The second quarter of this year was a very good one for Tesla, with 201,250 electric cars delivered – a record. On the other hand, more and more comments are appearing that the quality of the vehicles leaves much to be desired. In addition, the market share of this frontrunner in battery-electric mobility is falling massively. In Europe, it is only about 5 per cent in the last quarter (but 13 per cent in China), because companies like VW are gaining a lot of ground and other manufacturers are constantly launching new models. Tesla will certainly find answers, such as a low-cost variant, Model 2, which according to media reports could make its début in 2022.

Super figures for the second quarter

More than US$ 1.14 billion profit was achieved – these are really good figures. Turnover increased to US$ 10.7 billion. In terms of profit, however, special gains, expressed in regulatory credits, amounted to US$ 358 million, albeit much lower than in the previous quarters. Here, it can be assumed that these windfall profits will expire in 2022, as other e-car manufacturers no longer need the takeover because they produce enough battery-electric models themselves.
It will be interesting to see how the ramp-up in Texas (the Cybertruck will not be available until 2022) develops and how the other planned models, including the Semi as an e-truck, develop. There is still US$ 16.5 billion in the bank, but is that enough for all the aggressive investment plans? Whether there will even be production in India or Russia remains to be seen. For me, the question remains whether a stock exchange valuation of over US$ 700 billion is justified, even if one often hears that Tesla is not a vehicle manufacturer, but a software company.

SolarCity takeover finally in court

In July 2021, after many years, a court hearing finally took place regarding Tesla’s quasi-acquisition of SolarCity in 2016, valued at US$ 2.6 billion. Some commentators saw this as a bailout, i.e. speculated that Tesla or its leader Elon Musk had taken over SolarCity via an equity swap in order to possibly avert its bankruptcy. If Elon Musk were to lose now, he could lose US$ 2 billion in bonuses via stock options.
Also making headlines was the report in the US business magazine Forbes that Elon Musk had pledged over 50 per cent of his stake in Tesla as collateral for loans. The amount of the loans was not disclosed, but with a proportional value of about 22 per cent of the current market capitalisation of over 700 billion US dollars, this corresponds to a good 70 billion US dollars. Elon Musk has also received over 50 million option rights as part of his bonus programme, which are worth over US$ 30 billion (exercise price: US$ 70.01/share). What is he using this credit potential for? Does all this also have to do with Tesla’s share price (without commitment)?

Huge hunger for raw materials

Tesla wants to remain at the forefront of the battery market. The US company has not only bought technology, but also secured huge quantities of the important raw materials through subcontracting, such as recently from the Australian BHP Group, where hundreds of thousands of tonnes of nickel are at stake. At the same time, Tesla is buying into mining companies and building up a network of holdings, including its own production (lithium mining is planned in Nevada, among other places) and forward transactions. I see this – keyword vertical integration – as negative in the long term, as it entails massive financial obligations and it does not seem certain to me that all the battery capacities will be used or that there will be a market for Tesla.
On the other hand, it is the enormous leaps in costs, for steel among other things, that can be used to justify the price increases for e-cars. Are only cost increases covered here or is there a higher profit margin? Can price increases be easily implemented against the competitors without losing business?

Fast charging network for all

It is worth noting the news that Tesla is planning to open up its fast charging network to other electric vehicles. Does the average Tesla driver like it when he can charge quickly, but may have to allow time to get to the charging station himself in the first place? In my opinion, such a step only makes sense if other charging station operators also release their network for Tesla models. Then it would be a win-win situation.
For me, Tesla remains the perfect anti-fuel cell investment. I am therefore betting on sharply falling prices. US$ 700 billion valuation includes all potentially good news, but not supposedly bad news.

Last Tesla report

This is my last post about Tesla, because a company that is only battery electric obviously has nothing to do with fuel cells and hydrogen. For me, Tesla is and remains an anti-FC investment because the utilisation of fuel cell technology using hydrogen, also in passenger cars, will be a very big topic in the coming years and will compete with the purely battery-electric type of drive if the framework conditions are right (H2 infrastructure, availability and price). A recent study concludes that five percent more charging stations lead to five percent more sales of battery-electric vehicles. What will happen to the sales of FC vehicles if a country like Germany is equipped with H2 filling stations (over 1,000) throughout the country and the price of the vehicle and the maintenance are on a par with a combustion engine or battery-electric vehicle?

Risk warning
Every investor must always be aware of his own risk assessment when investing in shares and also consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid caps, i.e. they are not standard stocks and their volatility is also much higher. This report is not a buy recommendation – without commitment. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on a medium- and long-term valuation and not on a short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting, written August 12th, 2021