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New Developments For Tesla

Sep. 01, 2020 7:02 AM ETTesla, Inc. (TSLA)
Ruerd Heeg profile picture
Ruerd Heeg's Blog
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Deep Value, Foreign Companies, Nano-cap, Long Only

Seeking Alpha Analyst Since 2012

As a mathematician (Ph.D.) I use 7 quantitative strategies with statistically extremely high returns. I select these cheap companies with software comparing thousands of global stocks on value metrics, liquidity, quality metrics, and momentum. I focus on global nanocaps and net-nets. Check Turning Rough Stones: turningroughstones.substack.com

Tesla (TSLA) closed up in the first day after the split. When Kerrisdale Capital published his short thesis on GlobalStar he also organized a competition. The goal was to find a company with at least a market cap of $1 billion with zero long term value. I guess that would be too easy now. Even after raising the bar to a market cap of at least $500 billion it is too easy. Companies with a market cap regularly going up $10 billion or more in a single day but with zero long term value? Too easy.

What can we expect? The stock was already the world's biggest bubble ever. Yesterday the market cap went up another $50 billion. I don't exclude another $50 billion market cap increase, but clearly this cannot go on forever. When a bubble burst most people sell when it is too late. Holders of Tesla stock should take their profits, now it is still possible.

Signs of financial distress

Here is a tweet alleging Tesla is not paying certain bills in Norway. See also this twitter thread. Furthermore I listened to this podcast, with TeslaCharts and Georgia Orwell interviewing bond analyst Vicki Bryan. Vicki Bryan recommends avoiding the bonds because they are overpriced. She also says the bonds have substantial default risk. In other words: Tesla has borrowed too much money, does not make profits and (apparently) there is a substantial risk it does not have the ability to sell new shares or converts.

Copper theft

After Martin Tripp also Karl Hansen spoke out loud about illegal activities in Tesla's so-called Gigafactory in Nevada: drugs and theft of copper and other valuable goods categorized as raw materials. See here and here. Though allegedly material Tesla has not disclosed the amount having been stolen in its financial reports. He says his claims are supported by official deposits in his lawsuit and possibly other lawsuits. Again it remains to be seen whether the judges agree with him. But this is still a risk that is not priced into the stock.

Ẃirecard Fall Out

After years of allegations from short sellers and financial journalists it turned out banks could not confirm Wirecard's cash holdings to the auditor. That was the end. So officially the auditor (Ernst & Young) exposed the fraud. I think that was a clever move. While it can be good business to look away from frauds it is not prudent to keep doing this until someone else stops it. In that case the auditor probably has to do much more to defend himself.

PwC may be dealing with the same dilemma for Tesla. They can stay Tesla's auditor until the very end. Nobody knows when that will be. Paradoxically the stock price bubble suggests the end is sooner than many expect. In the mean time all these lawsuits produce more and more evidence suggesting fraud. What are they going to do? The chairman of PwC said they are going to implement better fraud detection procedures. So it could be game over for Tesla in March 2021.

Bottom line

It remains to be seen whether PwC will be in time with their improved fraud detection procedures. If there is something preventing Tesla to raise PwC might be too late to protect their own firm. My opinion on the stock is still: strong sell.

Analyst's Disclosure: I am/we are short TSLA.

Global Deep Value Stocks is a long only newsletter. I do not discuss stocks like Tesla in Global Deep Value Stocks.

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