Coyote Blog

First, two disclosures

1. I am short TSLA
2. I love the Model S.  I would love to own one.

At some level, the quality of the product is irrelevant.  They key questions are:  Does TSLA really justify a $60 billion valuation and does TSLA really deserve billions of dollars in taxpayer subsidies.

As to the first question, I will leave it up to you to research.  This is a good case for the short position.   I still think the SolarCity purchase was an absurd business decision and borderline corrupt.  The problem with shorts, especially in emotionally driven near-religion stocks like TSLA, is how long you have to hold on before the crash comes.

As for the second question, a guy who goes by the moniker of Montana Skeptic over at Seeking Alpha has been looking in to some of the larger Tesla subsidies, and the picture is not pretty.  Here is his analysis of the subsidy of the SolarCity plant in New York (SolarCity, another Musk company, was bailed out of near-bankruptcy and bought by Musk's Tesla, a smelly deal that put me on the road to shorting the company).  He tells a long, interesting story but the tl:dr is:

• In the fall of 2014, New York State awarded SolarCity a sumptuous subsidy package: free use of the enormous Riverbend factory and $750 million of taxpayer money to refurbish and equip the factory.

• The "Essential Purposes" of the subsidy deal were to enable manufacture and sale of Silevo's Triex technology, and then develop "next generation technology improving on the Triex product."

• Governor Andrew Cuomo praised the deal as a visionary accomplishment "of critical importance to the United States economic competitiveness and energy independence."

• In return for the subsidies, SolarCity promised to spend $5 billion in New York State over a 10-year period and to create 4,900 New York State jobs.

• After the deal was signed, SolarCity's promises were noiselessly scaled back.

• A promise that 1,460 of the jobs be "high-tech" disappeared. A promise to hire at least 900 people within two years of the factory opening shrank to 500.

• And, SolarCity's promise to hire 2,000 solar panel installers throughout the state quietly disappeared in December 2015. It appears SolarCity knew then - two months before Elon Musk and Lyndon Rive say they had their first merger discussions - that its solar panel business was failing.

• While SolarCity's obligations were shrinking, the factory opening was delayed. And delayed. And delayed some more. The opening is now almost two and one-half years late, with no date yet announced.

• Meanwhile, SolarCity has abandoned the Silevo technology and taken a huge write-off on its Silevo investment.

This is the sort of reporting you almost never see in the press.  All these subsidies for business development made on promises of jobs addition.  My experience is that the resulting promises are never kept.  Why does no one ever follow these things up?

Postscript:  I have a quibble with the article on cases for shorting TSLA.  This is one part:

Until recently, TSLA has been the recipient of substantial subsidies, fawning praise and a “fanboy” following. In other words, it has received large financial benefits from various governments which were not available to its automotive peers. It’s been judged by a non-critical press, and any problems with product quality and/or delays in timelines have been readily accepted by its hardcore supporters. All of this has combined to build the quixotic narrative which justifies the sky-high valuations outlined above.

Apple has benefited from this effect for years with no sign that its cult following is diminishing.  Just wait for Apple fanboys who lose there head over whatever Apple announces for its anniversary iPhone later this year.  Prediction:  Apple will add a number of new features already found on Android phones and the press will fawn over its inventiveness and leadership.

Via the NYT:

Many in New York’s professional and cultural elite have long supported President Obama’s health care plan. But now, to their surprise, thousands of writers, opera singers, music teachers, photographers, doctors, lawyers and others are learning that their health insurance plans are being canceled and they may have to pay more to get comparable coverage, if they can find it.

They are part of an unusual informal health insurance system that has developed in New York in which independent practitioners were able to get lower insurance rates through group plans, typically set up by their professional associations or chambers of commerce. That allowed them to avoid the sky-high rates in New York’s individual insurance market, historically among the most expensive in the country....

The predicament is similar to that of millions of Americans who discovered this fall that their existing policies were being canceled because of the Affordable Care Act. Thecrescendo of outrage led to Mr. Obama’s offer to restore their policies, though some states that have their own exchanges, like California and New York, have said they will not do so.

But while those policies, by and large, had been canceled because they did not meet the law’s requirements for minimum coverage, many of the New York policies being canceled meet and often exceed the standards, brokers say. The rationale for disqualifying those policies, said Larry Levitt, a health policy expert at the Kaiser Family Foundation, was to prevent associations from selling insurance to healthy members who are needed to keep the new health exchanges financially viable.

Siphoning those people, Mr. Levitt said, would leave the pool of health exchange customers “smaller and disproportionately sicker,” and would drive up rates.

Alicia Hartinger, a spokeswoman for the Centers for Medicare and Medicaid Services, said independent practitioners “will generally have an equal level of protection in the individual market as they would have if they were buying in the small-group market.” She said the president’s offer to temporarily restore canceled polices applied to association coverage, if states and insurers agreed. New York has no plans to do so.

Donna Frescatore, executive director of New York State of Health, the state insurance exchange, said that on a positive note, about half of those affected would qualify for subsidized insurance under the new health exchange because they had incomes under 400 percent of the poverty level, about $46,000 for an individual.

I still do not understand how anyone could consider it a "positive" that 50% of people who were previously self-reliant now become wards of the state.

To some extent, there are signs Obama may be willing to walk back health care "reform" to just insurance "reform," though the two are highly related.  As a minimum, insurance "reform" is likely to include rules that no one can be denied coverage, community rating, and minimum covered service requirements.

These are really, really expensive.  Megan McArdle on the NY experience:

John Cole takes me to task for not knowing that health insurance premia have tripled in New York State.  Indeed, he's right--I should have checked.

But this is not the "gotcha" the left believes.  I erred so low because I was trying to be charitable to the cause of national health care.  You see, the reason that insurance premia are so high in New York State is that New York State enjoys community rating, guaranteed issue, and a very generous bevy of mandatory services.  The result is that the cost of insurance is very, very high.  What I failed to realize was just how radically out of line New York's rules had pushed its health care costs.  The average premium across the United States has increased about 25% since 2004.  In New York, the rate of inflation has apparently been about 16 times that.  I wasn't "aware" that insurance premiums have doubled and tripled over the last seven years, because for the country as a whole, this isn't true.

McArdle is sometimes irritating in bending over backwards to be fair to folks whose views don't deserve such charity and who would not ever extend the same favor back at her.  So it is kind of fun to see her going a bit postal over the last few days.

Baseball Crank reports:

In ... Gulino v. New York State Education Department (2d Cir. Aug. 17, 2006),
the Second Circuit reinstated a race discrimination suit against the
New York State Education Department based on the theory that a test of
"basic college-level content" that asks applicants to get just
two-thirds of the questions right is racially discriminatory because it
has a "disparate impact" on African-American and Latino teachers. The
test, developed in response to a 1988 task force report on problems with teacher quality, is described at pages 11-13 of the opinion.

There is nothing surprising, really, about this.  This theory, that a test that shows African-Americans performing more poorly than whites is by definition racist, has been floating around by decades.  It is particularly popular with various African-American leadership groups.

I have no problem with various ethnic and racial groups bringing expertise to bear to weed out poorly worded questions on exams.  But making this their only reaction to the test - ie the test shows we as a group may have a problem so lets throw the test out - is insane.  By way of explanation, here is a little play to consider:

Doctor:  I am sorry to tell you that you have cancer.  If untreated, it can be fatal.  The good news is that it is treatable, but the treatment will take time and can be quite difficult and painful.

Patient:  Your test is bad.  If other people don't have cancer, then I don't either.  I am going to ignore the result and ask the government to make sure that no one else is allowed to take the test either.

Doctor:  But that's crazy!  The cancer is treatable, but only if we get to work on it right now.

Patient:  You will be hearing from my lawyer for the pain and suffering your bad test has caused me.

I fully believe that the average African American wants her kids to be well educated, and has deep concerns about the quality of the education her kids are getting.  So I will limit my comments to African American "leadership".  Is what these leadership groups are doing in trying to legally strike down tests that show that the education they are getting as a group is failing really any different than a patient ignoring a positive cancer test?

Postscript:  In the article I linked, I do not share the author's concern about political T-shirts at school.

Progressives often wrap themselves up in a lot of libertarian-sounding jargon.  But when push comes to shove, progressives are more comfortable with coercion than free association.  James Taranto links this piece in his Friday Best of the Web:

A longtime singer and guitarist with the Zucchini Brothers and a substitute teaching assistant for Washington-Saratoga-Warren-Hamilton-Essex BOCES [school board], Powell has lived frugally for years. He works about three days a week as a sub, earning about $70 a day, with no benefits. From March to October, he rides his bike 20 miles to work when work is available....

Part of that survival--or so he thought--included shopping at Wal-Mart to take advantage of cheaper prices for himself, his partner and her two children. Then his discussions about Wal-Mart with Sandra Carner-Shafran, a teaching assistant at BOCES and a member of the Board of Directors of New York State United Teachers, started churning inside him. . . .

"I don't like what Wal-Mart stands for," Powell said, noting the mega-chain's scanty health insurance for staffers. "Because of all those things they can lower the prices."

He and his partner agreed to go on food stamps for their family rather than shop at Wal-Mart any longer.

Please observe the moral choice he made that is being applauded by those on the left:  Rather than get low cost food from Wal-mart, which generally* transacts with its suppliers, employers, and customers through mutual self-interest and the consent of all parties in each transaction, he has decided it is MORE MORAL to get his food expropriated from the American taxpayer without their consent.  Lovely.  By the way, it is ironic that he is mad that Wal-mart employees accepts jobs with no health benefits when he in fact has made the same choice himself.

More on what makes progressives tick here.

*The exception being that Wal-Mart does use the force of government via imminent domain to obtain land where the free will of landowners would not cooperate and to get special tax credits from local governments to get area citizenry to subsidize its business.  If Mr. Powell were to protest these practices, I would be all for it, but my guess is that he is not protesting government handouts to Walmart by signing up for... government handouts for himself.