Mark Spiegel is famous for his bearish views of Tesla shares and his short position in the stock, but his biggest alpha comes from his picks in micro-caps which are under the readar – Indeed, 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 from Stanphyl’s latest letter to investors.
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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 55% 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 short 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 in every aspect of its business.
3) Elon Musk is extremely untrustworthy.
The big Tesla news for October was the awful Q3 delivery number which included—due to production problems—just 220 Model 3s. This scoop from the automotive site Daily Kanban explains why those problems are likely to continue for months, and why 2018 Model 3 production is likely to be not much more than 1/4th of Tesla’s 400,000-car projection. Meanwhile, Q3 Model S&X sales were up just 4.5% year-over-year despite massive discounting (you can expect record losses when Tesla reports its Q3 financial results) and before the onslaught of luxury EV competition from Jaguar, Audi, Mercedes and Porsche beginning in 2018. In fact, over the next five years Tesla will have approximately one hundred 200+-mile electric competitors, and over 200 by 2025. (Please see the extensive links below.) And really, why would anyone buy a Model S when this car is available within 24 months?
Meanwhile, when it eventually does go into real production the Model 3 will be a huge sales disappointment, as reservation holders realize that fewer than 100,000 of them will qualify for the $7500 tax credit (unless the new Republican budget kills even that, which is a real possibility), 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!
In October, Nvidia—the maker of the primary computer processor for Tesla’s so-called “Autopilot” system—announced mid-2018 availability for its first processor capable of full self-driving. This provides further proof (in addition to the lack of necessary LiDAR) that since last year Tesla has been committing fraud in charging $8000 for “software upgradeable future full self-driving” for its current system. (And remember that in September Tesla’s SolarCity paid a $29.5 million fraud settlement. Ever hear of “the cockroach theory” of investing? There’s rarely just one!) 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!
Also in October, Tesla laid off hundreds of employees in its Models S&X division and hundreds more in its SolarCity division, apparently primarily to save money due to non-growth and fight potential unionization, but because Tesla claimed all the layoffs were “performance related” it bought itself a brand new legal problem on top of a massive number of ongoing lemon-law lawsuits, labor discrimination lawsuits and autopilot & investor class action fraud lawsuits. In fact, Tesla is rapidly becoming sort of a “full employment act for lawyers,” and that’s even before it brings in the bankruptcy lawyers!
And if you still believe the nonsense that “the great thing about Tesla is that it’s really a battery company” (as if that low-margin industry is anything to brag about) you must read this new overview of its so-called “Gigafactory” as well as this story about Tesla potentially buying car batteries from LG & Samsung. (It already buys and resells Samsung storage batteries.)
Finally for October I leave you with this:
So here is Tesla’s competition in cars (note: these links are continually updated)…
CHEVROLET BOLT EV: THE 2017 MOTOR TREND CAR OF THE YEAR
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 almost equals 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 $65 billion fully-diluted enterprise value and—thanks to its roughly $10 billion in debt—may eventually be worth “zero.”
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