From Whitney Tilson’s latest email to investors on Tesla…
This email is exclusively about Tesla, so if you’re not interested in this company, simply delete it.
I attended Tesla’s tour of its Gigafactory in Sparks, NV (about 25 min outside Reno) from 9am to noon last Wed. There were about ~150 of us, most of whom appeared to be institutional investors (I ran into two Fidelity analysts, for example, who said they’d owned the stock since its IPO).
Below are my thoughts and photos, followed at the end of this email by responses from friends to whom I sent an early draft of this email plus a recent article from The New Yorker. Enjoy!
I was dumb enough to be short TSLA from ~$35 to ~$205 from early 2013 to early 2014 and, after that traumatic experience (by far my worst short ever, almost exactly cancelling out my best long ever, NFLX), haven’t had any position in it since.
I was tempted to get back in on the short side, however, after seeing an in-depth presentation by Mark Spiegel of Stanphyl Capital at the Robin Hood Investors Conference in November (www.tilsonfunds.com/TSLA-Spiegel-RH16.pdf) (I’ve also attached his Dec. letter, in which he shares further bearish thoughts on TSLA). There are many pillars of the short thesis, but if I were to summarize it, I’d quote a friend (not Spiegel):
The fundamental issue remains: If he can’t make money selling a car for $85,000 or more with zero direct competition, how will he be able to make money selling a car for $35,000 or even $45,000 or $55,000 with tons of competition?
The EV landscape will be pure commodity in as little as one year from now, with zero returns for anyone involved.
(There’s plenty more of the bear case at the end of this email.)
Before making a decision, I wanted to see the Gigafactory (I toured the Fremont, CA factory in 2013) and hear Elon Musk and CTO JB Straubel (link to recording below), whom I’d never seen before.
Overall, I was quite impressed and have decided not to short the stock – though with some feelings of regret because I think there’s a decent chance it works on the short side, but this is offset by my feeling that there’s maybe a 20% chance that Musk and Straubel pull another inside straight and the stock spikes upward.
I don’t need to outline the bearish case, as others do an excellent job of this, so I’m just going to hit a few bullet points on why I’ve decided to pass on shorting it:
· I think Elon Musk is the real deal. I’ve studied him closely over the years and read Ashlee Vance’s excellent book, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future, which leads me to believe that what he’s done with SpaceX may be even more impressive than Tesla. Given his penchant for self-promotion, wild dreams, and consistent overpromising, I initially thought he was little more than a shyster who got lucky with PayPal, but over time my view on him has changed: I now think he’s cut from the same cloth as Steve Jobs (see Walter Issacson’s book) and Jeff Bezos (see Brad Stone’s book: The Everything Store: Jeff Bezos and the Age of Amazon): a total maniac who can be brutal with people and burn them out (he works 20-hour days and expects his people to “only” work 16-hour days), who sometimes says over-the-top things, but also a visionary with insanely bold ideas who attracts equally brilliant and driven people to work for him. I like how he thinks. For example, last Wed. he said they built their factories and cars pretty much from scratch (95% original), rather than buying off-the-shelf components, which (if they do it well) can yield enormous competitive advantages. Later, he noted that the fastest auto manufacturing lines move at 0.2 meters/second, whereas a human walks 1 meter/second (5x faster), and said he saw no reason it couldn’t be 2-3 meters/second. If one company (Tesla) can speed up its output by 5x, whereas another has to build five factories, who’s going to win, he asked? This is silly talk, according to one friend (see below), but I’ve decided I don’t want to be short this guy…
· Two top engineering guys I met a couple of years ago who work/worked at Telsa told me that JB Straubel is also the real deal. One said to me: “There is NOTHING that Musk and Straubel can’t do”. Why would I want to be short BOTH of them?
· A friend in the know told me that the companies top engineers graduating from the top schools most want to work at are Google, Facebook and Tesla. And if you want to actually MAKE something – as opposed to spending your life trying to get users to spend one extra millisecond on your web page or click on one more spam ad – then it’s Tesla (and, if you’re into rockets, SpaceX) – and who else? I find it hard to believe that any top young engineer (the kind of person who actually WANTS to work 16-hour days) is going to take a job at GM over Tesla (or Lockheed Martin over SpaceX). Why would I want to be short the best, hardest-working engineering talent in the world?
· Tesla has built a very powerful brand. A BrandZ study from last June ranks it 10th in vehicle brands – but my gut says it’s a lot higher. Everyone I know/have met who owns a Tesla is intensely, passionately in love with it. That’s REALLY powerful.
· Tesla is operating in enormous markets: there are ~75 million passenger cars sold worldwide in 2016, plus battery storage is big and likely to get much, much bigger.
· The growth of electric cars will likely provide a huge tailwind: I don’t doubt Musk when he said on Wed. that “all transport with the exception of rockets – how ironic – will be electric – it’s just a question of how long it takes.” Only ~1% of cars sold last year were electric – and I think that number will be MUCH larger pretty soon – I’d guess 20-30% of all passenger cars will be 100% electric within 10 years.
· I’m well aware that pretty much every major auto manufacturer in the world is rolling out/will soon roll out electric cars, many of which look very promising in terms of styling, price, features (especially range), etc., which could severely impact Tesla. That said, for well over a decade, everyone predicted that Wal-Mart and others would crush Amazon, and Blockbuster,Amazon, Verizon, Hulu, etc. would crush Netflix. In terms of CEOs and ability to attract talent, Tesla