Whitney Tilson’s email to investors discussing his bet is up to $15,000; Tesla Inc (NASDAQ:TSLA)’s May sales and prospects in China.
1) Another reader (new to this list) took my bet to benefit charity that I offered a couple of month ago (click here and here for details), in which I’m betting that Tesla won’t report a GAAP net income positive quarter this year.
Q1 hedge fund letters, conference, scoops etc
Originally, 11 people wagered $3,850 and Andrew Left took the balance of $10,000 that I was willing to wager ($6,150).
Since then, I think the odds have shifted even more in my favor, so I was delighted to take another $5,000 of action from another guy, so my total exposure is now $15,000 – which will either go to my favorite charity, KIPP charter schools in NYC, or the favorite charities of my 13 counterparties…
2) A friend’s comments on Tesla's May sales and prospects in China:
For the month of May, there are plenty of huge uncertainties, including China, the U.S. and Canada. Those three countries will be the ones to swing it up or down materially. (We have pretty good indications for many of the important European numbers.)
I currently believe Tesla will sell at least approximately 18,000 Model 3 units in the month of May, but it could easily be larger (and for that matter, smaller too). I think the probability of the number being revised upwards, is higher than it being revised downwards.
The important thing to understand is that any Tesla sales number is NOT reflective of profits. Selling a larger number of low-margin cars at lower prices simply means that the losses on the income statement could swell further.
As for Tesla in China, the important thing to understand is that Tesla is very much in a vulnerable and captive position. Maybe it will work out well -- but if the Chinese government wants to make life difficult, there is no shortage of ways to ensure Tesla never makes a dime in China.
For starters, remember that Tesla’s China factory loan comes due in February. It was a one-year loan.
Secondly, Tesla will be almost exclusively dependent on Chinese suppliers. Something could suddenly cost more or get lost/delayed.
Maybe the Chinese are only being nice to Tesla right now, helping to set up the factory quickly so that it can take the technology and copy it quickly elsewhere in the country – and then after they’ve done so, the Tesla factory might get hit with a sudden hiccup that prevents it from producing…
Maybe it won’t work out that way, but consider for a moment if it is in China’s interest to let Tesla make meaningful profits in China.
Look at what is happening to many, most, or just about all foreign automakers right now in China. They’re getting the squeeze. In subtle ways, you are seeing their profits shrink and in many cases turn into outright losses.
I don’t know what will happen to the outcome of a political risk analysis regarding Tesla in China. Maybe it will somehow all work out fine. The building remains under construction. When this story comes to a reasonable conclusion, perhaps around February of 2020, we will start to see how the story will play out.
Between now and then, I don’t expect anything but smiles and construction progress. No showing of hands -- yet.
For the investor, I think it looks like this:
Alternative 1: Tesla's China factory continues to be owned by Tesla, and starts to produce cars. Tesla makes little or no profits, probably a loss.
Alternative 2: Tesla's China factory becomes a pawn in the new geopolitical conflict. At that point, all bets are off.
It seems to me that the Tesla investor’s odds in China are slim at best.
