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  • May 2016May 2016May 2016May 2016

    Devonshire Research Group, LLCDevonshire Research Group, LLCDevonshire Research Group, LLCDevonshire Research Group, LLC

    Tesla Motors, Inc.

    Part II

    This presentation is a research report and is for informational purposes only. Opinions expressed are solely those of Devonshire Research Group and this is not a recommendation to purchase securities discussed

    herein. This presentation is confidential and may not be reproduced or distributed without the express consent of Devonshire Research Group. Please refer to the next slide for additional disclosures.

  • -Attorney Confidential-

    Disclaimer

    Devonshire Research Group, LLC (Devonshire Research Group) is an investment adviser to funds and accounts that are in the business of buying and selling

    securities and other financial instruments.

    Devonshire Research Group currently has a short position in the securities of the subject company covered herein (Subject Company). Devonshire Research

    Group will profit if the trading prices of Subject Companys securities decline. Devonshire Research Group may change its views about or its investment

    positions in Subject Company at any time, for any reason or no reason. Devonshire Research Group may buy, sell, cover or otherwise change the form or

    substance of its Subject Company investment. Devonshire Research Group disclaims any obligation to notify the market of any such changes.

    The information and opinions expressed in this presentation (the Presentation) are based on publicly available information about Subject Company.

    Devonshire Research Group recognizes that there may be non-public information in the possession of Subject Company or others that could lead Subject

    Company or others to disagree with Devonshire Research Groups analyses, conclusions and opinions. The Presentation expresses Devonshire Research

    Groups opinions, which are based upon publicly available information, inferences and deductions through its due diligence and analytical process. To the best

    of its ability and belief, all information contained herein and in any oral communication is accurate and reliable, and has been obtained from public sources

    Devonshire Research Group believes to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may

    otherwise owe any fiduciary duty or duty of confidentiality to Subject Company. However, such information is presented as is, without warranty of any kind,

    whether express or implied. Devonshire Research Group makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any

    such information or with regard to the results to be obtained from its use.

    The Presentation contains a very large measure of analysis and opinion and includes forward-looking statements, estimates, projections and opinions prepared

    with respect to, among other things, Subject Companys anticipated operating performance, access to capital markets, market conditions, cash flow, assets and

    liabilities. Such statements, estimates, projections and opinions may prove to be substantially inaccurate and are inherently subject to significant risks and

    uncertainties beyond Devonshire Research Groups control. All expressions of opinion are subject to change without notice, and Devonshire Research Group

    does not undertake to update or supplement any reports or any of the information, analysis and opinion contained in them.

    The Presentation is not investment advice or a recommendation or solicitation to buy or sell any securities. Except where otherwise indicated, the Presentation

    speaks as of the date hereof, and Devonshire Research Group undertakes no obligation to correct, update or revise the Presentation or to otherwise provide any

    additional materials. Devonshire Research Group also undertakes no commitment to take or refrain from taking any action with respect to Subject Company or

    any other company.

    As used herein, except to the extent the context otherwise requires, Devonshire Research Group includes its affiliates and its and their respective partners,

    directors, officers and employees.

    2

  • -Attorney Confidential-

    Notice of investment interests

    3

    As of the publication date of this report, the Devonshire Research Group LLC has a net

    short position in the stock, put options, bonds, and credit swaps of Tesla Motors, Inc.

    (TSLA or Tesla) and stands to realize gains in the event that the price of TSLAs

    securities declines over the long run, or if investment sentiment improves the appeal of an

    expected decline in any of its securities.

    Devonshire Research Group recognizes that while its strategy reflects a long term bearish

    outlook for Teslas security instruments, the short term implication of powerful

    marketing, including the power of social media tweeting by the CEO and his PR firm, well

    orchestrated and heavily blogged product launches, and a deep and powerful short term

    media control and attention span, suggests unpredictable short term volatility.

    Devonshire Research Group LLC has a long term net short position across multiple

    security instruments.

  • -Attorney Confidential-

    Notice of non-affiliation

    4

    Part I of this analysis, released publicly in March 2016, was widely praised as effective and fact-driven. Critics of

    the analysis allege that the work of the Devonshire Research Group is unfairly biased, due to affiliations with

    industry players who seek to limit the market performance of Tesla. This is interesting, but untrue.

    Devonshire Research Group hereby asserts that it does not have professional or business relationships with any of

    the following organizations:

    General Motors

    Ford

    Toyota

    The City of Detroit

    Koch Industries

    ExxonMobil

    Royal Dutch Shell

    BP

    CB Insights

    The Illuminati

    Marshall Mathers, aka Eminem

  • -Attorney Confidential-

    On financial innovation and creative accounting

    5

    Never assume malice when stupidity will suffice.

    - Hanlons Razor

    Everything should be as simple as it can be, but not simpler.

    - Occams Razor

  • -Attorney Confidential-

    Executive Summary

    6

    How closely does TSLAs financing model mirror the features of common Ponzi, Pyramid, and Matrix schemes?

    Numerous cautionary examples share features with TSLA, including hype driven by visionary leaders

    TSLA has accepted capital from unsophisticated investors with bold claims on return and/or product value

    If TSLA fails to deliver on these claims it has the potential to enter a death spiral

    Most common death spirals do not require malicious intent, but rather excessive (even delusional) ambition

    The profitability of the Model 3 depends on TSLAs ability to squeeze its supply chain; this is a tall order

    Sophisticated suppliers (most notably Panasonic) will fight for their share of the profit

    Panasonics rechargeable battery division is constrained in terms of investment capacity and profit demands

    Current suppliers of numerous strategic, high-technology components have little IP and export to the US

    Many Chinese suppliers are vulnerable to patent infringement accusations and could face ITC injunctions

    TSLAs use of tax credits disproportionately benefits the wealthy at the expense of the average taxpayer

    This inequality is a feature of the luxury-first market penetration strategy

    The election year introduces significant risk for TSLAs continued reliance on taxpayer subsidies

  • -Attorney Confidential-

    Tesla has engaged in aggressive accounting that calls to mind the

    experiences of Enron and WorldCom; its future is highly uncertain

    7

    -3

    -2

    -1

    0

    1

    2

    3

    4

    200220012000199919981997

    0.0

    0.1

    0.2

    0.3

    0.4

    0.5

    0.6

    0.7

    0.8

    0.9

    1.0

    1996 1997 1998 1999 2000 2001

    -2.5

    -2.0

    -1.5

    -1.0

    -0.5

    0.0

    0.5

    2012 2013 2014 2015

    WorldCom Net Income WorldCom Net Income WorldCom Net Income WorldCom Net Income

    (US Billions)(US Billions)(US Billions)(US Billions)

    Enron Net Income Enron Net Income Enron Net Income Enron Net Income

    (US Billions)(US Billions)(US Billions)(US Billions)

    Tesla Motors Earnings Tesla Motors Earnings Tesla Motors Earnings Tesla Motors Earnings

    Per Share (USD)Per Share (USD)Per Share (USD)Per Share (USD)

    Tesla has escalated a dangerous habit of unorthodox future-earning-based financing in pursuit of the

    questionably profitable and long-delayed Model 3. A misstep in the next two years risks entering a death spiral

    Tesla has escalated a dangerous habit of unorthodox future-earning-based financing in pursuit of the

    questionably profitable and long-delayed Model 3. A misstep in the next two years risks entering a death spiral

    Originally

    reported

    Revised

    Aug 2002

    Originally

    reported

    Revised

    Nov 2001

    GAAP

    Non-GAAP

    Source: Devonshire Research Group considers Teslas decision to use non-GAAP accounting methods to be inherently aggressive; unorthodox future earnings based financing defined on slide 11

  • -Attorney Confidential-

    Tesla is not a car, battery, or tech company; it is an experimental

    financial services company and should be regulated as such

    8

    Teslas financing model is fragile; it is attempting to manage multi