Readers will recall that Whitney Tilson considered Tesla Motors his worst short ever and was forced to close the position after the stock rose ~600% return. It seems that Tilson is not done with the company and would consider a LONG position in the car company, but only at the right price. See below for an excerpt from a recent email which Tilson send to investors on Saturday.
1) Joe Nocera with a great op ed in today’s NYT on Tesla and how Wall St. analysts are often more cheerleaders supporting an investment bank’s banking arm than unbiased analysts, a topic I too have long written about, most recently in the article I published back in May, How Wall Street Enables Stock Promotions: A Case Study Of Jefferies And Unilife, taking Jefferies to task for similar stuff in the case of a tiny promotion, Unilife (the stock was at $2.85 then; it closed yesterday at $1.24).
Just like the Internet stocks of yore, Tesla has its own Wall Street cheerleader: Adam Jonas, Morgan Stanley’s auto analyst. Jonas could not be less interested in mundane factors like earnings per share; indeed, he has had to lower his 2015 earnings estimates several times; he now predicts the company will lose $2.70 a share. But never mind: In the future that he envisions, Tesla will be the most important car company on earth.
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Just a few weeks ago, in fact, Jonas raised his share price target for Tesla from $280 to $465, which would make Tesla more valuable than General Motors or Ford. Had anything fundamental changed for Tesla? Of course not!
Jonas based his new target on something he labeled Tesla Mobility, which he describes as “an app based, on-demand mobility service.” Where did he learn about Tesla Mobility? Who knows? Tesla, a company hardly averse to hype, has never acknowledged its existence.
And that’s not the worst of it. No, the worst is the timing of his call. It came days after Tesla announced that it would be issuing stock to raise yet more money — and that Morgan Stanley was among the underwriters. (The company raised close to $800 million.)
Although Morgan Stanley insists that Jonas was in the process of changing his price target well before the equity offering — and that the Chinese wall between the firm’s analysts and its investment bankers is unbreachable — his call had to be pleasing to the underwriters. Doug Kass, the well-known market commentator, told me that Jonas’s call was “somewhere between tone deaf and borderline illegal.” In a note to his readers, he added that it was “a further reason why Wall Street is not trusted.”
That said, in Blodgett’s defense, at $240 then ($40/share today after two splits), Amazon’s stock has soared to $518 today, at 13-BAGGER or, over the 17 years since then, a very satisfactory 16% compounded annual return. There are FAR more egregious calls from Wall St. analysts.
I wonder if such behavior is more common in the nooks and crannies of the market because the companies/managements and banks are seedier and there’s less scrutiny, or among big caps because there’s so much more money at stake?
By the way, after being short TSLA from $35 to $205 (the mostly costly short of my career, needless to say), I talked to a couple friends of my cousin’s, both Tesla engineers (one current, one former) and came to believe that this company is for real – they estimate the company has a SIX YEAR technological lead over any other company in the world in key areas of electric car technology, most critically batteries. So I immediately covered my short because I came to the conclusion that, while the valuation is stretched, it’s a bad short at any price anywhere in this range because the situation is so open ended. There’s a chance – not a high one, but a chance – that this could be a 10-bagger over the next decade or so (like Amazon ended up, though like Amazon, I suspect there will be much better times to get in on the long side than now).
2) Speaking of Unilife (UNIS), here’s the follow-up note I wrote on Aug. 6th:
I really need to write a follow-up article here – this is so disgusting. As I wrote in an article on May 20th, Jefferies has been shamelessly pumping Unilife, which is one of my half dozen remaining shorts because it’s an obvious promotion and likely total fraud. The reason? UNIS burns cash like crazy, so to raise the cash it needs to avoid bankruptcy, it hires – I hope you’re sitting down – Jefferies! (SURPRISE!)
Thus, the Jefferies “analyst” (I use that term generously) kept pumping the stock and had an $8 price target on it, despite trading recently well below $2.
So get this: just a few days ago, on July 30th, UNIS announced a financing deal that will likely raise enough cash to keep the company afloat for at least another year (though I expect the stock to continue spiraling downward because it’s highly dilutive).
And guess who was NOT in on the financing deal? Jefferies!
So guess what the Jefferies analyst did today? (Again, I hope you’re sitting down.)
He FINALLY downgraded the stock – and took his price target from $8 to $1.50.
Folks, ya can’t make this stuff up.
It’s so unbelievably corrupt…yet so ordinary and routine…
3) For more on Tesla, I recommend the following:
- This FT article (full text below):
It is all prone to risk: the novel technology, the competitive threat, the danger of its charismatic founder falling under a bus, taking Tesla’s mojo with him. Hedge funds love the stock because it is so volatile. No one can make up their mind whether it is for real. All that seems certain is that, a decade hence, the company’s value will be nowhere near its current market capitalisation of $28bn. If Mr Musk fails to realise his bold vision, the company might be worthless. If you buy Tesla now and the company delivers, you will have hit a giant home run.
- This extended piece, posted here: http://waitbutwhy.com/2015/06/how-tesla-will-change-your-life.html. Here’s an excerpt:
How Tesla Will Change The World
By Tim Urban
…I asked him what it was like to come to Tesla after having spent years at more established car companies. He described the difference like this: “A company like GM is a finance-driven company who always has to live up to financial expectations. Here we look at it the other way around—the product is successful when it’s great, and the company becomes great because of that.” (This mirrored what Musk had told me earlier in the day: “The moment the person leading a company thinks numbers have value in themselves, the company’s done. The moment the CFO becomes CEO—it’s done. Game over.”) Von Holzhausen went on, saying, “Another difference is that at other companies, engineering comes first—a design package is prescribed on the designer and they’re told to make it beautiful. At Tesla, design and engineering are assigned equal value, and Elon keeps them opposed to each other.” Now that von Holzhausen has gotten used to his freedom to be obsessed with the product at Tesla, he says he “would dread to go back to pre-historic ways.”
Von Holzhausen’s first mission at Tesla was to design their Step 2 car—the mid-priced, mid-volume one—that would be called the Model S. The Roadster was based on existing design and was a springboard for the company more than a long-term product. The Model S would be Tesla’s first flagship product, and it was their chance to reinvent the concept of a car, from scratch. Von Holzhausen said, “When we started Model S, it was a clean sheet of paper.”
This all sounded uncannily similar to how Steve Jobs had done things at Apple. He obsessed over making “insanely great products,” and he never paid attention to what other companies were doing, always coming at things from a clean sheet of paper perspective. When Apple decided to make a phone, they didn’t try to make a better Blackberry—they asked, “What should a mobile phone be?”
Over time, big industries tend to get flabby and uncreative and risk-averse—and if the right outsider company has the means and creativity to come at the industry with a fresh perspective and rethink the whole thing, there’s often a huge opportunity there.
When the iPhone came out, it turned the phone industry on its head. So should we be surprised that when the Tesla Model S came out, Consumer Reportsanointed it the best car that had ever been made with an unheard of 99/100 rating, and that Tesla owners are across-the-board obsessed with the car? No, because it’s like the iPhone—it’s a 15-year leap into the future.
- This book: If you have a position in Tesla (long or especially short) and haven’t read Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future, then you are making a big mistake (I also highly recommend it to a much wider audience of those interested in entrepreneurship, engineering, cars and rockets/space; it ranks up there with Walter Isaacson’s classic, Steve Jobs and The Everything Store: Jeff Bezos and the Age of Amazon).