Elon Musk 1/30/2020: "... It doesn't make sense to raise money because we expect to generate cash despite this growth level."
Elon Musk 2/13/2020: (paraphrasing) We need more capital.
What happened? What changed in two weeks? Well, the one thing that hasn't changed is the extraordinary credulity and parade of people willing to apologize for everything Musk says and does. Yes, Tesla (TSLA) shares are rising today despite the surprise follow-on stock offering. Why not?
As much as I love being lectured by folks who can't read a balance sheet but are now experts on all things Tesla and electric cars, I know that Tesla is highly challenged.
The key issue here is Tesla's warranty reserve, which at $1.089 billion as of December 31st is woefully inadequate to cover the cost of a broad recall, as was just announced last night on all Model X CUVs made before October 2016. Without a dealer network, Tesla will have to do those repairs onsite, and that is incredibly expensive. So if those who claim to "analyze" Tesla would take the time to go to Tesla's website, they would see that Tesla's voluntary recall to replace steering bolts that may corrode now includes all Model S sedans made before October 2016 as well.
Tesla more than doubled its vehicle production in 2019 but only increased the amount provided for warranty costs by $11 million, and actually decreased that amount in several quarters of 2019. That's nuts. A quick check of NHTSA's website would show that the pre-October 2016 Model X has already been subjected to three voluntary recalls and, clearly, this latest one is just another sign that Tesla has the same quality problems as other auto OEMs despite Musk's claims to the contrary.
Musk is buying $10 million of TSLA shares in an offering that will easily exceed $2 billion, further diluting his stake which had already fallen below 20% after last May's stock offering. Does that bother anyone?
Tesla built a plant in China at exactly the worst time in modern Chinese history to do so because of the spreading coronavirus. So it was not a coincidence that Tesla has now issued its prospectus for its capital raise.
Bottom line: Tesla is not going to sell 500,000 cars in 2020. Musk's projection can not be trusted, and the issuance of more stock, including related dilution, is a tacit admission that Tesla's growth story is collapsing in 2020. Also, the cost of the S/X recall and the crash of the Chinese economy mean that Tesla will not be GAAP profitable in the first quarter, and thus will not be eligible for addition to the S&P 500.
I will keep reporting these facts, and keep buying puts on TSLA, until the market starts doing its homework. It could be a while.