September 12th, 2019

Tesla: A Growth Stock Price Wrapped Around a Bankrupt and Dying Business

There are many facets and angles to view Tesla as a business all of which lead
to the conclusion of this research note’s title, namely of a stock price untethered
from the negative reality of its underlying fundamentals. This particular data set of
U.S. car deliveries in August is a good starting point:

August 2019 Tesla Model Sales1:

Model3 - 13,150 (Down 26.1% Year-over-Year)

ModelS - 1,050 (Down 60.0% Year-over-Year)

ModelX - 1,825 (Down 33.6% Year-over-Year)

Quarter-to-Date 2019

Model3 - Down 17% Year-over-Year

ModelS - Down 47.1% Year-over-Year

ModelX - Down 25.2% Year-over-Year

1From InsideEVs InsideEVs has been traditionally overly pro-Tesla in terms of sales estimates,
and we believe these sales are overstated)

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 Now with these negative unit results in mind and remembering that they are
likely better estimates than true sales, consider that in order to stimulate demand
Tesla reduced selling prices from last year by approximately 20% which means
outsized effects in revenues by the combination of lower volumes AND lower selling
prices. The resulting losses will therefore be highly accentuated with what we
estimate will be a reported loss in the upcoming quarterly earnings release of
between $500 million and $1 Billion. Contrast this to TSLA CEO’s Elon Musk’s latest
forecast of a “chance for slight profitability.” More importantly it means a
dramatically lower (negative) revenue comparison year over year for this upcoming
quarter to be reported in October.The revenue drop will be in excess of 30% whereas
Wall Street analyst expectations call for a roughly flat revenue line for this current
quarter versus last year’s Q3. This dramatic shortfall will forever nullify the so-called
“growth narrative” for Tesla which was always the only justification for its extreme
over valuation.

SolarCity Division

SolarCity was the company Tesla acquired in 2016 in a bailout that saved
SolarCity from bankruptcy and saved the investment in SolarCity debt and equity by
Elon Musk and his cousins, the Rive brothers, who controlled SolarCity. This acquired
asset appears on the Tesla balance sheet as approx. $2.7 Billion in Goodwill attributed
to the assets of SolarCity. Since 2016 the installations of solar systems by SolarCity as
measured in KiloWatt hours has declined by approx. 90% and widespread layoffs are
taking place throughout this Tesla division. This failing asset will need to be written
down and Tesla will face an enormous asset impairment charge which will be highly
significant since this so-called asset represents approx. 40% of all Tesla’s equity base.

Moreover, Tesla was sued in August by Walmart,(the world’s largest retailer),

for damages related to fires caused by defective panels that resulted in serious fires
in nearly a dozen Walmart stores. These rooftop solar panels are installed on more
than 240 Walmart stores and Walmart seeks remedy and unspecified damages. The

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liability to Tesla from Walmart alone will approach $500 Million to say nothing of the
liability Tesla faces from defective installations on thousands of residential systems
sold and serviced by Tesla/SolarCity. An asset write-down and/or legal liability reserve
seems very likely to be demanded by Tesla’s auditors this quarter and these
impairments will be financially material.

NTSB

This past week the National Transportation Safety Board,(NTSB), ruled that
Tesla’s AutoPilot self-driving feature was “design flawed," and responsible for the
accidental death of a Tesla motorist in 2018. In addition to this official government
finding effectively “ringing the dinner bell” for plaintiff and class action lawyers,
(there have been 74 deaths to date linked to the use of Tesla’s Autopilot software),
this finding welds shut the coffin of Musk’s outrageous claim the Tesla will have “one
million self-driving Robotiaxis” on the road in 2020, and that all Tesla vehicles will be
“appreciating assets capable of generating a minimum of $30,000 per year in owner
revenues.” Moreover, Tesla has been for years selling as a model option for thousands
of dollars versions of “Autopilot” and “Full Self Driving” software that either does not
work as promised, or doesn’t exist nor can ever be made to perform as promised. The
findings of the NTSB cannot only potentially force a company bankrupting recall by
Tesla, it is certain to draw legal maneuvers by owners to force Tesla to refund millions
of dollars for a defective or non-existent feature.

Summary

Tesla is a structurally bankrupt company running on the fumes of a growth

narrative the will be officially and forever dead in approximately 6 weeks time when
the current quarter is released. In spite of CEO Musk’s stubborn self-serving, and
likely fraudulent, refusal to walk back outrageous growth and earnings expectations

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for the current and forward year, Tesla will soon report staggeringly adverse results
that will forever end the concept of Tesla as a growth company. It is a dying business
which will face terminal liquidity pressures from a mountain of debt that can engulf
this company at any moment but will in fact ultimately take down Tesla in the very
near future. Tesla has only survived thus far with continued injections of fresh
investor capital most recently in April ’19.

With the end of Tesla’s growth narrative, continued and accelerated

operational losses, mounting legal woes, and a tsunami of competitive new electric
vehicles flooding the markets presently by the likes of Porsche, Audi, Jaguar, VW, KIA,
Mercedes, and others, there is no likely possibility of continued investor injections of
capital into a self evident dying Tesla. Tesla as a brand has been destroyed by poor
management decisions that led to abysmal product quality,(Tesla now ranks dead last
in consumer surveys of product quality/satisfaction among auto companies), and
horrific service.

There is no possibility or likelihood that anything can turn this dying business
around: no new products, no new markets, no new capital for future investment.
Tesla is done and finished; the only thing that remains is for investor perception to be
detached from the realm of Muskian fantasies, and re-attached to present business
realities. This process, now accelerating at lightning speed, will create a stunning
collapse in Tesla’s share price and resulting revaluation and ultimately Tesla’s
financial restructuring in a bankruptcy procedure. This outcome is inevitable, is very

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soon in the offing, and we are positioned to capitalize on this very unique and timely
outcome2.

Kind Regards,

John Scurci

Partner and Chief Investment Officer

Corona Associates Capital Management, LLC

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contains forward looking statements, as defined by SEC Regulation D, and the Investment Act
of 1940, which are the original ideas and best judgments of the authors. The conclusions
expressed herein are not guaranteed, and past performance is not predictive of future results.
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