Tesla (NASDAQ:TSLA) had their much-anticipated investor conference yesterday and, unfortunately, it wasn't all that impressive.
Actually, I take that back, it was very impressive for the $35 stock that was one of my 3 top picks in January but NOT very impressive for a $95 stock in June. Back in January, our trade idea for TSLA was a play that would allow us to buy a TSLA car by laying out just $7,250 in cash, using an options spread.
That spread was buying 50 2015 $30/42 bull call spreads for $5 ($25,000) and selling 25 2015 $23 puts for $5.30 ($13,250) and selling 25 March 2013 $34 calls for $1.80 ($4,500). The March calls expired worthless and, even with this pullback, the short $23 puts are now just $1 ($2,500) and the $30/42 spread is net $11 for net $42,450 in profit but we pulled it when TSLA first popped to $85 as it was already too high for us (and I went back on TV to make sure none were taken by surprise when we shifted).
Shortly after my May 14th appearance, where I urged taking the money and running on TSLA at about $85 (see article from that day as well), they ran all the way up to $114.90 and we put our foot down, value-wise, and flipped short.
In our Income Portfolio, we had taken a very short position on TSLA by cashing in our long calls and rolling the short calls (rather than paying them off) to 60 short January $80 calls as well as selling the 2015 $60 puts. Since the initial adjustment, we have gotten even more aggressively bearish in TLSA over the $115 mark but we're comfortable selling short puts that give us an entry in the $50-60 range, as we feel the stock does have real long-term value around there. Here's our last Update on 5/28 from Member Chat, before we got more bearish as TSLA peaked out at $114.90 that day:
Obviously, we could have just left them alone and done fantastically but even more fun for us to make the bearish adjustment and watch the stock drop $20 in a week. Anyway, just wanted to get you up to speed with our position as, of course it colors our view of the company and, to summarize, we are targeting the stock to fall between $60 and $80 in January, the $85/115 bull call spreads are only there to prevent us from losing too much money should the stock go over $80 (as they they cover us to $115) - they are not actually bullish plays.
So, it was with great interest that we took in the news from TSLA's Investor meeting last night, which was held at 6pm EST at the Computer History Museum in Mountain View, CA - as strange place to hold an auto conference but it shows you what Musk really thinks of his car - more like a solar-powered computer with wheels.
To summarize the commentary, the highlights were:
- Capital expenditures to expand Model S production and begin assembling the electric Model X sport-utility vehicle next year will hold back Tesla's profitability.
- "I would expect our capex to be higher than Porsche's for some time to come," Musk, 41, said at the gathering, held at the Computer History Museum in Mountain View, California. "On gross margin, I think we can get close to exceeding Porsche's over time." Gross margin is the percentage of revenue that remains after production costs are deducted.
- The financing "gives us the ability, even if we basically suck at cash management, we'll still do OK," he said. "We don't want to suck."
- "We raised more money than we think we need." Musk stressed that if a future supply disruption occurred because of a natural disaster or a supplier bankruptcy, the company would still have money to keep going.
- Musk also said the company, named for inventor Nikola Tesla, is willing to let electric vehicles from other automakers use its supercharger network.
- Tesla's goal this year is to deliver at least 21,000 of its battery-powered Model S sedans, priced from $69,900. It plans to introduce the Model X mid-sized SUV in late 2014.
- CEO Musk is Tesla's largest stockholder, with 24 percent of company shares
- At Tesla's annual shareholders' meeting tonight, Musk said, "The automobile association is definitely creating some problems for us, making it harder to get things done." He said auto dealers talk about offering Tesla a franchise to sell its vehicles, but that nowhere in the past nine decades has that worked out for a start-up car company. "In the last 90 years, when did it work?" he asked. "There are no good examples."
- "Our philosophy in respect to service is not to make a profit on service," he said. "It's terrible to make a profit on service."
- Tesla is now beefing up its sales operations in anticipation of growing Model S sales. The company expects to have 50 stores by the end of the year, up from 34 during the first quarter.
- Toward the end of the meeting, Musk fielded a shareholder question about how the company can build shareholder value while mass-producing electric vehicles at the same time. Musk said that he wouldn't do anything to compromise the company's long-term goals in order to bring short-term shareholder value, but that the two goals were aligned in the long term. He said, "There are obviously things we could do that would have a short term effect on the stock price, but I think those would ultimately be disadvantageous in the long term."
"We don't want to suck" - that's my favorite comment and, as TSLA longs from $35 and TSLA shorts from $95, we are perfectly happy with a comment like that but TSLA buyers who came in over $100 (despite all my warnings not to) should be ANGRY to hear a CEO making such cavalier comments the same week his stock drops 25% from the top.
$600M of that loss was Musk's own book value but, with $3Bn worth of shares - he can afford a little dark humor, not so much those that followed idiot analysts like Jim Cramer into the top of the market. On that day (28th) I closed my morning commentary with: "If TSLA holds $100 as our short-calls are killing us but I stand by my now silly-sounding warning that TSLA is not worth $90, let alone $100."
Again, we love TSLA as a company - it's just the stock that's overpriced. They HOPE to one day get their margins up to Porsche's lofty levels and they HOPE to sell 500,000 cars - but doesn't everybody? So far, they sell 20,000 cars and make no money - that's the reality and they are still a short at $95.
If you want to dip your toes in on the short side, you can buy a January $100/90 bear put spread for $6 and that pays $10 (up 66%) if TSLA finishes below $90 at January expiration and goes in the money (profitable) below $94 with TSLA at $94.84 on yesterday's close. This limits your losses and, of course, making 66% in 6 months will pay for a lot of gas!