Excerpted from Whitney Tilson’s latest email to friends
Wow! It’s not often that the SEC sues a high-profile CEO of a major company and seeks to remove him. Kudos for its quick and decisive action! Musk is vowing to fight, but he’s obviously guilty and, mark my words, he will not be CEO of Tesla a week from now.
How Warren Buffett Uses Discount Rates To Value Stocks
Warren Buffett has never detailed the process he uses to value the businesses he acquires for Berkshire Hathaway. However, over the years, he has provided some limited insight into his methods. Q3 2020 hedge fund letters, conferences and more Based on these comments, it is widely assumed that Buffett uses a discount cash flow model Read More
The stock is down 12% after hours to $271, but I think it’ll be down a lot more tomorrow – and that there’s now a 50% chance that it goes under $100 by the end of the year.
As soon as I saw the news, I paused the seminar I was teaching and called my friend Mark Spiegel of Stanphyl Capital, who’s been one of the most vocal and insightful critics of the company for quite some time. While my students listened in, we had a great discussion about where we think the stock will open tomorrow and where it’s likely to go in the next year, whether it’s time to cover one’s short position or add to/initiate it, how he’s playing it (shorting, buying puts and selling calls), why the Model 3 is a lemon, why this reminds me of the day (10/21/15) when Valeant fell as much as 40% when Andrew Left exposed Philidor, the odds of a bankruptcy filing, etc.
I recorded our 18-minute video call and, with Mark’s permission, have posted it on the Kase Learning YouTube page here.
PS—Six days ago, Mark spoke at length (75 minutes) to the students in our webinar on short selling, which you can watch here. He also did an epic takedown of Tesla at our shorting conference on May 3 – see his 157-slide presentation here and you can watch the video of it here (23 min).
PPS—We are teaching our one-day Advanced Seminar on Short Selling in NYC all day tomorrow – we have room for a few more folks, so if you’d like to come learn with us, please email me ASAP. Further information is here.
Pease use “VW10” for a discount!
PPPS—On June 15, when the stock was at $358 (32% above current levels), I sent this email to the 6,000+ people on this list:
I haven’t had a chance to write this up in detail yet, but I’ve changed my view on TSLA. Ever since I covered my short position at $205 in early 2014, I’d been pounding the table, warning my short seller friends that THIS IS A BAD SHORT. But starting with the company’s last earnings call (what a doozy that was!), I now have a more nuanced view.
While I’m not yet convinced that it’s a good short, I no longer think it’s a bad one for a variety of reasons: the company is burning through cash at an alarming rate and the balance sheet is falling apart (see the end of my article, An Open Letter to Reed Hastings: Do an Equity Offering Now), so it will need to raise a lot of capital soon, continued missed deadlines (nothing new), mediocre reviews for the Model 3, a huge number of senior management departures, Musk’s increasingly erratic behavior, etc.
In short, I think the odds that the stock does a Valeant (that’s now a verb, meaning “to collapse by 97%”) have risen from 10% to 35%. But, as with Valeant, you don’t have to be a hero here. There will be plenty of time to get in on the short side if it really does go into full-scale collapse.