Chamath Palihapitiya: Why Alphabet And Apple Would Not Acquire Tesla

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Chamath Palihapitiya: Why Alphabet And Apple Would Not Acquire Tesla
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Whitney Tilson’s email to investors discussing Chamath Palihapitiya interviewed on CNBC today.

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This guy -- @Chamath -- is on CNBC right now:

https://twitter.com/chamath/with_replies

A trip down memory lane – it reminds me of this article he published almost exactly three years ago:

https://medium.com/@chamath/hey-jerkwater-do-your-math-on-tsla-a29a6435f515

He's clearly one of those who needs to read up on the facts.  He doesn't seem to have read a Tesla 10-Q or doesn't seem to understand that Audi eTron and Jaguar i-Pace are outselling Tesla Model S and X right now to the tune of 6:1.  Speaking of "tune" -- he said that Apple outsold Zune, and that Tesla is Apple.

Well, clearly not, seeing as Tesla's sales are going down and that the EV competitors are increasing their sales.  Yes, I know that's primarily in Europe, but that's where the competitive market is right now (outside of China, that is).  In the U.S., half of all Teslas sold are in the two major coastal California metropolitan clusters. The other 99% of America has very little of Tesla, by almost any measure.  Tesla is clearly going to defend its brand and market share better on its home turf in California, than in the rest of the U.S., in Europe and in Asia/China.

He clearly not driven any of those competitors, or looked at the latest sales data.

In any case, he also said that Apple or Alphabet would buy Tesla if Tesla ever got into trouble, making it a futile exercise to short Tesla.  But why? Those companies -- Apple and Alphabet -- have shown every sign of wanting to crush Tesla, not help it. Both of those companies -- Alphabet and Apple -- are cooperating with all the other automakers.  Pretty much the only company they have ruled out from a cooperation standpoint, is Tesla.

And hey -- it's pretty well-known that Alphabet and Apple *did* conduct due diligence on Tesla and ended up rejecting the idea, perhaps more than once (2013, 2014 and 2016).  And that was *before* it became evident that the Model 3 was a money-loser and Elon Musk went haywire on a number of fronts, including saying on 60 Minutes that he doesn't respect the SEC.  Musk and Tesla have become a giant liability that no sane company would ever want to acquire, especially those who know its warts the best -- Alphabet and Apple.

He is blinded by the fact that he just bought a Tesla, views Elon Musk as a peer, and that he's never met the other automakers, driven their latest products, or visited their factories.  He thinks that people want their cars to look and feel like computers. That may be true to a small portion of the population who indeed happen to live in Silicon Valley and Southern California -- but it’s not true for very broad layers of the population.

He’s also blinded by false statistical analogies.  For example, he sees that the Model 3 has reached an annual global run-rate of 250,000 units.  That’s true. He also sees that those 250,000 units came from some other automakers. That’s also true, sort of per definition.

But so what?  You get a new entrant into the car business, which is selling its cars at a loss.  That’s like a new burger chain coming in to sell the equivalent of a Big Mac for $1.99 instead of $2.99 or $3.99.  Yes, that means that the other burger chains are going to lose some share. It’ll impact their economics.

But to what end, for the new entrant?  Is losing money in perpetuity some sort of “new finance” or “new economics” goal?  Is it different this time?

On a global basis, BMW, Audi, Volvo, Cadillac and other premium auto brands have not seen their sales fall when the Model 3 came onto the market.  Yes, some models are down -- but others are up. Look at the overall global quarterly numbers. The Model 3 has made such a small impact, that the dents are spread over so many automakers and so thinly that they are hard to detect.

In the meantime, Tesla has indeed awakened over a dozen sleeping giants.  There will be over 200 pure EVs on the market by the end of 2022. Even if by some measure one surrenders to the argument that “Tesla is the best” -- the margin pressure will ensure that it will be profitless prosperity.

I like a lot about what Chamath says about other companies and other investment theories.  Not everything, but a lot. However, on Tesla he's blinded by biases and has simply not done his homework -- other than the fact that he's driving a Model 3.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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5 COMMENTS

  1. I have to agree with most of the comments. This article seems like it’s written by someone with a clear agenda.

    True, Model S and X sales are down, but Model 3 is disrupting sales everywhere It arrives. It’s still unavailable in some markets, which suggests that so far there hasn’t really been a problem with demand.

    True, Tesla is loosing money, but the Model 3 itself is not sold “at a loss”. A second Gigafactory with moderate cost benefits should help them reach profitability, provided they survive this long.

    True, the competition is catching up, but Tesla Model 3 still is a very well received car and a good product. In my opinion it is still 3-5 years ahead of the current EV offerings from the competitors and the word of mouth is only gonna help sales. To what end? Well for starters customers will not want to go back to the old products. Sales that BMW, Mercedes lost on their sedans will result in more missed sales, once current owners start moving to newer cars (no-one is gonna go back to cars without advanced self-driving, OTA updates etc.).

    What you’re doing here is politics not providing context or information. Tesla has A LOT of problems (service centers, high costs, Model 3 canibalizing S and X sales, risks associated with Gigafactory 3 etc.). But the product itself is relatively good, the demand is truly there and the competition isn’t all that fierce (yet). Just look at European sales of Model 3 for proof.

  2. How so? Every EV and plug-in sales chart I see has Tesla at the top.

    Heck, Tesla even has the traditional luxury car makers beat – outselling every single luxury model from BMW, Audi, Mercedes, Jaguar etc – here in the USA.

  3. I think your focus is too much on the current reality. From a profitability perspective the current reality has never been great. Tesla non-fans are blind to the future reality. They are the leader of the pack and there has been virtually nothing better than the 2012 Model S whether it’s EV or ICE. Ahead from a product and technology
    standpoint, 5-10 years ahead. Look at the shitty specs on the Audi
    & Jaguar you mention. All that means nothing if you can’t sell enough cars but it’s too early for anyone to call someone blind to a reality that hasn’t been cemented yet.

    Of course there is downside to the story but it’s limited (maybe 50%) due to it’s relatively small valuation for tech companies that have billions on their balance sheet in my opinion.

    Who is the leader of the pack? and what exactly does your “pack” cover?

Comments are closed.