKK fund which is knee deep in Tesla. 

Follow Musk's example. Get out of Tesla stock while you can. The government crack down is coming for their self driving software. And if it goes, so does the stock price.