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The brilliant failure of Dyson and Tesla’s (TSLA.Q) Pyrrhic victory

Sir James Dyson, the billionaire-philanthropist and former protege once upon a time, has declared his company will cease all efforts to enter the electric automobile market, citing economic feasibility, a rare concern in the business.

Dyson, the eponymously-named company, went to great lengths to enter the EV market in light of Tesla’s (TSLA.Q) successes and due to the hooplah being made about what has been called the ‘oncoming climate catastrophe.’

TSLA.Q, Tesla, EV, electric vehicle revolution, green technology, global warming, Singapore, NIO, NIO.NYSE, General Motors, GM.NYSE
Source: Dyson’s patent application

In an email to staff, Dyson expressed his regret that the project would not be brought to fruition: “Our automotive team have developed a fantastic electric car, but unfortunately it is not commercially viable.”

Much has been said about Dyson’s decision to ‘pull the plug’ on the electric vehicle initiative. Pundits will point to Tesla’s losses as a sign of prudent decision-making on behalf of management.

Poppycock. Think of the jobs Dyson has done away with with this so-called sobriety. No, I don’t mean the 500 staff members involved in the project. Forbes reported that the company is looking to recycle these employees into other projects.

No, I weep for the traders whose little ‘uns might go hungry without another electric vehicle manufacturer to short.

The costs necessary to finance the development of an electric vehicle are enormous, to say the least, and even a private company of the likes of Dyson would likely need a capital infusion to sustain itself.

Jonathan Eley in the Financial Times makes a compelling argument for Dyson’s debut on the public markets in light of its foray into automobiles:

“Already, the scale of the challenge is forcing compromises, such as possibly using lithium-ion batteries at first rather than solid-state cells. The £2bn capital cost mooted is about what Tesla burnt through in the past three quarters alone. Investors on Wall Street seem quite happy to throw money the way of Elon Musk, Tesla’s founder, who blasts cars into space but cannot hit production targets on earth.”

Tesla stock has some of the highest short interest on the market, routinely in the high-teens and above.

But brokers demand incredible interest rates from traders wishing to short Tesla stock. It’s simply too popular in the short selling quarters, its performance too laughable.

The company delivered 97,000 cars in Q3, a record number, but still underperformed against Wall Street estimates.

Reuters wrote that, “While supporters view Tesla as a growth stock, analysts on average expect the company to report a 7% drop in revenue and a non-GAAP loss of $82 million for the September quarter, according to Refinitiv data.”

China’s answer to Tesla, NIO (NIO.NYSE) reported a USD$462 million loss for the second quarter of this year, a larger than expected sum, according to Quartz.

The CEO of General Motors (GM.NYSE) said she did not expect electric vehicles to turn a profit until early in the “next decade.”

McKinsey & Company wrote in March 2019 that electric vehicles “often cost $12,000 more to produce than comparable vehicles powered by internal-combustion engines (ICEs) in the small- to midsize-car segment and the small-utility-vehicle segment.”

What is more, carmakers often struggle to recoup those costs through pricing alone. The result: apart from a few premium models, OEMs stand to lose money on almost every EV sold, which is clearly unsustainable.

Make no mistake my friends, I am short on EV manufacturers but long on the environment. My many beachside homes can only be built up so high on stilts before airline controller’s begin to complain.

But shorting is a profitable business, so if electric vehicle manufacturing is unsustainable, then let it be a magnificent ruin.

 

–Mr. Millionaire

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