Logical Thought

Hedge fund manager, long/short equity, growth at reasonable price, value
Logical Thought
Hedge fund manager, long/short equity, growth at reasonable price, value
Contributor since: 2010
Company: Stanphyl Capital Management LLC
>> As long as the car works and performs great and can be serviced, it's of little concern.<<
Yes, you'll be able to get it serviced right next to your Bricklin, DeLorean and Tucker.
I really hope this is true-- the more money they lose on each car, the better... And at $35k, they'll lose at least $10k on every one of them!
And "The 2016 Definition of Insanity Award" goes to... "The Pundit". Congratulations, Pundit!
>>there is value for GM in the Tesla brand<<
It's a brand with soon-to-be obsolete products behind it. I'll be generous: $1 billion for the factory, $1 billion for the brand. So the debtholders get 67 cents on the dollar and the equity holders get nothing.
>>Rob wrote "Bringing their Bolt to market as Tesla 3olt, or something, might be a good deal."<<
And what exactly would GM be buying for billions of dollars? Two low-volume cars (one of which is no-volume and undesirable for myriad reasons) that are both entering technological obsolescence because they wire together 7000 little batteries when the entire industry is going "prismatic."
This company is worth LESS than its $3 billion in debt.
>>Here's a solution. Tesla should offer a $3,000 upgrade: An umbrella, with a big red T on it. <<
How about a snorkel?
Yeah, good luck. Even at $150 Tesla has a fully-diluted enterprise value of around $25 billion, an absolute joke to any potential experienced industry partner. The correct play here is to wait a few years for bankruptcy and pick up the debt for .70 on the dollar, with the equity then being worthless.
Nope. It may take a couple of years, but my eventual cover-point is somewhere between the high $30s and "zero."
>>And he also has said that the S would never sell, then it has peaked, then they will be back, then the X will never sell, then... Sure, if you want to say he was right go right ahead.<<
I think a response to that might be useful for those who are-- unlike the person who wrote it-- "investors" rather than "story-stock suckers." So here's the thing: yes, I originally thought the Model S would only sell maybe 10,000 a year worldwide and it turned out to be 50,000 (at least until the Bolt arrives at year-end followed by huge luxury EV competition in 24 months, at which point I expect that figure to tank), but I also knew that for Tesla to be worth anywhere NEAR its valuation it would have to profitably sell HUNDREDS of thousands of the S/X and a larger number of smaller cars, so I shorted it with a HUGE "margin for error." Klarman wrote a book about value investing that covers this concept-- I highly recommend it if it doesn't come to you intuitively. Of course, as this bear market grinds its way down, you Teslarians will learn that lesson in the best possible way-- through experience.
Keep dreaming, Teslarians... After increasing the position size more than 10x in the mid-to-high $200s, my fund's current basis in TSLA is approximately $251. And as for MGCD, I bought even more this week-- unlike Tesla, it's profitable, has huge gross margins and net cash and is selling for well under 1x revenue-- I think it's a two-year double from here. But I'd prefer that you Teslarians stick with TSLA.
>>That said I am expecting an X type front end update within the next two years.<<
Being short the stock, I sure hope so-- the front end of the current S is by far the most attractive part of the car, while the carp-like nose of the X is about the fugliest thing on the road..
Wow, lots more Teslarian grave whistling going on here. On the luxury end, Audi and Mercedes will each have two vehicles between early 2018 and early 2019 and Jaguar and Aston Martin will each have one. (If you Google around you can find the links.) The Porsche comes in early 2019. Additionally, BMW is rumored to have a pure BEV i5-- a road-ready prototype was spotted in Europe this week with a huge floor-mounted battery pack. So that's seven or eight cars splitting up a total market (luxury EVs) that's currently around 60,000/year going entirely to Tesla, and those new cars can be priced VERY aggressively (although the Porsche probably won't be) because it's cheaper than buying ZEV credits from Tesla and a way to maintain market (and mind) share.
You own a massively cash-burning company with huge capex requirements in an unforgiving market priced for huge success in the year 2025 and you're not worried about an onslaught of competition over the next 24-36 months? I have two words for you:
"Index funds." Actually, on second thought we're in a bear market that will destroy bubble-stocks like Tesla, so let's make those words "money market."
Considering that Tesla has $3 billion of debt, massive negative free cash flow and a huge onslaught of emerging competition, the equity won't be "cheap" until they pay you to take it
>>a well-timed secondary stock offering...<<
That was the one they did last year-- you know, where the suckers paid in the $240s just before the stock collapsed. The next one will be a LOT lower than the stock is today.
>>Other options include private financing arranged through Morgan Stanley...<<
You mean in a debtor-in-possession type of scenario? Yes, that's entirely possible.
>>...a loan from SpaceX...<<
Lol! I get it now-- you were just kidding! Good one!
Well, I can see that the Teslarian graveyard-listening continues... Keep whistling, Teslarians-- the stock is dancing nicely to your tune!
This article completely omits Audi, Mercedes and Jaguar (and Aston Martin), all of which will have multiple near-300 mile EVs out in approximately two years. We also don't yet know what BMW has next up its sleeve, and all indications are that by "before the end of the decade" means early 2019 for the Porsche.
Good luck, Teslarians!
The BOJ is currently printing approximately 30% of the monetary base every year, and no, it WON'T be able to keep inflation in check because it needs to keep printing in order to buy the JGBs to hold down the otherwise unaffordable interest rates. I've been short the yen since early 2012 (from USD/JPY in the high 70s) and while it's worked out decently so far I don't think we've seen anything compared to where it's going over the next several years. The end game of course is that inflation will become unbearable and the BOJ will simply default on the debt (haircut it by some huge percentage) rather than continuing to print yen to buy it. At that point the (by then) hyperinflation will come to a sudden halt. So in an ideal world you're short the yen now and the bonds later, but with the 10-year tonight yielding just 7bp (seven basis points!) you really can't lose very much by getting short right now. The problem is that there's no easy way to do it-- I was using the JGBD ETN but I closed that out recently because Deutsche Bank-- its sponsor-- has stopped creating new units and besides, I really don't want to be a creditor of DB (which you are if you buy an ETN rather than an ETF). I suppose I could use the Tokyo futures market with regular rollovers but that's a pain in the neck!
>>It's pretty clear that Tesla is not trying to be that kind of car company.<<
Lol, that's one of the most hilarious Teslarian comments yet! http://tinyurl.com/jjr...
>>... maintenance which practically does not exist for an electric car, beside tires and very little on brakes.<<
You must not spend much time monitoring the Tesla owners' forums-- remember, the 8-year warranty is only on the battery and electric motor. (Does "all kinds of stuff breaking" count as "maintenance"?) Meanwhile, every BMW and a number of other cars come with four years of FREE scheduled maintenance.
Those ZEV credits ($20,000 in your analysis) will be nearly worthless by the time the Model 3 can realistically be in production, as there will be around 25 competing EVs by then and few automakers will thus need to buy them and, in fact, are likely to be trying to sell some themselves.
Why did the Tesla PR department send out an email to publicize this? What if it was because he had to do something to try to prop up the stock NOW to avoid getting a margin call if the stock dips much lower next week?
Was the $50 million he "ponied up" for taxes borrowed against those shares, like the money he previously used to participate in the company's equity offerings? The Tesla PR department sent out an email to the media about this on Friday afternoon asking it to be publicized-- if Musk can't elevate the price of this cash-burning bubble-stock, when do his margin calls kick in?
What if instead of borrowing to pay taxes on those options that HAD to be exercised in 2016 because this is their expiration year, Musk had dumped $50 million of stock into the market... Would that have triggered a margin call?
Of COURSE "debt matters"-- it's mind boggling to me that more economists don't understand that the near-doubling of U.S. household debt-to-income between 1980 and today as well as the massive increase in government debt (which falls on the backs of households) is EXACTLY why we've got slow growth today; i.e., growth was artificially juiced for 30 years by people "spending their future income." It's just that no politician or economist is willing to be the grown-up in the room and point out that after a party you've got to nurse the hangover and not just keep drinking. Sure, there are pro-growth things that can (and should) be done on the margins (i.e., less regulation, a simpler and flatter tax code, etc.) but our problems are primarily all about the DEBT.
It's all about the unmanageable (245% of GDP and growing) government debt-- the BOJ is desperately trying to inflate it away but for political reasons won't outright say that's the reason for its policies. In fact I suspect that's why the U.S. Fed is targeting 2% inflation too. Both of these central banks-- rather than forcing politicians to act in a fiscally responsible matter-- are aiding and abetting fiscal irresponsibility.
Yes, and the impact of this regarding Tesla is twofold:
1) Its ZEV credit sales (the only "product" on which it makes money)-- no longer needed by other auto makers-- will dry up, and
2) These cars can be sold at (or even below) cost, making Tesla's already double-digit negative operating margin triple-digit negative. (Yes, I know that sounds impossible but if there's anyone who can "accomplish" that it's Elon Musk.)
I realize that this is a bit tangential to this article, but it amazes me when people (such as this author) talk about Tesla as it's some sort of leader in home or commercial scale battery storage. If anyone out there actually thinks that, please educate yourself by clicking on each of the following links starting with Tesla's own supplier Panasonic and working down from there:
Can you please point me to where it says the S90 packs are the same weight as the S85 packs? As far as I know it's nowhere on Tesla's web site and-- as I said-- I only recall them saying that the battery packs have the same exterior dimensions. In light of my comment above I consider it to be somewhat of a moot point, but I'm genuinely curious nevertheless.
To what cparmerlee wrote I will add this:
Every single manufacturer out there who is doing a clean sheet, 200+ mile EV design (and there are now MANY of them) had/has the option of doing it "the Tesla way" and yet (as far as I know) every single one of them has chosen not to for their mass-produced cars which will be out beginning late this year (the Bolt) and then en masse beginning in late 2017/early 2018. On the other hand, when Tesla designed ITS cars (the S&X) it did NOT have the option to use large-format cells (as appropriate ones weren't yet available). I think this is pretty compelling real-world evidence that whatever the reasons are, the Tesla pack style is no longer the best way to go.
Where do you have data showing that the 90kWh pack is no heavier than the 85kWh pack? A review by Car Magazine claims that it's 700kg which would imply that although it's a 6% improvement over the 85 in the same package SIZE, that "package" may indeed be HEAVIER. (And when the 90 was introduced I clearly remember the company saying that its SIZE was the same as the 85 but I don't recall any claims about its weight.) Unfortunately, I can't find any single source that weighed an S85 and an S90 (much less, ones that were otherwise identically equipped). And of course as far as I can tell, the Tesla web site lists only the base weight for the 70 model, because the nature of the company is "minimal disclosure if the data is unfavorable."
Also, from a manufacturing cost standpoint I have ZERO doubt that it's far less expensive to wire together and cool 288 cells than it is to do so for 7000.
I notice that in all of your rambling you completely ducked the fact that the Bolt 60kWh pack weighs 960 pounds while the Tesla 60kWh pack (when it was offered) weighed 1125 pounds. So now without "pie in the sky" predictions about what the Model 3 pack MIGHT weigh, why don't you directly respond to this data and explain why-- all in-- you think the Chevy/LG pack doesn't contain more energy per pound/kg than the Tesla pack?
As an aside, it's interesting that you say that the Bolt "drives like an econobox" when you've never driven it. In fact, at an overall weight of 1100 to 1500 fewer pounds than a Model S with the same "weight down low" design, it may be FAR more fun and sporting to drive.
>>The S70 has room for 5 adults and 2 children, has a 0-60 time of 5.5 seconds, and parks (and drives) itself. So the Bolt is terrific for being worse in every way?<<
Plenty of people don't carry more than four people in their Teslas and couldn't care less if 0-60 is 6.9 or 5.5, especially as the Bolt may be even quicker (we don't know yet for sure) 0-30. So they'd happy spend half as much money for something easier to park and less showy. 15% of Tesla buyers come from a Prius and "stretched" financially for a Tesla because they wanted a 200-mile EV and had no other choices. Tesla will lose a big chunk of those people (and plenty of others) to the Bolt.
This article was written by yet another Tesla graveyard-whistler. Of course EVs don't make sense for most people, which is why Tesla is destined to slowly bleed to death in its small little niche before it ultimately goes bankrupt. But meanwhile there is clearly an avid minority of drivers who DO want to drive EVs, and for them this Bolt is a terrific alternative to a Tesla S70-- room for five adults, 0-60 in under 7 seconds, MUCH easier to park, and half the price. If the Model 3 ever comes out-- and if it does it will start in the high $40,000s-- we can evaluate it then... say, around January 2019.
Keep whistling, Teslarians.