Coyote Blog

My family often jokes about my obsessive behavior vis a vis Tesla and Elon Musk (on the off chance you are unaware of my thoughts, the most recent are here).  My daughter texted me last night that "Wealthy millennials seem to love Elon."  And that is true.  My answer to her is the title of this post, "People who express opinions outside of their domain seldom have really looked into it much."

Of course, I am not in any way arguing for some sort of strong credentialism wherein people should not express opinions outside of their domain.  God forbid, I would have to shut down this blog.  But I am saying that just because someone is really smart and successful at A does not necessarily mean their opinion on B is worth squat.  As always, as a consumer of opinions, caveat emptor should always be the watchwords.

The first time I really encountered this phenomenon (outside of obvious examples such as the political and economic opinions of Hollywood celebrities) was related to climate change.  I don't see them as often today, but for a while it used to be very common for letters to circulate in support of climate change science signed by hundreds or thousands of scientists.

The list of signatures was always impressive, but when you looked into it, there was a problem:  few if any of the folks who signed had spent any time really looking at the details of climate science -- they were busy happily studying subatomic particles or looking for dark energy in space.  It turned out most of them had fallen for the climate alarmist marketing ploy that opposition to catastrophic man-made global warming theory was by people who were anti-science.  And thus by signing the letter they weren't saying they had looked into it all and confirmed the science looked good to them, they were merely saying they supported science.

When some of them looked into the details of climate science later, they were appalled.  Many have reached the same general conclusions that I have, that CO2 is certainly causing some warming but the magnitude of that warming or in particular the magnitude and direction of its knock on effects like floods or droughts or tornadoes, is far from settled science.

So it is often the case that people who show strong support for ideas or people outside of their domain do so for reasons other than having made use of their expertise and experience to take a deep dive into the issues.  Theranos is a great example from the business world.  Elizabeth Holmes convinced a bunch of men (and they were mostly all men -- women seemed to have more immunity to her BS) who were extraordinarily successful in their own domains (George Schultz, the Murdochs, Henry Kissinger,  Larry Ellison) to become passionate believers in her vision.  Which is fine, it was a lovely vision.   But they spent zero time testing whether she could really do it, and worse, refused to countenance any reality checks about problems Theranos was facing because Holmes convinced them that critics were just bad-intentioned people representing nefarious interests who wanted her vision to fail.

Which now brings us to Tesla and Elon Musk.  I used to love Elon like everyone else.  I still think that having four or five billionaires in a space race against each other is finally the world I thought I was going to get growing up reading Heinlein.  The Tesla Model S was probably one of the most revolutionary cars of the last 50 years.  But he lost me when he committed outright fraud in the Solar City - Tesla deal and since then have only become more skeptical about he and Tesla.

I sort of laugh when folks tell me that really smart successful rich people believe in Tesla.  You mean like James Murdoch, on the board of Tesla and who also was lost his entire investment in Theranos?  Or like Larry Ellison, an adviser and fan of Elizabeth Holmes who invested $1 billion in Tesla just 6 months ago and has already lost 40% of it?   The window on this is probably closing, but over the last 10 years if you wanted to get Silicon Valley investors to throw a lot of money at you, find a traditional bricks and mortar business and devise a story in which you take that industry and convert its economics to that of the networked software world (see:  Uber, WeWork, Tesla, and even Theranos is some of its strategic pivots).

Or how about true millennials and Elon Musk?  Name a wealthy millennial supporter of Elon Musk and Tesla and I can bet you any amount of money they have not looked at Tesla's balance sheet or cash flow or the details of its global demand trends.  They have not thought about its dealership strategy or manufacturing strategy and the cash flow implications of these.  They just like what Elon says.  It sounds big and visionary.  They buy into Elon's formulation that he is saving the environment and everyone opposed to him is in a cabal with big oil (ignoring the fact that Elon routinely uses his Gulfstream VI to commute distances less than 60 miles).  So saying that rich millenials adore Elon is effectively saying that they want to be associated with the same things Elon says he is for -- the environment and space travel et al.

Elon Musk is Ferdinand DeLesseps.  He is PT Barnum.  He is Elizabeth Holmes.   He is the pied piper.   He is fabulous at spinning visions and making them sound science-y.  But he is not Tony Stark.  There is a phenomenon with Elon Musk that everyone thinks he is brilliant until they hear him speak about something about which they have domain knowledge, and then they realize he is full of sh*t.  For example, no one who knows anything about transportation or physics or basic engineering has thought his Boring Company and Hyperloop make any sense at all.  His ideas would have been great cover stories for Popular Mechanics in the 1970's, wowing 13-year-old boys like me with pictures of mile-long cargo blimps and flying RV's.  He is like a Marvel movie that spouts science that is just believable-enough sounding that it moves the plot along but does not stand up to any scrutiny.

All of this would be harmless if he was not running a public company.  I don't really care about the rich folks who were duped by Elizabeth Holmes, but hundreds of thousands of small millenial investors who have totally bought into the Elon hype are literally putting their last dollar into Tesla, and sometimes borrowing more.  Tesla shorts often laugh at these folks on Twitter, calling them "bagholders," but it is a tragedy.  Unless Tesla finds a sugar daddy sucker, and the odds of that are getting longer, I think it is going to end badly for many of these investors

As a disclosure, I have been short Tesla via puts for a while now.  It you really want to understand Elon, the best book I can recommend is The Path Between The Seas about the building of the Panama Canal.  First, it is a great book you should read no matter what.  And second, Ferdinand DeLesseps is the best analog I can find for Musk.

A while back I took at Teaching Company course on Victorian Great Britain.  The professor said something about the Victorians that really stuck with me -- he said that the British never understood the soft power they had in the world.   The world wanted to dress British and emulate British manners.  They read British authors.  They desperately wanted to send their children to British schools.  Even the native revolutionaries in their colonies sometimes revolted in very British ways.  Sure the leaders of the Indian National Congress harbored enormous resentments against the arrogance of British power, but all their leaders were British-schooled and cast many of their arguments in terms from the British enlightenment.

I was thinking about this a while back when I was in France and attended a show of local French artists.  As with much modern art, much of it incorporated bits of pop culture.  And about 98% of that was American and to a lesser extent British pop culture.  Sure, some of it was used ironically, but American culture is consumed everywhere in the world.  I must have seen 5 or 6 artists using Captain America imagery alone in their art in a not-at-all hostile or ironic way..  America in the 20th and 21st century is in the same position as the British in the 19th century, and we are probably just as unaware of that soft power and pissing it away just as surely with our slamming around the world like a bull in a china shop.

And speaking of China, it is simply insane in my mind to turn them into our enemies.  Whatever the top Chinese officials are after, much of the population wants to be like Americans.  They want to come to our schools and wear our fashions and watch our movies and TV.  We have had several exchange students from China live with us and they treat getting to spend time living in America like having hit the lottery.  We have watched one woman who goes by "Cat" in the US all the way from high school to college in America to getting a good banking job.  She first showed up at our house looking exactly like Ching "Honey" Huan from Doonesbury -- the hair, glasses, clothes, everything.  She now looks, dresses, and talks like any young American.  For a while her Instagram was dominated by pictures of her and her friends at Big 10 football games.

I have been consumed of late with other things in my life, and really have not had the chance to address the increasingly insane extent of the Trump Administration's economic nationalism. But go to Don Boudreax's and Mark Perry's blogs and scroll through them -- they do a much more eloquent job of defending free trade than I can.

Apparently, despite the fact that I spend a high monthly fee to HBO to be able to stream all their content, I cannot get the content I paid for when in France.  I have an account with Express VPN and it has always served me well.  I was able to log in via this VPN and was able to stream the most recent Game of Thrones episode.  I could have probably waited until I got home but the Internet seems to be filled with like 6 million spoilers.

BTW, unlike much of the most vocal Internet, I was totally fine with how the major character deaths were handled in the last episode.  I thought they were symbolically consistent with how those characters got to where they are.

At home I almost always surf through a proxy server, even though that means I have to endure endless identity confirmation tests from websites as they don't recognize my IP.

I am on the road but trying to stay in the blogging habit so this is a bit of a throwaway.  But anyway...

You probably know words like SCUBA, SNAFU, laser, lidar,  and sonar are all acronyms.  But here are two you might not know about:

The first word is "posh," which generally means a luxury experience (or Beckham's wife).  But it was originally an acronym for ship voyages from the UK to India.  Because it was a hot trip and there was no air conditioning, the best cabins were on the north side of the ship (at least above the equator) or the east side of the ship (ie facing away from the heat of the afternoon sun).  This would be the port side going to India and the starboard side coming home.  So to get the best cabin you asked for port out, starboard home or "POSH".

The other word is "Pakistan" which is the name of the country that split from India in 1947.  As India was approaching independence, Muslims (who were quite numerous all over in India but particularly in the northwest and the far east) proposed the new states formed form the old British Empire in India include a Muslim state.    They were seeking a state made up of the Muslim-majority whole provinces of Punjab, Afghan, Kashmir, Indus, and Sind.  This forms the acronym PAKIS-tan with the "tan" meaning "land of".  The word Pakistan also means "land of the pure" in Sanskrit.    It was a powerful piece of branding.

As a postscript, these 5 provinces were all in the west.  The original Pakistan also included parts of the state of Bengal in the east which formed East Pakistan.  East Pakistan was actually more populous than the West but the West tended to dominate the country's leadership, leading to E. Pakistan breaking away in the early 70's to form Bangladesh.  The entirety of these 5 states in the acronym were not included in the final borders of Pakistan.  In particular, Kashmir was divided between Pakistan and India and has been the site of a lot of fighting between the two countries over the last 70 years (queue Led Zeppelin song).

I have spent pretty much zero minutes paying attention to the Kardashian women (I think I saw them more in the "People vs. OJ Simpson" than I have in all other media combined).  But I have great respect for how Kim Kardashian is spending her celebrity credit.  She seems to be doing real work that helps real people on an important issue, and one that does not give her the immediate virtue signalling credit as, say, making uniformed statements about the climate might.

Kim Kardashian West is staying true to her pledge to fight for prison reform.

CNN has learned that the E! star has been quietly working behind the scenes over the past three months to help commute the life sentences of 17 first-time nonviolent drug offenders.

Brittany K. Barnett, Kardashian West's personal attorney and co-founder of the Buried Alive Project, and MiAngel Cody, lead counsel of the The Decarceration Collective, told CNN that Kardashian West has been instrumental in the release of these inmates.

"Kim has been funding this project and (has been) a very important supporter of our 90 Days of Freedom campaign as part of the First Step Act, which President Trump signed into law last year," Cody said. "We've been going around the country in courtrooms and asking judges to release these inmates."

Barnett added that without Kardashian West footing the bill, this would not have been possible. "(Kim) has provided financial support to cover legal fees so that we can travel the country. Our relationships with our clients don't end when they are freed. (Kim) is truly dedicated to the issue. I work personally with her, we are really grateful."

But she's not just paying legal fees.

"When people get out of prison, they might be incarcerated hundreds of miles from their families and they might need help getting home. Really important, critical things that people might not realize -- and those are things Kim is helping with as well," Cody added.

In an authoritarian regime, those in power demand obedience but not necessarily agreement from their subjects.  Even if many of their subjects might oppose the regime, the rulers are largely content as long as everyone obeys, no matter how grudgingly.

Totalitarians are different.  They demand not only obedience but lockstep belief.  In some sense they combine authoritarian government with a sort of secular church where attendance every Sunday is required and no heresy of any sort is permitted.  Everything is political and there is no space where the regime does not watch and listen.   Even the smallest private dissent from the ruling orthodoxy is not permitted.  Terror from the state keeps everyone in line.

I have tried out a lot of words in my head that are less inflammatory than "totalitarian" to describe the more radical social justice elements on modern college campuses, but I can't find a word that is a better fit.  The attempts to drive out dissenting voices through modern forms of social-media-fueled mob terror are both scary and extremely disheartening.

I was thinking about all this in reading an article about Camille Paglia and the students and faculty of her own university who are trying to get her thrown out.  I find Paglia to be consistently fascinating, for the very reason that the way her mind works, the topics she chooses to focus on, and sometimes the conclusions she draws are very different from my own experience.  The best way to describe her, I think, is that we have traditional axes of thought and she is somewhere off-axis.

Anyway, after horrifying Conservatives for many decades, Paglia has over the last few years run afoul of the totalitarian Left.  One example: (emphasis added)

Camille Paglia, the controversial literary and social critic who identifies both as queer and trans, is drawing fire yet again. Students at her own institution, the University of the Arts (UArts) in Philadelphia, are calling for her to be fired. An online petition, currently with over 1,300 signatures, reads in part:

Camille Paglia should be removed from UArts faculty and replaced by a queer person of color. If, due to tenure, it is absolutely illegal to remove her, then the University must at least offer alternate sections of the classes she teaches, instead taught by professors who respect transgender students and survivors of sexual assault.

Another demand in the petition is that, if she can't be canned, the university will stop selling Paglia's books on campus and permanently disallow her from speaking on campus outside of her own classes. Although it's mostly non-faculty speakers who get deplatformed, Paglia is merely the latest target being attacked by students from her own institution. Students at Sarah Lawrence, for instance, are calling for political scientist Samuel Abrams to be fired for writing an op-ed in The New York Times calling for ideological diversity among administrators.

Paglia's critics claim that, despite her own alternative sexual identity, she is so hostile and bigoted towards trans people that her mere presence on campus constitutes an insult or threat. There's no question that she has been dismissive of some claims made by trans people and, even more so, dismissive of students who claim that being subjected to speech with which they disagree is a form of trauma.

What I got to thinking about is this:  How far away are we from "her mere presence on campus" constituting a threat to being threatened by "her mere presence in the same country?"  I fear it may not be very long.

Postscripts:  I wanted to add a couple of postscripts to this story

1. I find that the "mere presence is a threat" argument being deployed by LGBT activists is extremely ironic.  In the camping business I run we have always had a disproportionate number of gay couples managing individual campgrounds.   Fifteen years ago I remember twice getting push back from people in the surrounding community (both times in southern, more traditionally religious areas) that the very presence of gay men around young children constituted a threat.  I thought this argument was complete nonsense and basically told the protesters to pound sand.  But it is ironic for me to now hear LGBT activists deploying the "mere presences is a threat" argument that has been used against them so often in history
2. We have clearly dumbed down what constitutes a threat when speech is equated with violence.  But have we also dumbed down the concept of terror?  People -- particularly university administrators but you see it all over -- constantly fold under the pressure of negative comments on twitter.  This sure seems a long way from the SS showing up at your door at 4AM, but amazingly social media terror seems to be nearly as effective an instrument of control.  Years ago my dad ran a major oil company and he did it with a real sense of mission, that they were doing great things to keep the world running.  But he endured endless bombing threats, kidnapping threats, existential threats from Congress, screaming protests at his doorstep, etc.  After being personally listed on the Unibomber's target list, I wonder what he would think about the "threat" of social media mobbing.

I got this in the mail from the US EEOC:

EEO-1 filers should begin preparing to submit Component 2 data for calendar year 2017, in addition to data for calendar year 2018, by September 30, 2019, in light of the court's recent decision in National Women's Law Center, et al., v. Office of Management and Budget, et al., Civil Action No. 17-cv-2458 (D.D.C.).  The EEOC expects to begin collecting EEO-1 Component 2 data for calendar years 2017 and 2018 in mid-July, 2019, and will notify filers of the precise date the survey will open as soon as it is available.

As a reminder, the schedule 2 data is an order of magnitude increase in the amount of information the government wants on our employee's skin color and reproductive plumbing.  Instead of just asking for counts of employees by race and gender (a distasteful exercise every time I have to do it) but they want a hugely expanded amount of salary data for every race-gender combination.  As I wrote before:

Forget for a moment that the whole purpose of this rule is to provide litigation attorneys a database they can mine to legally harass businesses.  The reporting requirements here are incredibly onerous.  It takes the current EEO-1 (the annual exercise where we strive for a post-racial society by racially categorizing all of our employees) and makes it something like 15-20 times longer.  In addition, rather than simply "count" an employee as being on staff in a certain race-gender category, we now have to report their income and hours worked.  Either I will have to hire staff just to do this stupid report, or I will again (like with Obamacare) have to pay a third party thousands of dollars a year to satisfy yet another government reporting requirement.  This is utter madness.

Get this -- the report has 3600 individual cells that must be filled in.  And this is in addition to the current EEO-1 form, which also still has to be filled out.  The draft rule assumes 6-7 hours per company per year for this reporting.  They must be joking.

Making this worse, the email implies that they are going to demand retroactive data for 2017 and 2018, which is simply insane.  We pay an extra couple thousand dollars every year for extra payroll program functionality to be able to accommodate this madness, but certainly did not have it in place back in 2017.

A prior version of this article was published accidentally before it was complete.

I know I swore not to write about Tesla here and to confine myself to talking about Tesla on Twitter, but I can't help myself.  This is the company that is going to spawn a thousand business school case studies.  It is Enron but in the Internet Age with more transparency (or at least less sophistication in hiding their problems).

Over the weekend I re-read "The Smartest Guys in the Room" about the collapse of Enron.  I will admit I was an Enron fanboy at the time -- I drank the Kool-Aid and totally overlooked the problems.  I knew Jeff Skilling a little and worked for him on Enron when we were at McKinsey.  I believed he was brilliant and was doing what he said he was doing.  The crash of Enron took me years to accept, and only on my recent second reading of that book did I have the distance and objectivity to really understand it.  And I realized something else -- I was the same guy back then that I criticize today.  Skeptics of Tesla (including me) make fun of Tesla fanboys and their cult of Elon Musk and their belief of everything he says and their certainty he is the smartest guy in the room.  I understand them because I was that guy with Enron and Skilling.  Maybe Tesla is my chance to correct my past gullibility.

Anyway, just when I thought the story couldn't get any more dramatic (or weird), Elon Musk raises the bar.  Apparently Tesla is now only tangentially and largely irrelevantly an automobile manufacturer.  Instead, it is an autonomous ride-sharing company:

Citigroup and Goldman Sachs, who are underwriting Tesla’s latest effort to raise $2 billion in new funds, held a “broad investor call” on Thursday, where CEO Elon Musk and CFO Zach Kirkhorn answered brokers’ questions about their plans for the electric vehicle maker.

According to two invitees who attended the call, CEO Elon Musk talked up Tesla’s self-driving strategy right off the bat, expanding what he and other execs said at a recent event for investors that the company dubbed “Autonomy Day. ”

Musk confidently told investors on the call that autonomous driving will transform Tesla into a company with a $500 billion market cap, these people said. Its current market cap stands around $42 billion. He also said that existing Teslas will increase in value as self-driving capabilities are added via software, and will be worth up to $250,000 within three years.

This call was in the context of Tesla's offering this week of about $2 billion in new stock and convertible bonds.  The really interesting thing about the call:  Virtually 100% of the discussion on the call was about ride-sharing and autonomy, while neither word was even mentioned in the official written prospectus for the offering.

Before we can understand what the hell is going on here, and why Tesla is going all-in on a business it was barely talking about 60 days ago, we need to do some review.  I want to review where Tesla was last time I wrote about them, and also discuss new Tesla news and actions over the last 3-4 months.  From there, we will try to dissect what Elon Musk is doing.  TL;DR: I believe Musk is doing exactly what Jeff Skilling did at Enron, chasing new business strategies based on what stories he thinks will most likely goose the stock in the short term, rather than which strategies make the most sense in the long-term for his investors.

Where I was on Tesla at year end 2018

I had a lot of criticisms about Tesla's strategy towards the end of last year (here and here, for example).  But let me summarize some of the key points

• Tesla has taken what was already a risky entry into a capital-intensive industry and has made it even more expensive and risky by choosing to own both the dealer network and fueling networks for its cars -- this means it has to invest not only in auto manufacturing capacity but also in a world-wide network of sales and service centers and in a global network of charging stations
• Inexplicably, just as its production volume began ramping up in mid-2018 with the introduction of the mid-priced model 3, Tesla ramped down on its capital spending, R&D, and SG&A spending.  By the first quarter of this year, capital spending was no longer even keeping up with maintenance needs.  This was absolutely inexplicable for a growth company that has promised many new products in the near future (new coupe, semi truck, model Y crossover), all of which will need a plant and equipment to produce.  Further, Tesla slowed investment in its sales, service, and charging networks at the exact time its fleet size exploded, leading to a lot of customer dissatisfaction
• The decrease in these expenditures was likely tied to Tesla's hard to fathom (I seem to be searching for a lot of synonyms for "inexplicable")  decision not to raise capital last year.  Its stock was over $350 a share and it had huge momentum from its first two profitable and cash flow positive quarters.  By almost everyone's analysis, they should have raised $5 billion or more, which might have only created 10% dilution.  (Instead they waited until this week after a terrible quarter and after the stock had fallen to about $235 to raise just $2 billion, barely enough even to fill their accounts payable hole).
• Tesla and Musk claimed that the growth and performance of the 3rd and 4th quarters of 2018 were harbingers of the future and he extrapolated hockey sticks from these data points.  Skeptics like myself believe that this was merely a one-time bulge, that Tesla had sold through 2-3 years of demand in their order book in just 2 quarters, and that the first quarter would be a disaster now that the tank was dry.  In addition, Tesla has culled its order book of all the highest margin variants where it could actually make money, leaving what remained of the unfilled orders as low-margin variants it was barely worth selling.  [By the way, I figured none of this out on my own, and owe a lot to the great folks at $TSLAQ on Twitter, who bring a lot of free research to bear that made it easy to see these patterns].
• My admiration for Musk as having really shown the automobile world that electric cars can sell at high price points (and not as little sh*tboxes) and for his space entrepreneurship really ended with the SolarCity deal.  In that deal, Tesla shareholders overpaid for a failing business simply to bail out Musk and his family from a sinking ship.  The acquisition made absolutely no strategic sense and Tesla has done zero to try to develop it, and in fact has been slowly shutting it down from the moment it was purchased.
• Elon Musk has steadily lost any credibility he might have had by initiating product launches of products he claims are nearly ready for sale but never get introduced.  Tesla got a higher level of subsidy from California based on a single suspicious battery swap demo that has never been repeated or even discussed since.  Musk sold SolarCity to Tesla in part based on a flashy reveal of a solar shingle product that still has not seen the light of day.  Musk had a big reveal of the Tesla semi and started taking customer deposits but there are still no clear plans for its production.

What has happened at Tesla this year

• The first quarter of 2019 was a disaster, with deliveries down despite initiation of Model 3 sales in Europe.  Worse, since the Model 3 seems to be cannibalizing Model S and X sales, Tesla was not only selling fewer cars but its mix shifted to lower priced less profitable cars.  It lost an enormous amount of money, and only after the conference call with analysts about first quarter results did Tesla reveal that this loss would have been far worse without a huge sale of government EV credits
• Tesla burned a staggering amount of cash in the first quarter, and was forced to pay off nearly a billion dollars in debt when the stock price did not remain high enough for the debt to convert.  While Tesla's cash balance at the end of the quarter looked OK, there were two huge red flags. First, the cash barely covered a huge hole Tesla had in its net working capital.  Second, given the large number of vehicles Tesla sold in its end of quarter push in the last 2 weeks of the quarter, it appears that Tesla was nearly out of cash in Mid-March and perhaps days away from a default (analysis below).
• The Tesla financial statements still include a number of unexplained oddities, including a billion dollars of accounts receivable, or about 20% of quarterly revenues.  How does a company that demands payment in advance before delivery have 20% of its quarterly revenues tied up in receivables?
• Tesla announced, out of the blue, that it was closing all its retail stores and going online only.  Given the drop in demand for the quarter, it was a head-scratcher as to why eliminating the sales force was going to help.  The decision seemed to be almost off the cuff, as Tesla seemed surprised that they would still have to continue paying their expensive long-term mall leases.  After this was revealed, Tesla partially reversed the closure decision, but no one -- including their own retail folks -- seems to know what the plan is now.
• Tesla constantly fiddled with its prices and model lineup.  It cut prices several times, but also announced a small raise as well.  It eliminated certain options for cars, added new ones, and then reintroduced eliminated ones.  Even long-time Tesla watchers are confused about the model lineup today.
• Tesla continued to see an outflow of executive talent, including the exit of their very well-respected new General Counsel after just over one month on the job  (Mr. Buttswinkas returned to his old law firm and purged Tesla from his resume).  This seemed to parallel the rapid exit of an outside chief accounting officer last year who gave up millions of dollars to exit in just 60 days.
• April car deliveries stayed on the same pace as the first quarter -- ie, way worse than Tesla's guidance
• Elon Musk continued to get in trouble with the SEC, firing off production and sales guidance on Twitter that was different from Tesla's official published guidance.  Mr. Musk and Tesla are still guiding to a total delivery number for the next year that is well in excess of what most anyone else looking at the first four months believes is possible
• Tesla announced a reveal of their Model Y crossover that will not go on sale until at least the end of 2020.  Unlike past Tesla reveals, this one seemed hastily set up and the prototypes shown were weird.  They looked more like the existing Model 3 with a few modifications than a promised crossover that could incorporate a third row of seats.  Tesla asked customers to start making deposits (skeptics will argue that the whole point of the reveal was just to get some free financing from Tesla fanboys) but unlike past reveals, this one fell flat.  There was apparently little interest in making deposits, though Tesla (unlike with past products) has not revealed the deposit numbers.
• Lyft went public for over $20 billion and Uber is planning a $70+ billion IPO, despite having a history of negative earnings and promising investors they may not make money for 10 years (more on this in a minute)
• After the Model Y went nowhere, Tesla set up what they called "investor autonomy day."  Tesla outlined their strategy for creating a fleet of self-driving cars, and promised fully autonomous cars by the end of 2020.  With these fully autonomous cars, Musk promised that Teslas would become an appreciating asset in that they earned income for their owners as autonomous taxis when the owners were sleeping.  He also said Tesla would own a fleet of taxis itself, using off-lease model 3's for this purpose.
• As described at the top of the article, Tesla raised over $2 billion on verbal promises by Tesla (not echoed in the deal prospectus) that Tesla was soon to be a $500 billion autonomous taxi company

So what is Tesla doing?

Having written all of the above, I realize I have left so much out -- the product quality problems, the worker lawsuits, the autonomous driving deaths, the spontaneous car fires -- but I only have so much time.  If you are interested, @teslacharts on Twitter is a good place to follow Tesla from the skeptic side.  But given all this, what the hell is going on?  The following is my theory.

I think in the 3rd quarter last year, Elon Musk honestly believed that the huge ramp in sales and profits at Tesla represented Tesla permanently turning the corner.  He extrapolated from that growth and believed it would continue for years -- he did not see it as simply the one time working through of years of pent-up orders and demand.  As a result, he put off the capital raise he should have been doing, and instead had dreams of taking the company private and getting away from all the scrutiny by analysts and shorts that seem to irritate him.  Thus was launched the ill-considered "420" tweet when he claimed he had funding secured for a go-private transaction at $420 a share, when in fact this was an outright lie.  Once the SEC stepped in to investigate, a new funding round was almost impossible.

Then, in the first quarter, reality hit Tesla in the face.  For all their public optimism, Musk had to see that the demand he expected was not there and Tesla was likely running low on cash.  I think Musk had convinced himself the convertible bonds due in the first quarter would surely convert (and would have at the third quarter stock price) but now Tesla was doing the opposite of raising capital, it had to pay off debt.  Cash was going out the door and demand was weak.  What to do?

Musk has a demonstrated pattern that whenever he needs the stock price to be higher, or he needs to sell stock, or he needs some other kind of favorable financial outcome, he will do a new product demo. It worked for battery swap and the solar shingle and the model 3 and the semi, so it would work again.  The model 3 reveal had collected hundreds of millions of dollars of cash in the form of deposits.  That's what he needed now.  The problem is, they didn't have a prototype to show.  I believe Musk had the company hastily create a Model Y prototype built on top of a model 3.  It did not really have to work, it just had to be something he could talk about.  Interestingly, his VP of engineering quit at exactly this time, for reasons unknown -- was their some internal dissention about this Y prototype?

Anyway, the Model Y reveal was essentially a flop, and likely garnered few deposits.  Certainly not enough to fill in Tesla's growing cash hole.  And by Mid-March, Tesla may have been almost out of cash.  Tesla says it delivered half its vehicles for the quarter in the last 10 days of March, so about 31,500 were delivered in those hectic days.  At an average price of $50,000 each that would mean Tesla brought in nearly $1.6 billion in cash those last 10 days (this is conservative, may have been more if the average price was higher).  But they only had $2.2 billion at the end of the quarter, meaning Tesla was scraping bottom in mid-March, particularly since hundreds of millions of that cash is restricted and not supposed to be spent.

Somewhere in this period of March-April, after his usual product reveal trick with the Y did not work, I think Musk came to the conclusion that the Tesla car business as currently defined was not going to work.  Or, more accurately, it was never going to make enough money to support its sky-high stock valuation.  I have always said that Tesla would make a fine $10 billion niche car company, but nothing about it justifies a $50 or $60 billion valuation.  But at this point Musk can't accept a $10 billion company, even though that would ostensibly still leave him a very rich man.  But like Ken Lay at Enron, Musk has borrowed against at least half his Tesla stock and a falling stock price could lead to financial death by margin call (Musk, for some reason, also mortgaged all his multi-million dollar homes last December). His other investments are also struggling -- SpaceX has been unable to attract the capital it needs of late and Musk has poured a lot of money into the Boring company, an absolute embarrassment of a company that helps refute, in my mind, his "smartest guy in the world" rep.

As Musk looked around for a way to save the stock valuation, the Lyft and Uber IPO's must have had an influence.  Uber is losing as much money as Tesla and folks are talking about it IPO-ing at a market cap of $70 billion.  What if Tesla could call itself a ride-sharing company, only better.  Wouldn't that garner Tesla an even higher valuation?

So I see investor autonomy day and Musk's autonomy soliloquy on the capital raise call the other day as evidence that Musk has, in his mind, capitulated on auto manufacturing and has decided the way to keep Tesla's stock price up is to promise it will -- in just 20 months -- sell fully autonomous vehicles and be making tons of money selling taxi rides.  In other words, it is a robotaxi company that happens to be backward integrated into manufacturing the taxis.

I am skeptical for a number of reasons.

• This reeks of desperation and capitulation.  If Dell says they are going to reinvent themselves as a search engine, it's time to sell the company
• There is no evidence that Tesla can achieve full autonomy by end of next year and a lot of reasons to think they can't.  Most experts think full autonomy is decades away, and when they rank companies on their progress on autonomy, Tesla is usually near the bottom (e.g here).  Waymo and GM, the leaders, often go thousands of miles between driver interventions.  Tesla is hundreds of times worse.   Even over the short course at Investor Autonomy Day (where Tesla likely trained and practiced in advance) investors reported a driver intervention was needed.  Now imagine the same car with no driver.  In snow with the road markings obscured.  Driving through construction where new routes are confusingly marked off with cones.
• The basic business numbers Musk throws around are absurd.  Just as one example, he extrapolates from current ride-share prices and assumes Tesla will make a ton of money because they will get the same price but not pay the driver.  But this is crazy.  If Tesla suddenly throws a million taxis into the rideshare supply equation, rates are going to fall.  Already, since 2012, Uber reports its average fare per mile has been reduced by over half.  If everyday folks are having their cars drive autonomously at night to earn extra money, the fee per mile is going to be competed down close to the cost per mile of operating the vehicle (or even lower, since most folks underestimate their all-in cost per mile on their vehicle).  Musk is basically proposing to commoditize the market but still reap premium margins.  Not going to happen.

Warning

Note that this article is simply my analysis and in some cases my guesses.  I think the story holds together but I can be wrong.  I am short TSLA via put options but note that this is a modest investment that is a small percentage of my portfolio.  Tesla is a dangerous stock to short.  Right through the bad news, individual investors at RobinHood have been loading up on the theory they are buying the dip.  20,000 people added TSLA to their portfolio at RobinHood just AFTER the horrible first quarter report.  Be very careful

Bonus -- Tesla's Largest Mistakes

No matter what happens, Tesla will always be remembered as the company that brought EV's mainstream.  But like any tragedy, they have made some fatal mistakes.  This is my attempt to get out ahead of future business school cases and rank their largest mistakes:

1. The Model 3.  Tesla could have been a profitable luxury car maker but with the Model 3 tried to go for the low to mid end of the market.  But it does not have the manufacturing expertise or cost position (it assembles in California, for God sakes) to pull it off.  The quality problems it encountered have reduced its brand luster, and the volumes of cars have overwhelmed its service and charging networks.  Investments in the Model 3 have distracted it from real refreshes of its S and X and in fact the Model 3 has cannibalized those more profitable cars.  A higher end crossover would have been a better choice
2. No third party dealers.  Tesla chose to bring the sales and service function in house.  This was a mistake.  Not only did it eat up capital, but it robbed it of valuable marketing partners such as Penske that could have really helped its sales ramp.
3. No 2018 capital raise.  Rather than tweeting 420, Musk should have been raising capital based on its third quarter results.  The money was there to be had and Tesla needed it.  $5billion at least could have been raised with little dilution effect
4. SolarCity Purchase.  This was a complete sham to bail out the Musk family and friends.  Did absolutely nothing for Tesla except drain billions of valuable capital
5. In-house Manufacturing.  Musk often says he wants to be like Apple, but Apple is a design company.  It does not manufacture and for quite a while did not do its own retail.  Tesla would have been better off finding a manufacturing partner rather than manufacturing itself in the highest cost location in the country
6. No Charging Partner. I think Tesla had to build out its charging network at first to eliminate one of the greatest consumer barriers to purchasing an EV.  But they should be partnering to share the costs.  Instead, Tesla still thinks of its charging stations as a competitive moat.  But as other car makers form consortia for charging networks based on faster charging technologies, Tesla is stuck with an expensive network that needs upgrading.  Its more of an anchor now than a moat

2nd Bonus -- Another Musk parallel if you are tired of Enron comparisons

Even more than Skilling and Enron, the person Musk most reminds me of is Ferdinand de Lesseps, whose attempt at building a French canal in Panama ended in spectacular failure.  I highly recommend the book "Path Between the Seas" for folks who want the whole story.  When I have time, I may post on the parallels. I presume Tesla critic @ElonBachman would agree since he uses de Lesseps' picture as his twitter icon but I have never seen him discuss it.

This is one of those issues that really should surprise no one, but encroaching urbanization on surface temperature measurement stations can impose an upward bias to recorded temperatures, creating a false trend.  The increase in measured temperatures due to urbanization is easy to demonstrate -- my son and I did it as a junior high science project.

The NOAA has a paper out that confirms the effect on surface temperature measurement. By the way the UofA temperature station photo illustrating the photo was actually taken by yours truly, becoming the most circulated photo I have ever taken.  Here is the story.

In short, what happens is this.  Urban environments are hotter than the surrounding countryside, so temperatures in the city will be biased upwards from those in the country around it (you will often see this on the local weather when they contrast the city vs outlying areas).  This in and of itself does not necessarily corrupt the temperature trend.  However, if the city is growing -- say in the case of the UofA photo in the article which 100 years ago was in an huge open field -- then encroaching urbanization can bias the trend.

Even with these biases removed, it is important to note that there is still an upward trend in the surface temperature record, at least over the last 30 years (as there is in satellite temperature measurement which is not subject to this bias).  However, the total US surface trend may be overstated by a third to a half.  Climate scientists of the alarmist sort have one of two reactions to this:  1) There are urban heat island deniers, who deny it is an issue or has any effect on the temperature record; and 2) There are those who accept that it exists but claim it is accounted for by various statistical methods that look at multiple sites in one area.  The problem with this latter is that rather than actually remove the bias, it tends to smooth the bias like peanut butter across multiple stations.

Since most of the Democratic Presidential aspirants have come out in favor of at least studying reparations for slavery, I wanted to offer a common sense proposal.  I propose that slavery reparation be paid for by the single organization that had the most to do with the existence and protection of slavery in this country:  the Democratic Party.

The Democratic Party was unquestionably the party of slavery.  It defended the legality, even the morality, of slavery; it fought for the extension of slavery; and it passed laws like the fugitive slave act to keep slaves in bondage.  Every slaveholder or prominent defender of slavery you can name was a Democrat.  After slavery was banned over the opposition of Democrats, it was Democrats that crafted and ran the Jim Crow system.  As late as the 1960s it was Democrats who blocked the schoolhouse doors to blacks and who filibustered the Civil Rights Act and accounted for most of the no votes on that act.  And since Democrats are proposing these reparations, it is entirely within their control to make this happen without even an act of Congress.

Some might say that the Democratic Party and its members are different today and should not be punished for the past actions of previous generations of Democrats.  I used to naively think something similar -- that it was madness to even discuss reparations for people who are not even grandchildren of slaves paid for by people who are not even grandchildren of slave-holders.  I am certain my proposal makes may more sense than, say, taking the money from someone whose ancestors all lived in Germany until the late 19th century.

Apparently some environmental group put this together to shame (or perhaps violently target) these 100 companies but I read it completely differently.  I would treat this as a map of the top 100 heroes that help separate us from past millennia of subsistence misery.

This morning I fueled up my car for about $3.00 a gallon or about $2.63 before taxes.  That gasoline started as fuel miles below the ground, in some cases pumped from offshore platforms in a thousand feet of water.  It flowed in ships and pipelines perhaps for thousands of miles.  It was carefully broken down into fractions in a refinery and reformed almost molecule by molecule to meet the needs of drivers and regulatory authorities.   It was distributed in trucks to thousands of gas stations like mine.  In all, billions and billions of dollars of investment and 100+ years of human ingenuity were required to get it to my car.  And they sold it to me for 66 cents a quart or less than the bottle of water I bought at the same station.

The one major change I would make to the chart is in the bottom line, which says "Country sizes depict cumulative CO2 emissions from 1850-2011."  I would have said "Country sizes depict cumulative reductions in misery from 1850-2011" which, not coincidentally, map perfectly with cumulative CO2 emissions.