Tesla's Silly Season Shouldn't Obscure The Company's Inherent Lack of Profitability

Let the Tesla silly season begin. In the past 24 hours I have read the most bizarre descriptions of Tesla's production process in Fremont, and I am now reconsidering my opinion on tents.  When I was a sell-side auto analyst, more than 15 years ago, Honda had put in place a Japanese assembly line that produced seven models on the same line. Seven.

NANTUCKET, MA - JUNE 24: A view of a Tesla Model X at the 2018 Nantucket Film Festival - Day 5 on June 24, 2018 in Nantucket, Massachusetts. (Photo by Noam Galai/Getty Images for Nantucket Film Festival )

Tesla apparently needs an extra assembly line to produce one model, the Model 3, that is not being produced on the same line as the Model S and Model X. So that's three lines to produce cars at initial quality levels that independent evaluators have judged as poor, at best.

So, that's the silly season. Between now and Saturday (the last day of the quarter,) be prepared for an onslaught of news on the topic of Tesla's daily production and whether the company can make the 700 per day that are (almost) enough to meet CEO Elon Musk's oft-stated goal of 5,000 per week .

I'm not even going to engage in the "Wall Street focuses on quarters while Toyota focuses on decades rhetoric," even though I have spent virtually all of my adult life follwing companies that use methods that ape the Toyota Production System.

Given that worldview to focus on weekly, or even daily, production levels is incredibly unproductive. But that's Tesla.  Unlike its auto OEM peers, whose communications departments are always busy, Tesla talks to the Street four times a year.  It's "earnings calls only" for access to Tesla management, and the last one was an unmitigated disaster.

So, basically there is very little usable (investable) information on Tesla stock, so it will move on daily newsflow. My friends on the Street used to call this type of investing "rumortrage" and I can attest that it has never worked on a long-term basis, at least not in my 26 tears of following stocks.

Certain truths are self-evident in auto manufacturing, and no Musk-inspired tent circus can change that.

Each model has an inherent gross margin before corporate costs are allocated to it--"variable gross" in industry parlance--and from that base the automakers just hope to lose as little as possible to price discounting and content giveaways.

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Read Again https://www.forbes.com/sites/jimcollins/2018/06/27/teslas-silly-season-shouldnt-obscure-the-companys-inherent-lack-of-profitability/

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