Mark Spiegel’s Stanphyl Capital is famous for its questioning of Tesla but its biggest alpha comes from his picks in small caps, where some of his picks are up over 200% in less than yone year– Mr. Spiegel makes most of his money from killer small cap picks. His under the radar small caps which could pop just based on this piece (if we discussed it publicly) were profiled in ValueWalk’s 2nd edition of our quarterly premium newsletter. Below is an excerpt on Tesla stock. see below for an excerpt on Tesla Inc (TSLA) from their September 2017 letter. But first… although he is known as Elon Musk’s number one enemy,
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As noted in previous letters, this year’s terrible performance has been primarily due to our short position in Tesla, whereby despite having an overwhelming number of facts on our side (detailed, as usual, below) the stock is up nearly 60% this year. Although as a value investor it’s been tough to find new companies cheap enough to buy in this free-money-driven “everything bubble,” we do have a number of positions (detailed below) that I think will work out quite profitably. So let’s get to the specifics…
As noted above, we remain short shares of Tesla, Inc. (TSLA), which I consider to be the biggest single stock bubble in this whole bubble market—a company so landmine-filled that I think it can implode at any moment regardless of what the broad market does. To reiterate the three core points of our Tesla short position:
1) Tesla has no “moat” of any kind; i.e., nothing meaningfully or sustainably proprietary.
2) Tesla loses a huge (and increasing) amount of money despite relatively light competition but will soon be confronted with massive competition is every aspect of its business.
3) Elon Musk is extremely untrustworthy.
The big Tesla-related news in September was the giant Frankfurt auto show (lot of links below), in which pretty much every major manufacturer on earth announced plans to electrify its model line, with a massive number of new EVs rolling out starting next year and continuing straight through the 2020s. To put this in perspective, Tesla Model S&X sales have shown minimal growth for four straight quarters despite having just one electric competitor with a range of over 200 miles (the Chevrolet Bolt, which often matches Model S sales where it’s available), yet over the next five years Tesla will have approximately one hundred 200+-mile electric competitors, and over 200 by 2025. (Again, please see the extensive links below.) And really, why would anyone buy a Model S when this car is available in just 24 months?
Meanwhile, the Model 3 rollout appears to be problematic, with production slower than Musk promised (nothing new there!) and multiple features unfinished. Regardless of the rollout speed however, the Model 3 will be a huge sales disappointment when reservation holders realize that fewer than 100,000 of them will qualify for the $7500 tax credit and almost nothing can be done in the car without a multi-step process on the touchscreen—not even changing the windshield-wiper speed, adjusting the air vents or opening the glovebox. Thus, operating a Tesla Model 3 may potentially be as dangerous as texting while driving! And of course Tesla will make little (if any) money on the car, as it currently loses a fortune on models starting at twice the price. But hey, at least Musk is laser-focused on getting things corrected!
Also in September, the National Transportation Safety Boardpartially faulted Tesla for last year’s fatal Autopilot crash, as the system not only allowed the driver to use it in a manner for which it was incapable but Tesla—with “a wink and a nod”—subtly promoted such use. Ironically, Tesla escaped even greater blame because the system it called “Autopilot” designed “as functioned” in that it was incapable of seeing—and thus stopping for—a giant truck turning broadside directly in front of it. In August the Wall Street Journal published a terrific exposé of Tesla’s dangerous and deceptive deployment of Autopilot, and this Seeking Alpha article offers additional color on that, as well as on Musk’s blatant and off-repeated lie that Tesla doesn’t discount its cars. And here’s Autopilot in its latest incarnation… watch out for that school bus!
Finally in September, Tesla’s SolarCity paid a $29.5 million settlement to the government to settle fraud charges. Ever hear of “the cockroach theory” of investing? There’s rarely just one!
In August Tesla released a disastrous Q2 2017 earnings report with record cash burn and—excluding the one-time injection of Zero Emission Vehicle credit revenue—a record loss. You can read this great summary of the quarter from Zero Hedge supplemented by this one from Seeking Alpha as well as this one showing what a disaster the battery storage division remains. Due to massive discounting, unit deliveries for the current (third) quarter (to be released early October) could be somewhat better than the 25,000-unit guidance—perhaps around 28,000. However, due to the aforesaid discounting I- as does this Seeking Alpha author-- expect record losses when Tesla reports its financial results.
So here is Tesla’s competition in cars (note: these links are continually updated)…
So in summary, Tesla is losing a massive amount of money even before it faces a huge onslaught of competition (and things will only get worse once it does), while its fully diluted market cap (assuming 177 million shares “all-in”) now exceeds that of Ford and is roughly equal to that of GM despite a nearly two-billion-dollar annualized net loss selling just 100,000 cars while Ford and GM make billions of dollars selling 6.6 million and 9 million cars respectively. Thus this cash-burning Musk vanity project is worth vastly less than its approximately $70 billion fully-diluted enterprise value and—thanks to its roughly $10 billion in debt—may eventually be worth “zero.”