Tesla Investors Are Not Rocket Scientists
Buy Tesla Cars.. Not the Stock
Tesla investors include the Federal government who cut the worst deal ever with Elon Musk in 2008 to finance him.Tesla borrowed Venture Capital (VC) money from Elon Musk at VC rates. It borrowed VC money from taxpayers at non-VC rates
Tesla needed $500MM to get started in 2008. The US Government lent $465MM to Tesla at 3% interest under its push for Green Energy. Elon Musk lent the company $38MM at 10% interest plus stock options. Here are the profits on those loans:
- Elon Musk’s $38MM generates profit of $1.4BB, or 3,600% ROR- a VC payout
- Taxpayers’ $465MM- generates profits of $12MM or 2.6%ROR- not a VC Payout
Taxpayers took VC risk without VC returns. The table was set for Elon to arbitrage the Government’s largesse much more. All in, the US Government committed about $4.9BB to finance Tesla’s operations. The Fed was taken. Adn that was why we started to look into Tesla and Elon Musk's American Keiretsu
Just Kidding, Tesla is GREAT
Do not fret investor. You don't have to know how to build an electric toaster to buy an electric toaster. Tesla the stock, is unsinkable. Magic words from Elon is all it takes to make everything right again. Behold, from Feb 10th
"The Model X is an amazing car. Honestly, I think it's probably, I think it's the best car ever. I'm not sure anyone's going to make a car like this again."- Elon Musk does his best Donald Trump impression for analysts on Feb. 10.
Feb 10th was Magical- But where has the magic gone Elon?
Kudos to Elon's rhetoric skills. We can't help notice smaller and smaller bounces after every subsequent piece of bad news. Perhaps Elon has to recharge his ring like Green Lantern?
Reality?- Tesla is NASA 1960 reconstituted. But Don't Short it
Despite everything, Tesla hangs in there. In our group, one writer dissents. Sadly, he's been right a lot. Infuriating as his points are:
"I know there is still a NASA but their talent pool couldn't launch a toy rocket these days let alone land one. Silicon Valley BC funds seeding tech companies means all the engineering talent goes elsewhere. Political correctness, affirmative action I hate to admit also plays a part. Elon Musk is Werner Braun. Don't short it, Tesla will never be allowed to fail."
We've been bearish on Tesla as a legitimate company since June, starting with this Ms paint chart:
Through this analysis cheat sheet: From July 14th
- Tech that is used in innovating existing products do not have a protective moat
- Tech that is used in tech (like google) has one in the form of electronic incumbency
- That is part of why PAYPAL succeeded too.. The relationship with EBAY had electronic incumbency and network effect aka "demand scale"
- Tesla: Scale of production is supply related- Tesla needs lower cost to get this
- PayPal: Network effect is demand related and he was locked in with ebay early
- He’s attempting to create the ebay and paypal here.. but these are not cyber products.- He needs to sell more cars to be able to get costs down to sell more cars (downstream)
- Solarcity has same model- dependent on production scale
- SpaceX was the cash cow that didnt collected money prior to giving service
- SpaceX lost credibility and thus cash flow for financing Tesla- Peter can no longer be robbed to pay Paul
"Running a real company is hard"
Tesla is a sale
Then we were giddy when Cowen put a finer point on our bearishness:
September 9th- Cowen Says $160 Target
The firm released a thorough 100 page report covering Elon Musk's crown jewel company. In short, they love the company, but hate the stock at these levels.Their analyst Jeff Osborne from the Clean Technology division initiated coverage with this: TSLA ($201), Underperform, $160 PT; *12-month Outlook*;
Cowen's Investment Thesis
In the 12-month investable time frame our rating contemplates, we see Tesla as a great company lead by a true visionary, but must acknowledge the asymmetric risk/reward profile for the stock at the market’s current valuation. Simply, we see a lot more that can go wrong than can go right as the company transitions into Mr. Musk’sgreater vision as laid out in his Master Plan, Part Deux. We see the potential for delays in the introduction of the Model 3, ramp of the Gigafactory and integration of SolarCity leading to increased cash burn levels.
One major issue Cowen has is with Teslas ability to "execute". Their second point echoes our observation on the acquisition of Solarcity by Tesla. Cowen's point being their inability to see the benefit to Tesla's operations in acquiring SolarCity. The acquisition of SolarCity may be more of a benefit to the acquired company than to Tesla. We struggle to see quantifiable synergies attributable to Tesla.
FTR:Beyond operating expense reductions it remains to be seen what cross-selling opportunities truly exist over the next two to three years. We question how much knowledge transfer can occur from a Freemont, CA based auto assembly plant to a Buffalo, NY solar module facility. Longer term, we are positive on solar+storage systems, but the current regulatory construct in major markets does not make them economical.
And now the Trump Dump has all but been erased
Perhaps we've been looking at this wrong. Or in the least, underestimating the stake government backers have here in making sure this does not fail. Even in light of cheaper products less constricted by scale like Comma 1 and the lack of protective moat, Tesla still survives.
The Business of Crony Capitalism
Finally, businesses like Tesla cannot stand on their own feet without some form of Government aid. Whether that be in QE form or direct subsidies, the marketplace is no longer a "Free Market".
Tesla and its dependents are an example of what is wrong with our capital market system.
Tesla... Too Smart to Fail !!! and we gotta keep the fake moon landing in play!
And that is why you can't short Tesla expecting fundamentals to be the ultimate arbiter. The government deems it TBTF. Meanwhile Elon Musk is Too Smart to Fail.
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