After today's brutal miss on the jobs number -- 559,000 actual vs. a 671,000 estimate was a 16.7% miss -- the normal feedback loop commenced. Economy not that hot = interest rates down (the yield on the 10-year UST has ticked down today to 1.58%) = Nasdaq up. This has been the state of affairs in 2021. Is what it is. I don't fight it, I just use these mindless bounces to reset my short positions.
Without entering into a long-winded diatribe about Elon Musk, Bitcoin, self-driving, etc., let me just note one key point that has become increasingly apparent to those of us who actually analyze fundamentals this week: the wheels are coming off Tesla (TSLA) . That is true both literally - Tesla has announced two separate recalls this week, the first covering 5,974 Models 3/Y in the U.S. and 734 in China over potentially loose brake caliper bolts and the second covering 7,696 3/Ys in the U.S. owing to potentially loose seatbelt fastener connections - and figuratively.
The figurative loosening in the Tesla story this week was yesterday's revelation in The Information, apparently based on a source inside Tesla, that Tesla's orders in China had plunged dramatically in May after the normal first-month-of-the-quarter decline from March to April. Insurance registrations show that Tesla delivered 69,631 cars in China in the first quarter of 2021. If The Information's information is really correct and Tesla only received 9,800 net new orders in China in May after receiving 18,000 in April, this company is WELL behind the first quarter's place in China on a book-to-bill basis.
Tesla's myriad quality problems in China have put the bloom off the rose there. That is now showing up - reportedly - in orders, which would logically show up in deliveries in the next few months. Please do not underestimate the power of social media. A woman jumping on the hood of a Tesla Model 3 at the Shanghai Motor Show and yelling "the brakes don't work" is a powerful advertisement AGAINST owning a Tesla in China. That viral video was viewed millions of times on Chinese social media sites like Weibo and WeChat.
Where does that leave us on Tesla in China? Well, this morning I have been reading research reports on that topic. One source stood out, a plucky research start-up out of Sao Paulo, Brazil called OHM Research. The headlines on OHM's last three reports on TSLA were as follows:
- 26/05/2021 - Tesla's Aggressive Warranty Accounting Drives Profits And Defies Real-World Evidence
- 14/05/2021 - Tesla Has Massive Overcapacity In China
- 10/05/2021 - Tesla Is In Danger Of Being Overtaken In Europe By...Skoda?
I noted that the piece about Tesla's massive overcapacity in China. By its own accounting, Tesla has annual capacity to produce 450,000 annual units at its Lingang facility near Shanghai vs. a 2021 delivery pace that was heading for a outcome of about 250,000 (66,000 Model Y and about 180,000 Model 3) BEFORE The Information's source revealed that the Tesla's market penetration in China had slowed even further than the research report's author had thought.
I know this because, yes, I am that same author. I wrote those reports. I have 30 years following autos under my belt. I find that the folks in Sao Paulo and Latin America in general are much more open to new ideas than the investment bank-burdened "research" that permeates life in New York City. So, check out OHM's site and let me know what you think.
Rest assured that I will keep writing about TSLA for Real Money. This is a marvelous platform, but it is difficult to go into full detail on any specific idea owing to space constraints. It is just like the auto industry. There are two modalities. The world is big enough to support gas-powered cars and battery-electrics. In equity research, the world is big enough to support real, independent research and the stuff that comes out of Wall Street banks (for whom I used to work, by the way).