Monthly Update for August 2017

2016 Tesla Model X: Monthly Update for August 2017

by Dan Edmunds, Director of Vehicle Testing

Where Did We Drive It?
We drove our 2016 Tesla Model X 1,957 miles this month, including a long, 1,046-mile road trip up the eastern flank of California’s Sierra Nevada mountains.

But no new records were set this month because that road trip was a four-day tow test with a small, single-axle Happier Camper trailer latched on behind. The remaining 911 miles amounted to local commuting miles and a trip to Disneyland, where the main guest parking garage has 100 spaces equipped with metered 240-volt ChargePoint stations.

2016 Tesla Model X

What Kind of Fuel Economy Did It Get?
Over the course of the month, we recharged our Model X no less than 23 times. Only six of those utilized our own metered Tesla high-power wall connector, and one other occurred at one of Disneyland’s 240-volt metered ChargePoint stations. The remaining 16 stops were at Superchargers, and 12 of those were associated with the towing trip to a small lake near Donner Summit.

Superchargers are great because they do not cost us anything. But they’re a record-keeping nightmare for us because they don’t display how much electricity they dispense. Sure, the car indicates how much the battery used during the preceding stint, but that’s not the number that defines an electric vehicle’s true consumption. That’s because charging losses are part of charging a battery, and they’re significant — upward of 20 percent or more.

At home (or at metered public stations such as the one at Disneyland), this higher figure is vitally important because that’s the number of kilowatt-hours (kWh) for which you will ultimately be billed. Such losses are a fact of life as far as your utility meter is concerned, and indeed they are part of an EV’s officially rated range and consumption as shown on the window sticker.

The point is somewhat moot in our case because Supercharger use is free for our early Model X. But Model 3 owners won’t be so lucky, and even for us this lack of critical data means we cannot calculate consumption whenever a Supercharger is used.

2016 Tesla Model X

With 16 such freebie stops, this month’s data was heavily affected. Only 419 of August’s miles are usable to calculate consumption, none of them towing miles. The knowable portion of this month’s average consumption works out to 52.4 kWh per 100 miles, which compares poorly to the Tesla’s EPA rating of 38 kWh per 100 miles. Prefer to think in terms of miles per gallon equivalent (mpg-e) instead? Our Model X averaged 64.3 mpg-e over what amounted to 419 commuting miles, which falls far short of its 89 mpg-e rating.

Miles added this month: 1,957
Miles with complete data: 419
Consumption over those 419 miles: 52.4 kWh/100 miles (64.3 mpg-e)
EPA consumption rating: 38 kWh/100 miles (89 mpg-e)

Best lifetime observed range: 212.6 miles
Best lifetime projected range: 267.6 miles
Average lifetime projected range: 168.2 miles

Current odometer: 23,014 miles

Maintenance and Upkeep

Nothing this month.

Logbook Highlights

Read the upcoming two-part account of the tow trip to see the bulk of what we learned this month.

Tesla Wins ‘World’s Greatest Drag Race’ – Tesla Motors (NASDAQ:TSLA)

Rethink Technology business briefs for September 21, 2017.

A Model S P100D wins the quarter mile against . . . just about everyone

Source: Motor Trend

Although I can’t recommend Tesla (TSLA) as an investment at the moment, I’m still a shameless fan of the company and its products, and happy to report good news when it’s available. Motor Trend recently held what it called the “world’s greatest drag race” on the landing strip at Vandenberg Air Force Base in California. And a Tesla Model S P100D with Ludicrous mode won the race.

The Model S’s competitors included some potent and fairly exotic machines such as the Ferrari 488 GTB, Mercedes AMG GT R, Aston Martin DB 11, and McLaren 570GT. The P100D often wins such drag races, where its electric motor torque pushes it to the quarter mile finish first.

But at longer distances, the Tesla usually falls behind, since it doesn’t have the top speed of the exotics. But it was still fun to see the competition trail in the wake of the mighty P100D. And races such as this demonstrate the future of the performance sedan: electric, all-wheel drive. Whatever may befall Tesla and Musk, even its detractors have to admit that Tesla has shown us the future.

Tesla’s reported custom AI chip: that’s what Keller does

Source: wccftech

Yesterday, CNBC reported that Tesla is working with Advanced Micro Devices (AMD) on a custom AI chip. Jim Keller is reported to be leading a team of “more than 50 employees” for the project. Tesla reportedly has received samples of the new chips and is now testing them.

GlobalFoundries, the fabricator that does most of AMD’s work, reportedly made the parts. CNBC says that GloFo’s CEO Sanjay Jha mentioned the work being done for Tesla, although this was seemingly denied later on.

Reuters subsequently reported an email statement from the company:

Tesla has not committed to working with us on any autonomous driving technology or product.

Of course, there wouldn’t be a commitment at this point, but this statement isn’t a denial that some work has been done. Ever since Jim Keller was hired away from AMD in January 2016, rumors have swirled around him that he was designing a custom AI chip to power Tesla’s self-driving cars. Jim is a microprocessor architect. Designing chips is what he does. It’s probably not plausible to assume that Tesla hired him for any other reason.

However, designing microprocessors from scratch is a huge, billion-dollar undertaking, something that non-technical business writers may not appreciate. My take on the rumored Tesla chip is that a collaboration with AMD was always the plan. Even with Keller and his staff, many of whom came over from AMD, Tesla wouldn’t have the resources to go it alone.

So I think it’s likely that Tesla hired AMD to design a “semi-custom” chip along the lines of the console chips. This is the somewhat mysterious “third semi-custom design win” often referred to in AMD conference calls.

Keller’s staff are overseeing the design effort and providing design input. One of those who Keller brought over to Tesla, David Glasco, is listed on his LinkedIn resume as System Architecture Lead at Tesla. But he never left the Austin, Texas, area where AMD is located.

As to the composition of the chip, many have been assuming that it contains custom ARM CPU cores. I actually think this is unlikely for a number of reasons. AMD doesn’t really have the skills to design a true custom ARM core.

But the most important consideration driving this development process for Tesla is the desire to find a lower cost solution than what NVIDIA (NVDA) has to offer. Capitalizing on the development of Ryzen and Vega seems like a good way to do that.

So my take is that the chip is probably a combination of one or more Ryzen “Zeppelin” slices, combined via the Infinity Fabric with a Vega GPU and possibly a custom ASIC for hardware tensor processing. This would take advantage of AMD’s development of Infinity Fabric for EPYC and Threadripper, and make the resultant device relatively low cost to fabricate.

Trip Chowdhry begs to differ

Barron’s reports that Trip Chowdhry of Global Equities regards the CNBC report as “100% false.” In a research note, he writes:

Comprehensive view is that TSLA and NVDA have currently a 5-year contract in place, which was renewed just recently. AMD is not a Player. AMD is DoD (Dead-on-Departure) in DML (Deep Machine Learning) Workloads. Google threw AMD out of its GPU Training Cluster, as AMD had extremely poor performance on GOOGL TensorFlow framework. Later, as a courtesy to AMD, GOOGL redeployed the AMD GPU’s for only VDI (Virtual Desktop Infrastructure). So far we have attended no less than 60 DML (Deep Machine Learning) conferences…we have not seen even a single benchmark of any DML Framework running on AMD GPU’s for production workloads. Investors optimism is completely misplaced that AMD will become a significant DML player. There is only going to be one GPU player NVDA, just like there is only one CPU Player INTC ….rest all the players will be in the others category, which will be about 10% of the market.

Insofar as AMD’s disadvantage in AI on its GPUs is concerned, I don’t doubt that Chowdhry is correct. But I doubt that would stop Keller from pursuing this project. And even though there might be a contractual commitment to NVIDIA for some period of time, projects like this require a significant amount of time. Tesla may simply be looking forward to the next generation of devices post-NVIDIA.

The area where AMD is weakest compared to NVIDIA, in software support for machine learning, is precisely why this effort may be on a multi-year development track. Getting to the point of having a hardware platform is just the start. Now the real work begins to develop the software.

While I disagree with Chowdhry on the reality of the effort, that doesn’t mean I think it’s a good idea. I’ve written previously that Tesla’s autonomous vehicle effort appears to be in disarray. Now the development of a separate hardware platform and the concomitant software effort seems like grasping at straws.

Tesla hasn’t been able to make much progress on the current NVIDIA derived platform, which is half of a Drive PX 2, and I believe, inadequate to support full self-driving capability. So Tesla has decided to go off in a completely different direction. I believe that Tesla would have been better served devoting the money and resources from the AMD effort to solving the problems it has with the current system, whatever those are.

That just wasn’t going to happen once Keller landed on the scene.

Nvidia is part of the Rethink Technology Portfolio and is a recommended buy.

Disclosure: I am/we are long NVDA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

16 coches eléctricos que se salvarán cuando Madrid cierre el centro al tráfico

La necesidad de reducir las emisiones contaminantes y de CO2 en los centros urbanos, al mismo tiempo que se intenta que el protagonista de éstos sea el ser humano y no el automóvil hace que muchas ciudades busquen la manera de limitar el uso del coche en sus centros. Madrid acaba de dar un paso en ese sentido. A partir del primer semestre de 2018 sólo los vehículos de vecinos y residentes podrán circular por el centro de la ciudad de Madrid, a excepción de los eléctricos, de carga y el transporte público.

Al igual que ocurre cuando se limita el acceso a Madrid cuando ocurre un pico de contaminación (puedes leer todos los escenarios posibles en la ciudad de Madrid aquí) los coches eléctricos e híbridos plug-in -los PHEV- vuelven a ser una excepción y podrán circular libremente. Repasamos los modelos actualmente a la venta con los que podrías circular libremente por las ciudades “cerradas al coche” e incluso aparcar gratis en Madrid en las zonas SER.

Continue reading “16 coches eléctricos que se salvarán cuando Madrid cierre el centro al tráfico”

Tesla Worker Says Timing of Firing Denied Him Lucrative Shares

A former Tesla Inc. factory worker filed a lawsuit alleging the automaker fired him a day before his one-year anniversary, denying him hundreds of thousands of dollars worth of stock options that he claims should have vested.

Stephen Platt — who said he began working as a machinist at Tesla’s Fremont, California, factory on Aug. 27, 2012 — was fired on Aug. 26, 2013, at the end of his shift despite having been told the previous month he’d be getting a raise for his performance, according to the complaint filed in California Superior Court in Oakland last month.

Platt had been offered 2,500 shares of Tesla common stock when he accepted the job, a quarter of which were slated to vest 12 months after the first day of his employment. Platt alleges he had completed exactly a year of work on the date of his termination and should have been allowed to purchase the shares.

A spokesman for Tesla didn’t immediately respond to requests for comment on the lawsuit.

Under the terms of his employment agreement, Platt would have been able to purchase his vested shares for $27.37 apiece after a year of work, according to the complaint. The day he was terminated, Tesla closed at $164.22 in New York. Had Platt’s options vested, he would have been able to acquire 625 shares at a fraction of the market price — shares that would now be worth more than $240,000 at Monday’s settlement.

“Tesla is cheating its employees out of stock options that they are entitled to, and they are worth a significant amount of money,” Yosef Peretz, Platt’s San Francisco-based attorney, said in an interview. “It’s a straight-up breach of contract case. The employment agreement says you vest after 12 months, he completed 12 months, and he should get his stock options.”

The plaintiff is seeking class action for all employees who joined the company under the same terms, which the suit estimates to be at least 200 former workers. Peretz also represented Tesla co-founder Martin Eberhard in his defamation suit against Chief Executive Officer Elon Musk, which was settled in 2009.

Palo Alto, California-based Tesla, which makes electric vehicles and energy storage devices, has ballooned in both size and market value since its June 2010 initial public offering. It posted its first quarterly profit during the year Platt was employed and has since become the largest U.S. automaker by market capitalization.

Many Silicon Valley startups give employees shares that fully vest over a four-year period, with equity in fast-growing companies a critical part of compensation packages. This spring, cyber-security startup Tanium Inc. was roiled by allegations that its CEO kept a list of workers who were close to cashing in their options and firing them before they could do so.

As the company ramps up production of its new Model 3, some workers at the Fremont factory have draw attention to wages and working conditions and have said that Tesla needs a union. Platt said in the lawsuit that he experienced breathing difficulties due to inadequate ventilation in the area where he worked, though an occupational health physician cleared him to work without restrictions in the month of his dismissal.

The case is Platt v Tesla Motors Inc., RG17873032, California Superior Court, Alameda County (Oakland).

Tesla: As CounterGate Ends, APGate Emerges – Tesla Motors (NASDAQ:TSLA)

Tesla (NASDAQ:TSLA) likes to make problems real hard. For instance, while Tesla has lots of cameras, it doesn’t even try to have pairs of same-spec (same lens, same field of view) cameras pointing the same way. They all have different fields of view, so a problem that’s already hard (reliably re-creating the world in 3D from camera vision alone) is made harder still.

A while ago, I covered the emerging CounterGate saga in my articles titled “A New Tesla Scandal Is Brewing” and “Tesla’s Countergate II – The Sequel.” In that saga, Tesla tried to covertly nerf customers’ car performance. Tesla did this, quite obviously, to limit possible warranty claims down the road stemming from the usage of the cars’ full power.

The CounterGate scandal had two acts:

  • First Tesla tried to limit the power on Performance models after a certain number of full-power uses. Then, having had that come to light, it relented saying it would no longer limit power.
  • However, it still did – just in another fashion. The second act was thus Tesla trying to limit the use of full power to certain restrictive instances (launch mode usage).

Well, this scandal is now over. Tesla got sued by one of its customers. Tesla still tried (includes news of the lawsuit, attempted NDA resolution, etc) to use its old trick of offering to fix only that customer’s car and then putting him under a NDA (Non-Disclosure Agreement). The customer did not accept the solution, and finally Tesla quit and simply accepted to restore the performance to all its customers’ cars (as demanded by the heroic owner). So that was the end of the CounterGate scandal.

With this scandal being over, today I am going to talk about yet another emerging scandal. That will be the APGate scandal.

APGate, The Origins

The APGate scandal begins in October 2016, with Tesla’s introduction of HW2.0 (Hardware 2.0) to implement AutoPilot 2.0. This hardware, as per Tesla, was ready to provide full self-driving.

A bit of context. Some might already be qualifying what this “full self-driving” ultimately means. Elon is quoted as it being Level 5, so fully autonomous under all conditions. But what Elon says and what Tesla sells are sometimes different things, so what does Tesla’s order page actually say? Here’s a screen grab (highlight is mine):

Notice the following: There are two instances (when the car seeks parking, and when it is used in a supposed Tesla Network) where the car self-drives while empty. This removes all doubt. When empty, the car needs to be able to face any possible circumstance. What this means, is that the level being implicitly promised is SAE Level 5 self-driving. This claim was present at all times starting in October 2016.

Now, Tesla doesn’t have self-driving technology. So Tesla is selling something it neither has, nor can be certain of having in the future. Tesla never promised any timeframe for having such a technology, but did mislead customers both with videos of Teslas supposedly self-driving, and promising an autonomous trip from California to New York during 2017– which I already explained wouldn’t prove anything.

Furthermore, testing data shows Tesla lags severely behind other companies seeking to deliver self-driving technology. This lag isn’t surprising. Tesla started late, and is trying to solve a more difficult problem, because while self-driving leaders use a combination of LIDAR+cameras+radar, Tesla chose to leave LIDAR out of its hardware suite (given the present cost).

In removing LIDAR, Tesla removed the most reliable way to currently detect the environment around the car. A car equipped with LIDAR can get a high degree of certainty regarding all relevant objects around it (even before recognizing those objects). A car equipped with cameras, can’t. It sees the world, but that’s different from actually detecting and measuring the distance to all objects around it.

Tesla, obviously, is trying to recreate the information given directly by LIDAR using cameras and computation. This task has been researched, and is possible to be performed (and indeed, used in some instances). However, the reliability in performing this task isn’t necessarily high enough for self-driving duties. The problems emerge both because some objects won’t be reliably detected, and because objects will be detected which don’t exist or aren’t in the car’s path (false positives).

In self-driving, false positives are a large problem. A self-driving car needs to turn conservative when faced with a possible solid object it might hit. If this object is “imaginary” (a false positive), the car will brake – sometimes brake hard – for something that isn’t there. In many instances, this will create a safety hazard for other cars in the road. Unexpected braking will be met by slower reaction times from human drivers, and crashes resulting from it are to be expected.

Now, on the issue of false positives, we already have at least two reasons to believe they’re affecting Tesla:

  • The fact that AP2 cars often brake for underpasses and trees (among other flaws) when using TACC (Traffic Aware Cruise Control) or AutoPilot (TACC+lane keeping).
  • And the fact that Teslas, when subjected to pedal misapplication, can happily run from a standstill into a building (see my prior Tesla article for examples).

In the first case, the car is seeing a “false positive” object in its path, and not ignoring it. Thus, it unexpectedly brakes. In the second case, the car is certainly getting a large radar signature from the building. However, in trying to ignore all those false positives which happen elsewhere, the car ignores the giant building straight ahead and plows into it.

Now, both of these cases also highlight something else: They highlight that at present, Tesla hasn’t yet solved the problem of using cameras to reliably map the surroundings. Had Tesla done that, and neither of those cases would have happened.

That Tesla hasn’t yet solved how to fully detect its environment using cameras, tells us just how far from FSD Tesla still is. Detecting the environment isn’t the end point of a self-driving effort. Instead, it’s the starting point. When using technologies like LIDAR or Flash LIDAR, the very first thing a self-driving developer gets is a reliable 3D picture of its (solid) environment. Using this picture alone, a startup self-driving effort would neither brake for overhead signage, nor accelerate into giant buildings from a standstill.

It’s not a coincidence that Google cars haven’t yet hit any other cars. Even when Google’s car got in an accident where it was at fault, the Google car was hit (scraped) by a bus, not the other way around. This happens because the Google car has a 3D picture of its solid environment, and thus can avoid hitting (but not being hit) literally anything almost by definition (there are exceptions with transparencies, small objects, etc).

Now, with this description up to here, we already have a good clue about where Tesla stands on FSD, and how far it is from actually delivering on its promises. It’s already a scandal that Tesla is selling something it cannot deliver on any specific schedule. Indeed, Tesla is selling something it might not be able to deliver using its present hardware suite at all. It’s also rather interesting that even Elon Musk himself puts the timeframe to Level 5 about 2 years away (counting from late April 2017…), and Elon is usually late. It’s interesting because Tesla cars often get sold on 2-year and 3-year leases.

But the scandal I’m bringing you today is rather different. Instead, the scandal has to do with the fact that all the FSD promises above were made on a hardware suite (HW2.0), which Tesla has already obsoleted by launching HW2.5. “Oh but that was already known,” you’ll say. Indeed it was, Electrek broke the story a month ago.

At the time, to soothe fears, Tesla said it would upgrade HW2.0 customers to the improved computer on HW2.5, if need be (Source: Electrek article linked above):

“However, we still expect to achieve full self-driving capability with safety more than twice as good as the average human driver without making any hardware changes to HW 2.0. If this does not turn out to be the case, which we think is highly unlikely, we will upgrade customers to the 2.5 computer at no cost.

Then, more recently, HW2.5 customers got notice that their AEB (Automatic Emergency Braking) feature would stop working for a few weeks, as it re-calibrates the new hardware.

It was the AEB going out which got me digging a little. You see, computers, even more powerful computers built on the same architecture, don’t need any re-calibration. So something else had to be amiss. And indeed it was.

At the time of the HW2.5 introduction, Tesla downplayed the changes HW2.5 brought (Source: Electrek article linked above):

“The internal name HW 2.5 is an overstatement, and instead it should be called something more like HW 2.1. This hardware set has some added computing and wiring redundancy, which very slightly improves reliability, but it does not have an additional Pascal GPU.”

With this description, it seemed that all that was changed was a bit of cabling for redundancy and reliability, and then the computer unit which could be upgraded for free down the line (as explained by Tesla in the first quote). But this is misleading, because (as discovered by enterprising Tesla owners):

  • Redundancy itself might be a regulatory requirement for FSD in the future.
  • And most importantly, wiring and the computer were not the only changes. Along with those changes, Tesla also added a new radar. Previously Tesla used a Bosch MRREvo14f, and now Tesla has changed this radar for a more capable Continental unit. This new radar, is the reason why HW2.5 cars now need re-calibration. And once the re-calibration ends, a surprise will emerge: the new radar is more capable, so these cars will perform better than the HW2.0 cars already.

As a result of these changes, the car is already getting more capable computers and sensors. Also, still more hardware changes still are oncoming. For instance, the Model 3, using mostly the same HW2.5 suite, already includes an interior camera. It won’t stop there.

The official Tesla line is that the original hardware will still be capable of the promises. However, faster and more capable hardware would always make for an easier FSD problem. As a result, at the very least a FSD solution would arrive on the more capable hardware first.

Now, given what we saw regarding the state of Tesla’s FSD development (both from testing data and from the fact it doesn’t have a reliable 3D view of the world), for now neither hardware solution (HW2.0 or HW2.5) is likely to attain FSD. But Tesla continuing to add to its hardware solution will, at some point, fully obsolete HW2.0 (and even HW2.5). In the meantime, tens of thousands of cars will be carrying that obsolete hardware together with a promise that it will someday be enough for FSD Level 5.

This development is an even larger liability than CounterGate ever was. This touches every car Tesla sold since October 2016. This touches even the cars which did not pay for the FSD option, because the capability to have FSD, even if bought later, could arguably have been at the core of the buyer’s decision. In the end, what’s happening to Tesla with the HW2.0 APGate, is no different from what happened with Volkswagen (OTCPK:VLKAY) and the emissions scandal. VW (and Tesla) sold cars based on capabilities and specs they did not have. And VW ultimately had to pay compensation and even buy back cars from owners.

A Side Note

As expected, Tesla has been on a tremendous discounting drive to improve Q3 2017 deliveries. This discounting drive included up to $30,000-$40,000 discounts on Model S P90DLs, P100Ds, as well as other discounts across the range.

There are also customers which managed to buy new 90Ds and P90Ds with leases as low as $600 per month. To put this in context, a new base Model S75 RWD, costing $69,500 in cash, on the cheapest terms possible (36 months, 10,000 miles/year) goes for $790/month.

This discounting wave also introduced something that’s remarkable. You see, Tesla discounts “discontinued” models more. Thing is, many of discounts were on “discontinued” 90Ds which were coming new off the line, being built during the quarter!

Tesla guided for a 20% drop in automotive gross margins (from 25% to 20%) for Q3 2017. Tesla put it down to starting up Model 3 production. However, it’s evident that a lot of the gross margin drop is coming both from including more equipment in base models, and extreme discounting (as predicted).

Conclusion

The CounterGate, so many times denied by Tesla fans, was not only true but has been solved by Tesla capitulating on it. As a result of that scandal, Tesla ended up spending some of its best customers’ goodwill. It will also be eating higher warranty claims in the future, because of the now unrestricted use of those cars’ performance.

The new APGate stands to be an even larger scandal. Already Autopilot hardware is evolving beyond the initial specification, promised to be enough to attain self-driving SAE Level 5. Ultimately, and with this continuing hardware improvement process, HW2.0 (and even HW2.5) will be fully obsoleted.

At that point, Tesla will have created a gigantic liability for itself, since it sold tens of thousands of cars which it said would be able to perform to SAE Level 5 self-driving duties, and this will never be attained on the original hardware. Neither will the hardware be retrofit-able, as what’s being changed goes well beyond just the CPU box.

On top of that, this development will see further customer goodwill being wasted even before the lack of FSD capability realization takes place. For instance, right now AP2 customers have cars which don’t perform to AP1 levels, even though such parity was promised for as early as December 2016. Moreover, with the new hardware improvements it’s highly likely that Autopilot features on HW2.5 cars will quickly surpass those on HW2.0 while HW2.0 cars don’t yet get their promises fulfilled. This will be more evident on TACC, because of the new radar. It’s my estimate that the new radar will quickly reduce the false positives which lead to severe braking out of the blue on HW2.0 cars. At that point current customers will still be stuck with the worse-performing TACC on their “FSD cars” while HW2.5 customers will no longer have to endure it.

Tesla’s most important asset is the brand it built. Yet, with these scandals and unfulfilled promises it’s burning a bit of that brand every day. This is already visible in Tesla Motor Club’s forums, where many former Tesla fans are growing every more skeptical. Tesla is slowly destroying its most valuable asset.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

NTSB Finds Tesla Autopilot Partly to Blame for Fatal Crash

The U.S. National Transportation Safety Board has concluded that the crash that killed the driver of a 2015 Tesla Model S electric sedan in Florida last year was at least partly due to the limitations of “system safeguards” on the vehicle’s Autopilot semiautonomous feature.

According to Reuters, NTSB chairman Robert Sumwalt said: “Tesla allowed the driver to use the system outside of the environment for which it was designed and the system gave far too much leeway to the driver to divert his attention.”

Autopilot is designed to control the steering and speed of a vehicle driving on a highway with exit and entrance ramps, well-defined medians and clear lane markings. Since it’s not intended to have full self-driving capability, the system alerts the driver repeatedly with visual and audible warnings to pay attention and keep his or her hands on the steering wheel.

But in January, both the NTSB and the National Highway Transportation Safety Administration determined that Joshua Brown, the driver of the Model S, had set the vehicle’s cruise control at 74 mph (higher than the 65-mph limit), was not driving on a controlled-access highway and ignored the system’s warnings to remain alert.

So when a semitruck turned left across the path of Brown’s vehicle, the Autopilot system failed to respond because it’s not designed to detect crossing traffic, and the driver did not apply the brakes or otherwise take control. As a result, the Model S crashed into the side of the truck, killing Brown instantly.

At the time, NHTSA concluded that the vehicle had no defects and that Autopilot had performed as designed. And NTSB attributed the crash to driver error.

Now, however, NTSB says that Autopilot’s “operational design” was at least a contributing factor to the crash because, as configured at the time, it allowed drivers to keep their hands off the steering wheel and otherwise let their attention wander from the road for extended periods of time. In other words, drivers can override or ignore warnings from the system, putting them at risk for collisions.

NTSB has devised a number of recommendations for automakers developing partially autonomous vehicles. These include going beyond simple alerts to ensure driver engagement, blocking the use of a self-driving system beyond the limits of its design, and making sure these systems are only used on specific types of roads.

Tesla responded that it would evaluate the agency’s recommendations and “will also continue to be extremely clear with current and potential customers that Autopilot is not a fully self-driving technology and drivers need to remain attentive at all times.”

Tesla has continuously updated Autopilot since its introduction. For example, the latest version doesn’t just give warnings; it will shut off completely if the driver doesn’t take control of the wheel.

Although the Tesla Autopilot crash prompted continued NTSB scrutiny, the agency stressed that its recommendations apply to other automakers as well. It specifically mentioned Audi, BMW, Infiniti, Mercedes-Benz and Volvo, suggesting that their semiautonomous systems should also receive upgraded warnings and features that prevent drivers from using them improperly.

Are legislators penalizing Tesla? | Guest Perspectives

California’s last big auto manufacturer, a General Motors-Toyota joint venture, closed its Fremont factory in 2010. This year, Toyota is vacating its North American headquarters in suburban Los Angeles as it decamps to Texas.

Yet in the final week of this legislative session, lawmakers inserted language that takes aim at Tesla Motors, the upstart that builds its electric vehicles in the Fremont factory that Toyota and GM abandoned.

As legislative language goes, it’s mild. But it suggests that an automaker that runs afoul of the fine print could lose out on $140 million in rebates issued to consumers who want to help fight climate change by purchasing zero-emission vehicles.

The amendment directs the Air Resources Board to work with the Labor and Workforce Development Agency to “develop procedures for certifying” that companies that make autos that qualify for rebates are “fair and responsible in the treatment of their workers.”

Further, the Legislature’s “intent” is that the state labor secretary will “certify (auto) manufacturers as fair and responsible in the treatment of their workers” before companies’ vehicles qualify for the rebate program.

Legislators are within their rights to tie rebates to state-only standards. But the language, part of broader legislation, Assembly Bill 134, to divvy up $1.5 billion in cap-and-trade revenue, emerged in the final week of the legislative session, rarely a good sign. Why not include it in separate legislation, subject to full legislative review?

Although the bill is aimed at Tesla, the Alliance of Automobile Manufacturers, which represents Ford, GM, Toyota, Fiat and others, opposes the language. The Global Automakers, which represents Nissan, called the amendment “counterproductive to building a sustainable market for zero emission vehicles.”

Counterproductive or not, Gov. Jerry Brown, the internationally recognized champion of the fight against climate change, blessed the deal, The Sacramento Bee’s Jim Miller reported.

We support treating workers fairly and responsibly. We believe Tesla probably would gain market share if it attained labor peace. But what exactly constitutes “fair and responsible” treatment? Why limit the standard to car makers? Why not include manufacturers of zero-emission buses, and bio-digesters, and any company that receives cap-and-trade revenue?

And why should lawmakers step into the middle of a labor dispute with Tesla?

If the language becomes law, California would need to enforce it equally, whether zero-emission vehicles are made in Fremont, or Michigan, or right-to-work states, or foreign countries. How state regulators here would enforce workplace standards in far-flung plants remains to be seen.

As is their right, Tesla and its founder Elon Musk are fighting the United Autoworkers’ organizing effort. The National Labor Relations Board detailed Tesla’s rough tactics in a complaint two weeks ago.

Most definitely, Musk rubs some officials here wrong. His company benefited mightily from California subsidies and from consumers’ green attitudes, but Musk located his battery factory in Nevada three years ago.

Nonetheless, Tesla employs 10,000 Californians in Fremont, unlike Toyota, GM, Ford, Nissan and all the others without factories here. It’s as if lawmakers are penalizing Tesla for operating in this state. They wouldn’t do that. Would they?

Some Observations On Tesla’s Senior Note Issuance – Tesla Motors (NASDAQ:TSLA)

The Note Issuance

On August 18, Tesla (TSLA) issued $1.8 billion of senior notes, generating net proceeds of about $1.78 bin. after expenses. Per the 8-K regarding the notes with the SEC, which was filed on August 23, 2017:

“The Notes initially will be fully and unconditionally guaranteed on a senior unsecured basis by SolarCity. The Notes will not be guaranteed by any other of Tesla’s subsidiaries, except to the extent Tesla causes any such subsidiary to guarantee the Notes to comply with the covenants applicable to the Notes.”

SolarCity is further defined in the documents as “SolarCity Corporation.” SolarCity’s financial structure is actually quite complex. SolarCity Corporation has multiple subsidiaries where most of its assets, including the bulk of its “Solar energy systems leased and to be leased” as well as most, if not all, of its “MyPower” notes are located. All of SolarCity’s $2.5 billion in non recourse debt is located within these subsidiaries and secured by these assets. SolarCity Corporation simply has equity interests (stock) in these “non recourse” subsidiaries and is only entitled to the residual cash flows after the obligations to those non recourse lenders have been met. It has minimal cash generating operating assets of its own.

SolarCity Corporation has to meet all of its ongoing operating expenses (except for those that are directly related to servicing the assets in the non-recourse subsidiaries, for which they are normally entitled to reimbursement), R&D expenses, and capital investment outlays for such items as its solar roofs and its Buffalo equipment facility. It also has debt for which it is directly responsible. This includes a secured revolving credit facility, three different convertible senior note issues, the solar bonds, and the $100 million due to the Musk clan next February, for a total of more than $1.4 billion at June 30, 2017. Having debt to service both at the subsidiary level and the parent company level is what’s known as double leverage. A subsequent guarantee would be subordinate to all of these direct and indirect obligations. As a result, the SolarCity guarantee most likely does not add much to the credit characteristics of the new notes.

SolarCity Repays its Secured Revolving Credit Facility

There was one very significant sentence in the 8-k:

“On August 17, 2017, SolarCity elected to repay in full all amounts outstanding, and on August 18, 2017, terminated the commitments, under its Amended and Restated Credit Agreement, dated as of November 1, 2013 (as amended, the “SolarCity Credit Agreement”), by and among SolarCity, the subsidiaries of SolarCity party thereto as guarantors, the lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, in accordance with the prepayment and termination provisions of the SolarCity Credit Agreement. Prior to the prepayment in full, there was $325.3 million outstanding under the SolarCity Credit Agreement.”

This means that in fact, when viewing these two transactions together, Tesla added net cash of less than $1.5 billion the week of the note issue. Furthermore, the most recent 10-Q indicates the balance outstanding at June 30 was a bit higher, at $359 million.

This has a material impact on the cash projections contained in my August 21, article, Yet Another Capital Rise on the Horizon for Tesla, which contained my estimates of future cash needs. In that article, I had started with Tesla’s cash balance of a bit over $3 billion at June 30, and added the $1.8 billion note issuance proceeds to come up with approximately $4.8 billion for a “starting” balance. I had assumed they would roll over the revolving credit facility at its due date in December. Adjusting for the close to $400 million prepayment and facility cancellation, the revised starting total is about $4.4 billion, and my March 31, 2018, projection would also decrease by almost $400 million, to about $1.2 billion.

SolarCity Corp. Obligations are Being Replaced by Tesla Obligations

SolarCity’s last public filing at December 31, 2016, indicated the company had total recourse debt of more than $1.6 billion. It had decreased to about $1.4 billion by June 30, as referenced above, and is now almost $400 million less, so it a bit over $1 billion at this point. In addition to the revolving credit termination, all of the Solar Bonds due to Space X were repaid at maturity this spring, some other Solar Bonds were prepaid, and $10 million of the zero coupon convertible bonds owned by the Musk clan were converted to Tesla stock.

Paying down debt would be good news if it were being done out of operating cash flow. However, it is clearly not. Even a casual perusal of SolarCity’s financial condition indicates that Tesla must be downstreaming cash to them, increasing the ultimate cost of the SolarCity purchase to Tesla shareholders. If new funding is via equity rather than a loan from Tesla to replace the debt, then it makes SolarCity’s financial performance look better, with the interest expense appearing on Tesla’s books rather than SolarCity’s.

Tesla Bonds May be Available to Individuals Soon

Although these bonds were issued under rule 144A in the U.S. meaning they could only be sold to institutions, some of the bonds also were sold in Europe. According to various bond trading desks, once the bonds sold in Europe “season,” individuals in the U.S. may be able to purchase them. (Something about “Reg F”.) I’ve received various opinions as to when this seasoning period might end, but it could be as short as 40 days and more likely 90 days or more, if ever. In any case, if individuals are so inclined, they may be able to purchase these Tesla bonds in the not too distant future.

Surprisingly, even though I’m justifiably viewed as a TSLA “bear” here, and this article is not exactly positive, I would suggest that Tesla stock investors might want to consider spending $1,000 for a bond. Unlike some other bears here, I have never predicted an imminent implosion of Tesla, just that the stock appears to me to be significantly overvalued based upon its prospects.

The bond market is generally considered “smarter” than the stock market in recognizing when a company’s prospects are deteriorating, so for all stock investors, the price of these bonds should be closely monitored. However, I find that having some money at risk greatly focuses the mind. And if you have a bond in your portfolio, you can easily see the daily price rather than having to search for it. If there is a deterioration in the bond price that is not due to general market conditions such as a rise in interest rates for non investment grade (junk) bonds, it would be a good time to reassess both your bond AND stock positions. If the bond price were to decrease much below 95% of par and it is not due to general market conditions, I would begin to get nervous. As long as you are “paying attention” I can’t imagine a scenario where you would lose more than $100-200 on the bond, and of course you are collecting over $50 annually in interest in the meantime. Even if you were ultimately to experience a modest loss on the bond, this may be a much cheaper way to glean important market information than subscribing to a proprietary newsletter or a website behind a paywall.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.