If You Have Time For Only One Article Today, This Is It -- Nothing About The Bakken -- Tesla -- March 16, 2018

This is an incredibly interesting article (at the link below) to read regarding Tesla. I can't post all of it, but it's a must read -- right to the end in which, after reading all this, the writer presents a case for buying shares in Tesla.

Surfing through the cable channels yesterday while looking for the four cable stations carrying the NCAA March Madness First Round games I happened to catch 90 seconds of "Fast Money." The moderator remained neutral but the rest of the traders were all positive regarding Tesla: some seemed "strained" to commit to a recommendation to buy but the "guy" on the far right  was outright bullish, but if one paid close attention, he seemed a bit "strained" also. But it was subtle. Maybe I was reading too much into his facial expressions -- he might be a great poker player. When I heard three of the four recommending Tesla, one phrase came to mind: "group think."

Whatever. I digress.

The article is linked here.

The CNBC report [on Wednesday this past week] noted Tesla's use of re-manufactured parts, but after spending 11 years traipsing through auto plants and driving cars on all six inhabited continents, I just can't reconcile the notion of re-manufactured parts being used on new vehicles, although the CNBC report did not explicitly state that Tesla does this.

Tesla's Fremont, CA, assembly facility has a terrible reputation in the auto industry, and General Motors' attempt to force-feed its workforce the principles of lean production by contributing that plant to a joint venture with Toyota proved to be an abysmal failure. If you don't believe me, check out the NUMMI entry in Wikipedia; it's actually quite amusing.

But "bad plants" are most frequently the result of the absence of design for manufacturability principles, and the more I read about Fremont, the more I realize that Tesla management simply has no idea how to build a car profitably. Note I said "build a car profitably," not just "build a car." Tesla's Model S has performed extremely well in industry quality and owner satisfaction surveys (though the Model X has not) and it seems that once a Tesla leaves Fremont it is in fine fettle.

Getting from the idea to the finished product is supposed to produce a return on capital, though, and Tesla never has. Tesla produced negative EBITDA in the fourth quarter for the second consecutive period and that is just unheard of in the automotive world.

Ferrari produced an EBITDA margin of 30.8% in 2017 and soon-to-be-public Aston Martin posted a 23.6% figure.

In contrast Tesla's $1.6 billion of negative EBIT in 2017 was matched almost to the penny by the company's $1.6 billion of depreciation and amortization. So, Tesla's EBITDA margin in 2017 was zero. That's astounding for a car company focused on the luxury market, and it is simply not sustainable.

Tesla burned through $3.5 billion of cash in 2017, and with the Model 3 still in "manufacturing hell," I don't expect that figure to improve in 2018.

So much more at the link.

The writer of the above recommended one read the NUMMI entry at wiki. I did not find it particularly interesting except as history.

By the way, when talking about EVs, a lot of ink is used talking about lithium, cobalt, batteries, etc.

We don't hear much about copper. I wonder: do EVs use copper? I know my little electric race cars which I played with when growing up in Williston, used copper. I assume today's big EVs use copper also.

Let's see. From Reuters last year:

The growing number of electric vehicles hitting roads is set to fuel a nine-fold increase in copper demand from the sector over the coming decade, according to an industry report on Tuesday.

Electric or hybrid cars and buses are expected to reach 27 million by 2027, up from 3 million this year, according to a report by consultancy IDTechEx, commissioned by the International Copper Association (ICA). 

Electric vehicles use a substantial amount of copper in their batteries and in the windings and copper rotors used in electric motors. A single car can have up to six kilometers of copper wiring, according to the ICA.

The global market for copper is around 23.9 million tonnes, according to the International Copper Study Group.

That suggests electric vehicles could account for about 6 percent of global copper demand in ten years, according to analyst estimates, rising from less than 1 percent this year. 

So, lots of copper but it doesn't sound like  it will put a strain on global copper supply. And I guess that's why no one talks much about copper and EVs.