BLOG

The Secret History of the Original Tesla (R.I.P.)

October 10, 2017

As a current stock market darling, very few (if any) companies compare to Tesla (TSLA). Simply consider the following five ingredients:

 

1. Debonair visionary billionaire jet-setting founder (and from South Africa no less!) with the (at least until recently) glamorous young actress girlfriend? Check.

2. Awe-inspiringly hip products endorsed by celebrities? Check (see, e.g., Blake Griffin with his Model S):

3. Feel-good "saving the world" narrative? Check.

4. Hugely bullish (albeit massively conflicted) analysts relentlessly proselytizing for the company? Check.

5. Skyrocketing stock price? DOUBLE CHECK (and no "discount" either--the stock is up more than 9-fold over the past 4.5 years, a 63% compounded annual growth rate for those scoring at home):

It's almost enough to make us want to jump on the bandwagon along with everyone else. Almost. You see, the one persistent fly in the ointment with Tesla is that the company does not make money. Like, at all--or ever. In fact, like clockwork the company loses hundreds of million of dollars every quarter and has so far in its 14 year history lost a total of $3.7 billion. Things haven't gotten any better over time, either. In just the first half of 2017, Tesla lost $667 million (source here):

But we digress. In accordance with the proverb that there is nothing new under the sun, we here note the following for posterity: 

 

Once there was a vibrant upstart vehicle manufacturer that witnessed explosive growth in its early years of operation. Founded by two of seven brothers and their uncle with just $50,000 in initial capital, the company introduced a revolutionary new product (the open-car body) at an inexpensive price. Production capacity at the time was 10 open bodies a day... 

 

<<<Beat that, Tesla! Here we pause to snarkily note that Tesla was only able to produce 220 Model 3 vehicles in September, or just 7 per day.>>>

 

According to one history of the company, the two founding brothers (the uncle left in short order, apparently not enjoying the role of entrepreneur) introduced innovative production techniques to meet the demands of rapid growth (sadly they lacked the marketing prowess to label their manufacturing enterprise a "Gigafactory" or something similarly silly, however):

 

"To meet the challenge of growth, Fred and Charles developed new manufacturing techniques. They pioneered precision woodworking on a mass-production scale, developing jigs and fixtures that made it possible to mass-produce identical wooden parts for auto bodies for the first time.... [They] also pioneered a crude but effective sheet-metal stamping technique."

 

By its sixth year, the company was building 105,000 car bodies a year, most of them open. And by its twelfth year, the total came to 328,978, most of them still open.

 

<<<Beat that, Tesla! Here we pause to snarkily note that Tesla was only able to produce 83,992 vehicles in 2016, its fourteenth year of operation.>>>

 

By its eighth year, the company had grown with such speed that there were 10 plants in operation around the Detroit area and in Canada.

 

<<<Beat that, Tesla! Here we pause to snarkily note that Tesla is still building just its second plant in Year 15 of its existence>>>

 

And, low and behold, the company was (gasp!) PROFITABLE. According to one historian, the company's combined profits for zoomed from $369,321 in year 6, to $576,495 in year 7, and to $1.4 million in year 8.

 

<<<Beat that, Tesla! Here we pause to snarkily note that Tesla has yet to turn a profit in ANY of its fourteen completed years as a going concern, and will not produce a profit in 2017 (year 15) either>>>

 

And the market capitalization for this mystery company? It vaulted from $50,000 at inception (or, using an educated guess, perhaps $1/share) to $6 million in year 7 (or approximately $30/share, based on 200,000 shares outstanding) to $46 million in year 12 (or $92/share, based on 500,000 shares outstanding) to a massive $520 million in year 19 (or $313/share, based on 1.66 million shares outstanding). This represents an overall share price CAGR of 35% for the company's first two decades of existence. Here is what the stock chart looked like during this period:

 

<<<Beat that, Tesla! Actually,Tesla's is 15-year share price CAGR is unknown, since it didn't become a public company until 2010, however it is highly likely that Elon Musk's initial investments in the company in 2004 and 2005 were made at a valuation under $1/share--see here for more details on Tesla's pre-IPO funding rounds>>>

 

So what is this mystery company we have been describing, which appears to have been a profitable version of Tesla before Tesla even existed? It was a company called Fisher Body Co., founded in 1908 by the Fischer Brothers (below is a picture of the seven brothers):

The company was eventually purchased by General Motors in 1926, becoming a wholly-owned subsidiary of GM. (See here for our main source for the foregoing history.) Today the "Original Tesla" (if we may label Fisher Body as such) has been relegated to the dustbin of financial history, having completed its natural corporate lifecycle. Ask a few random people on the street if they have ever heard of a "Fisher auto body" and no doubt you will hear crickets. Indeed, remnants of the Original Tesla's now lifeless carcass can still be found on the web. Below are a few pictures of Fisher auto plant #21, abandoned by GM nearly a quarter century ago (source):

Why do we recount this history? Because, as Twain may or may not have stated, history doesn't repeat itself but it rhymes. Perhaps one day today's market darling Tesla and its Iron Man founder will end up like the "Original Tesla", gone and forgotten. It is hard to imagine given current headlines and soaring share prices, but if one takes a wide enough historical perspective this can easily be imagined. Indeed, given its history of hemorrhaging cash, the date that Tesla winds up in the dustbin of financial history might be sooner than many today believe--a warning for investors to heed.

 

Coda: According to Fisher Body's wiki page (linked above), we find the following (to be filed under "Interesting Coincidences"):

 

On July 22, 2008, Fisher Coachworks, LLC was launched with Gregory W. Fisher, grandson of Alfred J. Fisher, as CEO. The new company is developing a prototype of the GTB-40, a hybrid-electric 40' transit bus developed by Autokinetics of Rochester Hills, Michigan, that uses Nitronic, a stainless steel alloy developed by AK Steel that allows the bus to be half the nominal weight of a standard transit bus and achieve twice the fuel economy. As of 2010, Fisher Coachworks, LLC went out of business after two years of spending money but not producing a single bus. On March 3, 2011, the Michigan Economic Development Corporation received a check for $29,000 for all of Fisher CoachWorks’ remaining assets. [emphasis added]

 

So much for lineage.

 

 

 

 

 

Please reload

Featured Posts

CCUR Holdings: 2019 Annual Meeting Trip Report

November 11, 2019

1/7
Please reload

Recent Posts
Please reload

Archive
Please reload

50 Vanderbilt Ave, 4th Fl, New York, New York 10017       

info@sevencornerscapital.com

Content © 2016 Seven Corners Capital Management, LLC. All rights reserved.

  • RSS Social Icon
  • Twitter Social Icon
  • SA