Very smart money betting against Tesla — and reaping huge profits

As recently as August, Morgan Stanley analyst Adam Jonas — Tesla’s greatest cheerleader and a bull among bulls – was touting a “bull case” target share price for Tesla of between $511-$526 (all figures in U.S. dollars), as well as a shorter-term share price target of $317.

Wow. That’s some Tesla love.

Tesla Model 3 concept.

And it came just days after Tesla’s shares suffered a big decline in July. That’s interesting and, if you believe in conspiracies, very, very troubling.

Yet here’s something more interesting, still: the investment side of Morgan Stanley has sold off the bulk of its Tesla shares over the past two quarters. As NASDAQ reports, Morgan Stanley, once among the biggest Tesla shareholders, liquidated 41 per cent of its holdings (586,478 shares) in the third quarter (Q3).  Moreover, Morgan Stanley dumped what was then 60 per cent of its holdings (2.1 million shares) in Q2.

In just six months, Morgan Stanley’s holdings plunged from more than 3.5 million shares to just 833,704 at the end of Q3. Quietly, without great fanfare and while Morgan Stanley’s bullish analyst was screaming Tesla’s praises, this investment bank bailed almost entirely on Tesla.

What does this mean? Why should we care?

Well, it’s highly irregular. Morgan Stanley has earned millions helping with Tesla’s share offerings and bond sales over the years. If Morgan Stanley still owned 3.5 million shares, it would be Tesla’s fifth-largest owner today.

If any institution or individual knows Tesla inside and out, it’s Morgan Stanley. Yet in just two quarters, Morgan Stanley has all but wound up its position in Tesla.

(Note to regulators: While I have no proof of coordination between Morgan Stanley’s analysts and its traders, it is truly suspicious to see the influential Jonas aggressively pushing Tesla at precisely the same time his employer is dumping billions in Tesla holdings at a phenomenal profit. Coincidence? This calls for an investigation, I believe.)

Tesla CEO Elon Musk (right) and actress Amber Heard. Musk concedes he’s heartbroken in a new Rolling Stone article; Heard dumped him.

Morgan Stanley was not alone in heading for the exits. It begs the question: have we seen the proverbial canary in the coal mine drop dead on Tesla?

I mean, beyond Morgan Stanley, consider Fidelity (FMR), the investment company controlled by the highly secretive Johnson family of Boston, Mass. The latest from NASDAQ shoes that Fidelity owns 19.5 million Tesla shares and remains Tesla’s single largest outside shareholder. Well, during the time Morgan Stanley was almost entirely wiping Tesla from its holdings, fattening its balance sheet, Fidelity sold even more shares – a total of 4.9 million in Q2 and Q3.

Another massive institutional owner, T. Rose Price and Associates sold 476,763 shares in Q3, on the heels of a stunning Q2 sale of 5.2 million Tesla shares (48.7 per cent of its then-holdings). And in Q2 and Q3 combined, Tesla’s No. 2 shareholder today with 13 million shares, Baillie Gifford and Co., dumbed more than half a million shares.

Of course, there is another side to this story. It’s about the new institutional investors who have piled into Tesla. Susquehanna International Group, for instance, dropped $300 million on Tesla, more than quadrupling its holdings. Several other big institutions also made dramatic bets on Tesla in Q3. (the details are here: http://www.nasdaq.com/symbol/tsla/institutional-holdings) The question is, have any or all of them sold Tesla this quarter?

If so, depending on timing, they all were positioned to make a bundle. Three numbers and three dates illustrate my point:

  • on July 7, Tesla shares dipped to $313.12 and stayed below $320 for the entire month of July, creating a buying opportunity on this dip;
  • on Sept. 18, Tesla shares peaked for the year at $385 and that was quite the surge;
  • As I write this today, Tesla has dipped to $312.50, suggesting some investors made huge profits selling Tesla. Is this a dip or the sign of a loner-term trend to a lower Tesla share price?

What is knowable is this: if the big investors that jumped into Tesla at its summertime dip then jumped out in Q4, well, they would have pocketed millions. We’ll know more when Q4 numbers become available.

Tesla will need to amp up the scale of its service and support network once the Model 3 comes to market.

Here’s the takeaway: the latest available NASDAQ statistic show that 57 per cent of Tesla’s shares are held by huge, powerful, very smart and utterly ruthless institutional investors. That’s down from 62 per cent in recent times. So overall, the big investors have been winding down their stakes in Tesla.

Are they quietly signalling that it’s time to get out of Tesla? Are they canaries who have stopped singing?

Indeed, is Tesla poised to crash under the weight of the stuttering Model 3 launch? Is Tesla’s long run of red ink with no real profits in sight, a huge cash burn and future needs for more cash, scaring away investors?

Is the market tiring of the missed deadlines and exaggerated claims of CEO Elon Musk? Does the smart money believe that Tesla is about to be overwhelmed by established automakers and even newcomers to the electric vehicle and autonomous drive space?

Definitive answers are not far off and the signal to watch is the roll out of the so-far problematic Model 3. For the moment, I’ll say this: I don’t trust Morgan Stanley’s Tesla-touting analyst, but I do believe in following the money. And Morgan Stanley has pulled its money out of Tesla.

 

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After a three-year slide, is Ford back on track?

Alan Mulally stepped down as Ford Motor CEO a little more than three years ago, and Ford has been sliding ever since.

What has happened? Why have investors stayed away? Why has Ford quality suffered? Why so many recalls?

How is it that Ford remains absurdly dependent on pickups and SUVs — a problem that has plagued the company for decades and keeps it overly focused on the U.S. market, when China’s market is 40 per cent larger? Why has Ford fallen so far behind the competition in key technologies of the future?

In a word, leadership. It’s been a problem at Ford for years now and we can’t be sure it’s been fixed, even with a new CEO. More on that shortly.

But first, the immediate past. Ford was a powerhouse on May 1, 2014 when Mark Fields took the reins from Mulally after a stunningly successful eight-year run. Fields was not a surprise choice but he was a puzzling one.

Ford’s fully autonomous Fusion Hybrid research vehicle on the streets of Dearborn, Mich.

Those of us who spent decades covering Fields, pegged him as an amiable lightweight who weaved long sentences into empty paragraphs. He was a master of word salads.

Not surprisingly, after just three years as CEO, Fields was jettisoned, landing softly thanks to a truly golden parachute. The new CEO, however, seems a very odd choice.

Jim Hackett has almost no experience in the auto industry. He is, in fact, a former athletic director who made his bones in the office furniture business and started his career selling things like laundry detergent and toothpaste. He appears remarkably ill-suited to run a global car company with all its complexities, both internal and external.

To be fair, Hackett ran Ford’s Smart Mobility Division from 2014 until he got the top job. But during that time, Ford fell way behind its rivals in the auto industry’s cutting edge areas – electrification and autonomous drive. So why Hackett, whose division appeared to be failing the company at a critical time?

Moreover, Hackett’s background does not seem ideal for a car company CEO, and not because he once played centre for the University of Michigan where he studied finance. After university, he toiled at various sales and management jobs at Proctor & Gamble, the sprawling consumer products company.

Ford’s largely aluminum F-150 — the profit engine at Ford.

At 39, he took over Steelcase. He led a sweeping reorganization of the office furniture company, and was by all reports quite successful at it – though nearly 12,000 downsized employees might disagree.

But it’s a long way from P & G and Steelcase to Ford. P & G makes and markets Head & Shoulders shampoo, Charmin bathroom tissue and Pampers disposable diapers, among other things. It’s a marketing powerhouse, but the products themselves are uncomplicated. Steelcase makes work stations. If a diaper leaks or a desk fits poorly, no one dies.

Compare Hackett to Mulally. Boeing, Mulally’s employer before Ford, makes very sophisticated airplanes. In terms of complexity, planes and cars have much in common. And if a plane or car fails, people do die. So when Mulally arrived armed with degrees in aeronautical and astronautical engineering, he seemed spectacularly well-qualified.

Jim Hackett, Ford’s new president and CEO, with Executive Chairman Bill Ford (right).

The point is, if past is prologue, Hackett’s resume selling toilet paper and filing cabinets suggests he is utterly and completely out of his depth as Ford CEO. Which is why Hackett’s new strategic review of Ford’s current and future business – released this week — is so interesting and important.

Adding to the pressure: just days before Hackett unwrapped the review, influential Deutsche Bank auto analyst Rod Lache delivered high praise for crosstown rival General Motors, raising the rating on GM shares to “buy” from “hold,” and predicting GM will attain a big chunk of the rapidly emerging autonomous vehicle market. The message: GM is a market leader, Ford is not.

At least Hackett and his team recognize this. This week Hackett said Ford is ready to get serious about the “smart” mobility business and is diverting $7 billion ((US) from its spectacularly profitable but essentially old-fashioned pickup and SUV business into making sure that 90-100 per cent of its new vehicles will be “connected” by 2019. Another $4.5 billion (US) in R & D money will be diverted to hybrid and electric propulsion, away from internal combustion engines.

2017 Ford Escape

This makes sense. We’re told that by 2030, gas and diesel engines will account for just one-third of global new vehicle sales, down from 90-plus per cent today. Government regulation and cultural shifts towards environmentally friendly vehicles and car sharing point to a world in which consumers prefer electric cars that can drive themselves. And not everyone wants to own one, so ride-sharing initiatives and such will play an essential role in the auto industry of the future..

Ford’s current lineup and technology offerings certainly need work and its ride-sharing plans are, you might say, in diapers. The Focus EV is ancient and clunky compared to rivals like the Chevrolet Bolt, Tesla’s upcoming Tesla Model 3 and Hyundai’s Ioniq EV. And Ford’s hybrids are greybeards by industry standards.

We’ll see if the new CEO, with his history in hairwash, office supplies and football, is up to the job of leading Ford into the smart mobility future. At least for now, he and his Ford team recognize the many problems facing Ford and are proposing well-funded solutions.

 

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How rivals should tackle the dominant German luxury brands

I can list at least eight luxury car brands that have long aspired to topple the Big Three from Germany, Audi, BMW and Mercedes-Benz.

Try as they have, and despite rich histories, Alfa Romeo, Cadillac, Lincoln and Jaguar Land Rover have not yet put even a tiny dent in the German armour. And Infiniti, Lexus, Acura and now Hyundai’s Genesis are Asian luxury upstarts that remain also-rans compared to the Germans.

BMW 7-Series: BMW offers the template for aspiring luxury brands to succeed. 

Now of those eight, I’m betting that one of will separate itself from the pack: JLR. Why? Let’s start with a little history.

In the late 1950s, BMW AG was on the brink of bankruptcy, with Daimler-Benz poised to scoop up its Bavarian rival until the Quandt family stepped in. BMW has remained independent and family-controlled to this day.

BMW spent the 1960s as a small, aimless automotive company producing a hodgepodge — from the tiny one-door Isetta runabout to the V8 507 sports car. This confusion was a prescription for failure for a company with annual sales of 140,000.

Even a nearly-blind Herbert Quandt could see this when he turned over the CEO reigns in 1970 to a relatively obscure Prussian engineer named Eberhard von Kuenheim. Armed with ambition, discipline and vision, von Kuenheim led the creation of a new BMW. That company would simply be “the best.”

Eberhard von Kuenheim

BMW lacked the resources to become a big volume automotive player, so von Kuenheim’s team committed to premium cars that would dominate niches by investing richly in engineering, manufacturing and supplier relations.

The goal was to have the best technical content, the best chassis, engine and handling. BMW’s plants would become famous for efficiency and flexibility. By 1972, von Kuenheim had wooed a young sales and marketing whiz named Bob Lutz to re-fashion the sales organization, too. By the late-1970s, BMW had established itself as uniquely premium automaker.

This brings us to today.

Von Kuenheim, in various interviews over the years, has laid out the exact strategy the eight aspiring luxury brands should follow if they hope to mount a challenge to the Germans. It starts with the teamwork of a dynamic group who make quick decisions about how to fashion excellent, ground-breaking products and services.

“Strategic decisions are never one man’s decision,” he told Automotive News Europe. “There is a chain of decisions, and the strategy is the sum of them. The important thing is to get up and act a bit earlier than others.”

Perhaps most important of all, this strategy demanded that BMW think and act bigger than itself – to think globally.

“We were very provincial,” von Kuenheim told Automotive News. “Not a European company, not even a German company. It was a Bavarian company.”

So here is the template for how any one or all of the eight wannabe-big luxury brands goes forward:

  • take decisions quickly
  • act boldly;
  • bring in young, dynamic and fearless talent;
  • act independently;
  • pioneer and dominate niche segments, loading up with the best technology.

That formula, followed over a multi-year commitment, backed by a strong board, will deliver great products, built in efficient, flexible plants, delivered through a world-best sales organization.

The Jaguar F-Pace crossover has been a smashing success. 

Of the Gang of Eight, JLR has the best chance of doing truly startling things. Jaguar Land Rover may be owned by Tata, but the Indian parent has used a guiding hand to write cheques when needed. Jag, underpinned by its excellent plants and the ability to act independently of Tata thanks to its modest size, is steadily moving into new segments with bold designs and fantastic technologies.

The rest? Well, Alfa Romeo is owned by Fiat Chrysler, which lacks the resources to set Alfa free. FCA needs Alfa to be a profitable success, and soon.

Then we have Cadillac and Lincoln. Both are owned by Detroit-based parents who seem incapable of leaving either one alone, completely free to be great or a disaster. Cadillac is the more independent of the two and might yet surprise us. But the new Lincoln Continental rides on a longer, wider, taller version of a CD4 platform shared with the Ford Fusion. Enough said.

Infiniti? Too many broken promises. Lexus is interesting in that Toyota is very rich and committed, but Toyota’s shadow complicates matters. Acura continues to make up-market Hondas and Hyundai’s Genesis is unformed and quite obviously a work in progress, designed to distance Genesis as far from Hyundai as possible.

If I were a betting man, I’d put my money on JLR, whose top leadership, by the way, is German.

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Tesla’s moment of truth is here

I drove my first Tesla many years ago in Los Angeles. I was appalled.

Model 3 prototype.

The Roadster, a modified Lotus stuffed with little lithium ion batteries, was quick and nimble, but comfortable as a straightjacket, hot as a sauna and crude as a high school science project.

For me, Tesla looked like a scam and its CEO, Elon Musk, a stock promoter. Then George Clooney’s Roadster burned to the pavement. That seemed it for Tesla.

It wasn’t. Give Tesla its due. Friday, with the official arrival of the much-hyped Model 3, Tesla will take a huge step. Kudos. No other start-up car company has managed to survive and thrive from a valuation standpoint.

Tesla has a market cap of nearly $57 billion (US), more than BMW and General Motors. Institutional investors have been propping up Tesla for years; that’s what is behind the strong share price.

Tesla CEO Elon Musk (right) and actress Amber Heard.

Indeed, Fidelity owns some $8.0 billion of Tesla, Baillie Giifford nearly $5.0 billion, T Rose Price $3.5 billion and Vanguard nearly $2.0 billion (all figures in U.S. dollars). The Chinese internet Giant Tencent has purchased 8.2 million Tesla shares, too – about one-third of what Fidelity holds. When a small handful of very large investors own the majority of a company’s shares, the potential for stock manipulation is high.

Still, Tesla seems on the verge of doing something quite unimaginable nearly a decade ago: start deliveries of a mass-market electric vehicle (EV).

We won’t know details until 7 p.m. PST Friday, but we do have Elon Musk’s tweets and promises. The starting price is $35,000 (US) and it will be available with few configurations. Range will be at least 344 km/215 miles. Many believe the battery pack will be 55 kWh, allowing Tesla to say it offers less range than the Chevy Bolt because it has a smaller battery.

The Model 3 prototype looks similar to the Model S and it will be a sedan, not a hatchback. The Model 3 will be offered with standard rear-wheel drive or optional dual-motor all-wheel drive. It will seat five. The prototype’s central dashboard display screen is unlikely to find its way into the production car.

Musk sees the Model 3 as a rival for the expected onslaught of EVs from BMW, Mercedes-Benz and Audi – and a current challenge to the likes of the current BMW 3-Series and Audi A4. He is less interested in positioning the Model 3 against the Bolt and Next-generation Nissan Leaf.

The Model 3 will use Tesla’s DC fast-charging capability, using Tesla’s own Supercharger – though owners will have to pay for the privilege. Surely the car will be nimble and fast.

Musk says Tesla will build 100 cars through August, followed by 1,500 or more beginning in September, and 20,000 starting in December. Most who paid deposits will wait for their ride.

Tesla, then, is about to transition from promising startup and stock play to a real car company producing, delivering and servicing huge numbers of cars each year. Such a leap forward will be extremely difficult. We have arrived at Tesla’s make-or-break moment.

If you believe in omens, consider: Consumer Reports just named the Model S its top-rated luxury sedan after the automaker updated its software. On the other hand, the Model X remains near the bottom of its category.

The marketplace will digest all this and come to a conclusion. We’ll have an indication of what that might be next week, when Tesla reports earnings and Musk is asked direct and probing questions from analysts and the like.

This fast-moving story is now becoming very interesting and very real.

 

 

 

 

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Nissan’s LEAF 2.0: room for improvement

Nissan has sold more than 260,000 LEAF electric vehicles (EV) since December 2010. As battery-powered cars go, one could argue the LEAF has been a rousing success. Nissan is the world’s No. 1 EV maker, period.

The world’s best-selling EV is the Nissan LEAF, but overall it’s been a disappointment.

Yet in the bigger picture, the LEAF has been a savage disappointment. Nissan had hoped it would ignite a frenzy of interest in EVs – among buyers and automakers racing to meet mounting consumer demand for zero-emissions vehicles.

Yet last month, only 122 Canadians bought a LEAF ($33,998). LEAF buyers may be eligible for up to $14,000 in provincial incentives, but a $20,000-something Nissan EV still has little mainstream appeal – even one like the zero-emissions LEAF, a five-door hatchback with a range of up 172 km.

The next-generation LEAF really must be a vast improvement over the outgoing one. And now the tease is on.

The Nissan Vmotion 2.0 is a new concept vehicle that signals the company’s future sedan design direction and Intelligent Mobility technology.

We’ve already seen a tiny bit of the “next chapter in Nissan’s Intelligent Zero-Emissions Mobility.” The teaser image is just the start of Nissan’s campaign to reinvent not just the LEAF itself, but its place in the world and how people perceive it. There will be more photos and infobits to come, culminating in the global reveal of the next-generation LEAF in early September.

So what’s Nissan’s plan for LEAF 2.0? It will go on sale by the end of this year and it surely will remain a hatchback. Expect it to go perhaps 400 km on a single charge.

We might also see the LEAF become something of a brand unto itself, one that includes an all-electric crossover. Nissan has hinted at this in discussing the coming Vmotion 3.0 concept to be shown later this year.

Teaser image: The new #Nissan #LEAF. Coming soon.

We’ve already seen Nissan’s EV design ideas in the Vmotion 2.0 concept. Nissan has talked about the styling demands and opportunities presented by electric motors and batteries and has said we’ll learn more about Nissan’s views here when we see Vmotion 3.0.

Nissan will also try to tie together the three emerging trends in the global car market: electrification, autonomous driving, and connectivity in LEAF 2.0.

“Why not try something new?” Alfonso Albaisa, Nissan global design chief, said in Automotive News. “In the future, we’re not going to have just one EV. So we’re starting to map out what is the DNA that can go across different genres.”

He told the industry publication that flat flooring, sleek aerodynamic shapes, and narrower, low-resistance tires will likely be prominent in Vmotion 3.0.

“We are clearly focusing our attention on a crossover EV, because it’s our DNA,” he said. “The crossover will really embody the latest Nissan Intelligent Mobility features.”

As for the current LEAF, the soft, bubble-like look is the automotive equivalent of a Birkenstock sandal. Ugly, but comfortable. And while that design might have some appeal for a sliver of true believers, we know from Tesla’s success that sleek styling sells electric cars.

The 2017 Nissan LEAF features a high-response, 80kW AC synchronous motor that generates 107 horsepower and 187 lb-ft of torque.

Here’s what else we can expect in LEAF 2.0. It would make sense for it to improve on the Chevrolet Bolt, which has a 60 kWh battery, a range of 383 km and a 0-100 km/hour sprint of about seven seconds. Nissan should also be able to improve on the Bolt’s recharging capability.

Using a DC (direct current) station, the Bolt can be juiced up to a range of 145 km in 30 minutes. However, rumours are circulating that Nissan might launch LEAF 2.0 with a pedestrian battery, say 36 kWh or 48 kWh. That would be a mistake. It would put the car at a big disadvantage versus the Bolt and Tesla’s promised Model 3 due later this year.

One advantage the LEAF will have is on the production side. Nissan makes the LEAF in three locations: Japan, Tennessee and the U.K., so buyers will have easy and quick access to the new car regardless of where they live.

We can expect Nissan to launch a well-tested, proven LEAF 2.0, one remarkably durable and reliable. The LEAF’s proven quality is one selling point going forward, and Nissan’s work on autonomous and connectivity technologies will surely shine in LEAF 2.0, too.

That leaves design. It’s time for Nissan’s stylists to step up and make LEAF 2.0 sexy, not just practical and durable.

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