Tesla, the investment

[Jaqen Haghar MD]

Just a side note on “the shorts” and Tesla...

As an investor, short sellers are your friend.  They alert you when something is not quite right.  Short selling is difficult and risky.  These guys don’t take what they do lightly.  They do their homework.  Even Buffet concedes they are good for the market and help uncover fraud and accounting problems.

Short sellers can’t damage a good stock much.  If they sell a good company short, they will get squeezed and then drive up the stock price, when they are forced to cover.   Musk has tried several times to initiate artificial short squeezes with his “announcements.”

CEOs have vilified and scape-goateed short sellers as a cause of floundering stock prices throughout stock history, and you can read interesting accounts of it from the 1920s from trader’s perspectives.  The company stock will be failing for legitimate reasons, but short selling makes for a better excuse than the company admitting they aren’t executing well.

When you hear the leader of a company complaining about the short sellers... beware and be cautious.  If the company is doing well, they wouldn’t have to do much except wait for them to get crushed by the data and results.

You can see great short covering rallies in a stock when heavily shorted companies do well, and also near the last gasp as the shorts take some profits out, after big declines.

 

 

[Dont_know_mind]

I hadn't looked at the Tesla stock price since this time last year.

Yikes ! That looks bad.

EM has done some damage to his credibility, so I am thinking maybe it doesn't make it back this time.

Which could be, hello again $40.

Apple could be an interested buyer, after they chuck out EM.

Purely speculation though, they could maybe bounce back again, but I tend to think not this time.

[Dont_know_mind]

Zaphod wrote:

BCBiker wrote:

You don’t think that the arguments Tesla short make are at all emotional 

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I’ll just quote myself in the quoted post, “You are frankly buying into a us vs. them mentality that really affects both sides strongly.”

-yes, I agree both sides make ridiculous arguments. They are structurally unprofitable. Nothing else matters, everything else is filler people do when bored I have guessed since things dont just magically happen when you make a realization (from both perspectives).

Again, it doesnt matter how people are acting. If tesla executes they succeed regardless of the naysayers, if not it doesnt matter how many people believe in them. Thats just side show stuff. It is very important to assessing where the narrative and overton window are for the company though, as valuation, etc…have never been a good way to tell when a stock does good/bad. Narrative is shifting which is significant.

BCBiker wrote:

I don’t claim that my opinions are 100% correct and that everything I read that supports my assumptions are correct. 

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Dont get me wrong, not saying Im 100% correct and have mentioned many times where they could prove me wrong, my thesis would blow up etc…I just view the probabilities differently, and they are far far weighted to one side, much more than many are willing to accept and the financial/reality required to keep them at current valuation is astronomical and not within reality bounds to keep the valuation. Remember their book value is around $25/share and falling. This is an entirely different conversation and degree of upside vs. downside scenario if they were 40 bucks than when they were nearly 400. Thats the disconnect.

And honestly, I update my position as it goes, its foolish to be anchored one way or the other. If they started seeing increasing demand and were meeting it by increased production I would change my mind, facts on the ground are just not supportive of that and given lack of investment wont be for some time, theyve hamstrung themselves.

Also have mentioned where I thought if they raised (last year) stock would skyrocket and pressures would ease. They just waited til it looked like an act of desperation.

They could and may make 100k/qtr cars the rest of the year to hit their low end guidance, but that doesnt materially change anything. Worse, investment banks have signaled they are done and said its over in not so many words, “a distressed credit and restructuring story” aka bankruptcy. We all know the sell, hold, buy, etc…of IBs severely lags and they are screaming liquidate. Thats a serioius development. Expect further downgrades from banks and credit analysts to follow.

BCBiker wrote:

The bringing up of Elon’s private jet is a perfect example. 

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I dont think it means what you do, it is a very obvious counter to all the environmentally righteous talk about for reasoning “why tesla”. Its important to note a disconnect between reality and propaganda. Just like socialist leaders who bath themselves in luxury at their peoples expense.Click to expand…

BCBiker wrote:

If an executive has to be somewhere it is rationale to spend money and pay environmental cost to get there. 

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This doesnt make any sense. Why isnt it rational for me then? And how is it rational in any way to fly a private jet 25 miles?

BCBiker wrote:

How is nuclear going to fix ground level pollution if everyone still has ICE? 

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Most of pollution is not tailpipes of course, and even if we have electric and the power supply is dirty, its still not great. Why not as much of both as we can, clean central and cleaner peripheral? This isnt a binary thing.

BCBiker wrote:

On the other hand, what does the person do who predicts the end of the world on a certain day, and that day comes and goes? He modifies his argument and explains away that his calculations were a bit off but correct in the general direction. “Well they were able to raise capital but it was dumb the way they did it and that death spiral I was talking about, well it is going to happen because you see they can’t reduce costs here and you know people will eventually realize that the cars are actually garbage… You see my point? I hope…? 

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This person is rational and bayesian and updating their thesis with new information instead of ideologically holding on to their beliefs despite evidence to the contrary. Check the tesla investment thread, I have talked about them raising as a possible positive catalyst. It was reasonable to wonder why it didnt happen. I dont think I personally picked a specific day, this could take years even going terribly the whole time.

 

Odds continue to mount, but that doesnt make them quite yet a certainty, but if you ask me to bet and make a probabilistic argument theres no question. Each qtr that passes just solidifies the outcome more one way or the other and decisions that were made years ago either to invest or not in a vs. b start to make out sized contributions to the outcome.

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Wow, this is really interesting. The Tesla story continues with lots of blood, guts and most of all drama!

Here is a is my very basic and probably inaccurate perception of the bear and bull case:

Bearish case:

1. The bears think Tesla is insolvent. The book value is $30/share. If they cannot raise more capital, to reorganise debt, the share value will approach book value (or less).

2. Musk is the main shareholder with 19%.

3. Musk is limited to margining his shareholding to ? 25% of his stock. But apparently he mortgaged his property and plane last year to raise approx. 100M which puts into question whether he is running out of borrowing capacity for some reason. He should have 1.5B in borrowing capacity if he has 1B in borrowing on the current stock. But why would he raise 100M if he still has 1.5B in borrowing capacity ?

4. Price creates it's own narrative and many of Tesla's problems like lack of sales, car fatalities, cars catching fire on the highway etc. which may have caused headlines with other car manufacturers just haven't with mattered with Tesla (to date). But it does matter and no-one will want to buy the assets except in bankruptcy without the accumulated liability of all this plus guarantees.

Bull case:

1. Nice cars, they are ramping up production.

2. They could be the next Amazon

3. They might get there first with autonomous driving technology or a part of it.

4. It has gone from $40 to $400.

I am really tempted to buy $40 puts, but won't, so I have a bearish bias.

I love watching the story though.

It shows recency bias in all it's glory.

The true believers who bought at $40 are not concerned. So to me it hinges around what price point do the main institutional holders and Musk start to fold ? I think it could unravel quite quickly. But maybe it bounces back, that would be pretty amazing.

[burritos]

Again what is the implosion narrative? Will it be like Lehman Bros where they just lock the doors? Fannie where the other car companies agree to buy out parts of the dead carcass? If the price is good enough, would apple or google just buy out the company in cash from their go bags?

[Zaphod]

burritos wrote:

Again what is the implosion narrative? Will it be like Lehman Bros where they just lock the doors? Fannie where the other car companies agree to buy out parts of the dead carcass? If the price is good enough, would apple or google just buy out the company in cash from their go bags?

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The implosion narrative is basically as @dontknowmind states. What follows is the narrative; ***they are basically structurally bankrupt with no hope of getting out of this situation. Due to hubris they have refused to timely raise or otherwise make restructuring changes, which has made situation worse. This situation can and will go on as long as someone is willing to loan them money, however it seems those places are starting to dry up***

This can and likely will last at least a couple more years, they just wont be a high flying growth company anymore and more in line with their valuation. Unlike people that feel it has to go bankrupt and Elon to jail to validate their thesis, to me it only has to come back to earth as far as valuation. It has become somewhat a self fulfilling prophecy as they havent invested several years ago what was needed to be making the number of cars and therefore revenue, cash flow and profits wall street modeled out years ago (this was aggressively profitable ofc). This was the expectation that justified their share price.

Now ofc, its becoming obvious they wont sell that many vehicles without any change in factories, lines, etc...and so they have to readjust their prices. They also realize to meet those old goals would mean a massive capital raise somewhere near 5 billion or so, which would be like wise crippling.

Growth story imploding, narrative changing and likely price follows (not all at once of course).

[StarTrekDoc]

If implosion happens, it'll do one of two things:    Go private or get bought out.   The amount of tech the company is incredible and Legacy companies and Tech companies will be smacking at the opportunity to get a piece.    Clearly either will not be good for investors who bought high nor bond holders.

I for one don't mind it seeing valuations at 50-100$.  Perhaps then it'll get out of the stock drama -- but that's wishful thinking.

[Zaphod]

StarTrekDoc wrote:

If implosion happens, it’ll do one of two things:    Go private or get bought out.   The amount of tech the company is incredible and Legacy companies and Tech companies will be smacking at the opportunity to get a piece.    Clearly either will not be good for investors who bought high nor bond holders.

I for one don’t mind it seeing valuations at 50-100$.  Perhaps then it’ll get out of the stock drama — but that’s wishful thinking.

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Agree theyd be better off with a more realistic stock price. However, the issue that comes from a falling stock price in a business is you start to become dangerously levered. They are already highly levered and losing share price exacerbates this, increases costs of capital, can trigger loan/lending agreements and make its own problems. Its kinda like all the sudden cutting your income with the same debt service. Becomes somewhat of a self fulfilling prophecy at that point.

[StarTrekDoc]

All true.  Hence my suspicion that Tesla would go private (and out of US hands, which would be a shame as a high visibility company goes foreign).   Will this be a modern test case for too important to fail?

Tesla has been an important disruptor in the industry that has desperately needed it; and it's American built and bred  intellectual power.  I think it would be an awful shame if it doesn't work out and my bet is that Capitol Hill would come rescue it before it moves foreign.  It would actually be nice to see the bi-partisan effort if does come to that.

[burritos]

For those shorting the stock, is it all valuation? Jealousy of elon and the cars aren't part of the decision making? If I weren't so cheap, I'd consider buying the stock and the car. But I I am. So that is either protecting me or holding me back.

[Nysoz]

burritos wrote:

For those shorting the stock, is it all valuation? Jealousy of elon and the cars aren’t part of the decision making? If I weren’t so cheap, I’d consider buying the stock and the car. But I I am. So that is either protecting me or holding me back.

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I'm pretty cheap (I made my fiancée put back a can of name brand beans in favor of store brand to save $0.50), but have been a fan of the car/company/vision so I bought a model 3 awd that should be coming soon. I'll report an update in the tesla car thread a month after owning it to see if it was worth it to a frugal person.

[burritos]

Nysoz wrote:

burritos wrote:

For those shorting the stock, is it all valuation? Jealousy of elon and the cars aren’t part of the decision making? If I weren’t so cheap, I’d consider buying the stock and the car. But I I am. So that is either protecting me or holding me back.

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I’m pretty cheap (I made my fiancée put back a can of name brand beans in favor of store brand to save $0.50), but have been a fan of the car/company/vision so I bought a model 3 awd that should be coming soon. I’ll report an update in the tesla car thread a month after owning it to see if it was worth it to a frugal person.

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I have a feeling when my 13 y/o gets his license, he'll get my accord, i'll get my wife's leaf, and she'll get a tesla 3. Adding more solar capacity this month and a 2nd ev line for that possibility. But who knows, according to a lot of smart money, tsla will be gone by then.

[portlandia]

Nysoz wrote:

I’m pretty cheap (I made my fiancée put back a can of name brand beans in favor of store brand to save $0.50), but have been a fan of the car/company/vision so I bought a model 3 awd that should be coming soon. I’ll report an update in the tesla car thread a month after owning it to see if it was worth it to a frugal person.

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If you just paid $80K for a car, your membership in the cheap and frugal club has been officially revoked. Not to fret, you can be part of the spending intentionally and loving it club.

[IntensiveCareBear]

burritos wrote:

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I have a feeling when my 13 y/o gets his license, he’ll get my accord, i’ll get my wife’s leaf, and she’ll get a tesla 3...

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Those are interesting priorities. Others might think that women are a compliment to a man's life, not the focus of it. Purpose, mission, health, relationships, etc would be the focus. Crazy talk, I know.

...TSLA has had a P/E of "n/a" for far too long now. I think I missed it on a limit order of $30.20 seven or eight years ago, and I'm actually kinda glad I did. It definitely became the day-trader's baby doll (much like AMD is now) and somehow got significantly overpriced within a couple years of that. In reality, I couldn't care less... they aren't the leader in self driving (GM), they aren't the leader in EV (Toyota), they aren't profiting, their prices aren't competitive, and they have no significant track record. I don't get it. The company's only real saving grace is that every millennial and younger wants to buy one, but that will begin to wane when they realize they have all the problems any other auto maker does. They are basically a tech/manufacturing company that is priced and varies more like a fashion clothing company.

Like others posted already, I see no need to buy or short it when it is fundamentally unsound, future unknown, and there are plenty of other fine stocks and ETFs to go long on and get dividends on. Tesla is like trying to hit a screwball pitch when there are lobs and fastballs available... and no called strikes. It seems fairly logical to short it since they are on such shaky financial ground, but I think it's also fairly dangerous to short the TSLA stock when it gets so much govt grant money and trader hype pumped in, though... it behaves irrationally to say the least. The govt has put a ton into pushing EVs, and they might continue to double and triple down on that (at least to keep them open to repair the early ones sold?). The QEs will eventually force Tesla's market cap to put up or shut up, but nobody knew they could run this long on hype and promises and grant monies. They could last another decade if a dem wins 2020 and starts making a bunch more EV buyer and producer bonuses. We shall see.

[Zaphod]

burritos wrote:

Nysoz wrote:

burritos wrote:

For those shorting the stock, is it all valuation? Jealousy of elon and the cars aren’t part of the decision making? If I weren’t so cheap, I’d consider buying the stock and the car. But I I am. So that is either protecting me or holding me back.

Click to expand…

I’m pretty cheap (I made my fiancée put back a can of name brand beans in favor of store brand to save $0.50), but have been a fan of the car/company/vision so I bought a model 3 awd that should be coming soon. I’ll report an update in the tesla car thread a month after owning it to see if it was worth it to a frugal person.

Click to expand…

I have a feeling when my 13 y/o gets his license, he’ll get my accord, i’ll get my wife’s leaf, and she’ll get a tesla 3. Adding more solar capacity this month and a 2nd ev line for that possibility. But who knows, according to a lot of smart money, tsla will be gone by then.

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Valuation is just a "how much meat is on this bone" quesition and for tesla the answer is, oh oh so much. Its never a good reason on its own to short something. Its been the case for years that its valuation was ridiculous. Something had to change first. Clearly tesla and elon have had control of the narrative and I've noted that before, until that changes you can just light your money on fire. When that changes (like recently) all the sudden the valuation and other issues that have been present for literally years start to matter to people that matter (banks, financiers, lien holders) then the environment it better to short but its never friendly.

Its really the price of the stock is such a mismatch to reality and a typical car company. People can say whatever they want about "software" etc...but in the end, they still make cars and making cars is a crappy business that costs a ton of money.

Jealousy/etc...-shorting or doing anything should be about making money. Jealousy, etc...are things that will cause you to make terrible decisions and is more likely to lose you money. For the majority of people on the opposite side of the tesla trade is purely math and very obvious. It costs x amount of dollars to make x amount of cars, tesla has $y and is valued upon z^5 production. These things are separated by a galactic amount of difference. It hasnt mattered because there were enough people willing to let you destroy their money in that pursuit. As that goes away, well reality floods in.

If tesla can raise another 5 billion for working capital, etc...that would absolutely change the outlook.

[Nysoz]

portlandia wrote:

Nysoz wrote:

I’m pretty cheap (I made my fiancée put back a can of name brand beans in favor of store brand to save $0.50), but have been a fan of the car/company/vision so I bought a model 3 awd that should be coming soon. I’ll report an update in the tesla car thread a month after owning it to see if it was worth it to a frugal person. 

Click to expand…

If you just paid $80K for a car, your membership to the cheap and frugal club has been officially revoked. Not to fret, you can be part of the spending intentionally and loving it club.

Click to expand...

awd model 3 was about $46k after tax incentive. if I were to buy a new Toyota or Subaru with a V6/H6 engine, that runs about $32k.

I still maintain my frugal club membership by trying to get my hospital to install chargers so I don't have to pay to charge the car heh