2 week update - How I almost gave up on Tesla? (background - not important)
Share price has taken an absolutely celestial BEATING on the markets the past 2 weeks. Down to 120!!! as of writing. Long ago I had an 'armageddon sell order' priced at 131 which I took out about a month ago due to learning about how runaway computer cascades can cause a price to dip to 0 for fractions of a second triggering all sell orders. I think the NASDAQ or whatever circuit-breaker they installed to stop all trades for a while if more than 15% drops on a stock has rectified this issue but I don't like the remote possibility of selling off while I have my eye on the ball.
The good news: Didn't sell at 131 and take a $2,000 loss needlessly
The bad news: Maybe I should've left it in place :p Now down to 120.
131 was put down as an armageddon order meaning I never foresaw it even coming close to this territory save for a computer sell cascade.
Short spiel about media lies (or maybe media spin/bias):
Media claims Elon Musk lied when he said he triggered the NHTSA investigation instead of it happening on it's own accord. NHTSA doesn't take investigation requests that is true. What is also true though is Elon's exact words were asking the NHTSA to hurry up and conduct the investigation - NOT to initiate it. Media is all over this claiming Elon tried to trigger the investigation which would undermine the authority and credibility of the NHTSA.
Source of what the media says was Tesla's REQUEST for investigation:http://www.teslamotors.com/blog/mission-tesla
The controversial truth: Second, we have requested that the National Highway Traffic Safety Administration conduct a full investigation as soon as possible into the fire incidents.
It does sound like a request but in my opinion he isn't trying to collude with the NHTSA nor do spin marketing. He is just so confident in his cars that he would welcome the investigation and wish it would come ASAP as in the full context of his spiel timing is important:
............However, there is a larger issue at stake: if a false perception about the safety of electric cars is allowed to linger, it will delay the advent of sustainable transport and increase the risk of global climate change, with potentially disastrous consequences worldwide. That cannot be allowed to happen.
In any case Media is trying to make Elon look like a liar in accordance with some weird lawsuit about him misrepresenting and people losing money in the stock.
The first real concern about Tesla's battery tech (important)
I always thought seeking alpha articles are complete BS as they are just made by normal people who get paid per click so controversy and trolling reign supreme. One of them has really disturbed me as of late. This recent article strikes at the heart of Tesla's 18650 cells used in it's cars:
The clincher is this paragraph:
The battery pack in a Tesla Model S uses about 7,000 high-energy 18650 cells that are more prone to field-failure events than safer lithium-ion chemistries. Since each cell in the battery pack represents an independent field failure risk, the risk of a catastrophic field failure event at the battery pack level is:
- One in 1,429 if you assume a 1 in 10 million risk at the cell level;
- One in 2,857 if you assume a 1 in 20 million risk at the cell level; and
- One in 5,714 if you assume a 1 in 40 million risk at the cell level.
Nissan, in contrast, uses 192 large format lithium-ion battery cells in the Leaf. That factor alone reduces its catastrophic battery pack failure risk by about 98%.
Assuming any of the cases are really bad odds for spontaneous failure - 1 in 1,429 taking worst possible. What this article fails to cover though is what the rates are for the other types of batteries. The end of the article mentions something in passing which could be it:
All of Tesla's public talking points on the three fires focus on the collision-related nature of the battery pack failures. The statistics in the NREL report indicate that a catastrophic pack failure rate of 1 in 6,000 would be just about right if Tesla was using a safer low-energy chemistry like lithium iron phosphate.
If this is right then he's just invalidated his above statement of Tesla's 18650's being dangerous as the ones the other EV manufacturers are using are no less safer; though he also did mention the Nissan only used 192 large format cells as opposed to 7,000 cells in Tesla.
The quotes are quoted from some government sponsored report on the viability of EV cars also linked in that seeking alpha article. My main concern is this omnious line at the end:
If the NHTSA concludes that the fires were attributable to Tesla's risky choices of high energy density batteries in 7,000 cell packs instead of road debris, the impact on Tesla will be life threatening. The current market price of Tesla's common stock does not, in my opinion, reflect this real and substantial short-term survival risk.
3rd update - Could Elon really have overlooked such a basic premise such as the battery?
“Large cells without enough space between them to isolate against the cell-to-cell thermal domino effect means it is simply a matter of time before there are more incidents of this nature,” said Musk. “Moreover, when thermal runaway occurs with a big cell, a proportionately larger amount of energy is released and it is very difficult to prevent that energy from then heating up the neighboring cells and causing a domino effect that results in the entire pack catching fire.”
Donald Sadoway, an MIT professor of electrical engineering, told Flightglobal that Tesla has properly engineered its lithium-cobalt-oxide battery “to prevent the domino effect, while Boeing evidently doesn’t have that engineering.”
Elon apparently made a conscious decision to go with 7,000 isolateds vs. a few hundred large's. Despite the law of large numbers dictating individual failure is that much more likely the apparent "bang" from one single 18650 cell going out should be negligible as opposed to a larger cell going out in the Nissan. Even if smaller 16850's did spontaneously combust they should be easily replacable and the damage confined to it's local area? Tesla should test/televise this to cement their claim of a safe technology and sound engineering decisions.
I'm feeling better about Tesla now that I think I've countered all the prevailing arguments presented to date. Maybe I should look into placing a buy order on a panic dip. On the other hand NHTSA issuing any sort of recall - would it destroy shareholders? Is that potential risk just to great? I've got 10k at 180 and I'm thinking of selling off in case sentiment doesn't reverse into neutral at least. The heart of a speculator is the heart of a trader - buy low - sell high - and right now sentiment is pointing way down. Most people will feed off the Media presentation and the media presentation is forcing a selloff. I lose 3,500$ by selling my stake at 180 but I can buy back later on and to mince Buffet's words I will be bold when others are scared.
Plan: Sell off my 10k stake I bought at 180 for 120 for 3,500 loss and buyback at 80? If price rebounds to 108 from 80 buying 10k then I will have recovered the loss plus leveraged my buy position at a much LOWER price.
Risks: Will we really reach 80 from 120? I think so with the current drops. Sentiment has turned. Fundamentals have priced this stock at 85-100. With bad sentiment on the loose people take pessimistic numbers which are fundamentals and then dip slightly below. Discount 25% for investor fear and panic places this at 63-75. 10% discount to fear/panic/irrationality/media places this at 73-90.
I mulled on this for about a hour and did more research and I have a hunch the selloff may be over. Even if it is not the news of a successful NHTSA investigation with no issues will prevent it from dipping much further. Support was 130 before the investigation.
Stock investment conclusion: Will hold on all stocks and won't sell off. Dip on Monday 11/18 135 to 120 was due to market knowing about NHTSA investigation before Tesla announced so probably slap on hand from SEC. Given what I've researched above I find no fundamental flaw in Tesla's battery tech and they will emerge victorious from the NHTSA investigation. Despite Nissan having no issues their batteries are not much better and the larger size brings on more risks of disasterous consequences in case they do materialize. Tesla has made it this far engineering the safest car in history - I'm sure they've accounted for the risks of their batteries a hundred times over being such a critical component.