Whitney Tilson’s email to investors discussing Morgan Stanley and Citi; Tesla Inc (NASDAQ:TSLA) will definitely absorb SolarCity debt; Apple is NOT going to buy Tesla; Nor is SolarCity.
1) Attached is the MS report from yesterday. Excerpt:
Investment strategies used by hedge funds have evolved over the years, although the biggest changes have come in the use of computers to develop portfolios. Rosetta Analytics is a woman-founded and woman-led CTA that's pioneering the use of artificial intelligence and deep reinforcement learning to build and manage alternative investment strategies for institutional and private Read More
Risk of contagion to fundamentals? We have long held that Tesla’s share price performance is driven by: demand for its products, ability to generate cash flow, and access to capital markets. This year’s sharp deceleration in demand has led to a substantial curtailment of the company’s ability to self-fund through free cash flow generation, at the margin potentially impacting the firm’s access to capital. Tesla’s recent $2.7bn equity and convertible debt raise may provide an extra year of liquidity to run a business of this size and cash consumption. However, Tesla may now find itself in a cycle where a lower share price may itself contribute to a potential deterioration of employee morale as well as potentially increased counterparty risk with both customers and business partners (suppliers, governments)… potentially further impacting fundamentals. See our April 8th, 2019 report: Could Negative Tesla Market Sentiment Affect the Business Itself? Price Target to $240.
And the Citigroup analyst said that TSLA is still a Sell andHigh Risk on several concerns
2) Here is a promise Elon Musk probably wishes he never made (currently this debt is trading north of 12 percent):
Tesla will def absorb SolarCity debt. Altho extremely unlikely, I would pay it personally if need be. Debts must be honored.
— Elon Musk (@elonmusk) November 5, 2016
3) I can’t believe anyone is falling for the oldest scam in Wall Street’s playbook: when you’re getting hammered in a stock, make up a rumor that some big company (in tech, often Apple or Microsoft; old economy, the go-to is typically Buffett) is going to swoop in and buy your gigantic turd at a big premium. It’s usually done anonymously or, in this case, by the third-tier broker.
Here’s the latest in this sorry line, by an analyst at Roth: Apple bid to buy Tesla in 2013 for $240 a share, analyst says.
What a joke!
As the Morgan Stanley analysts point out, why would Apple put itself on the hook for virtually unlimited liabilities associated with Tesla’s reckless promotion of Autopilot, which has killed a number of Tesla drivers (whatever you think of the merits of the cases, the liabilities are huge).
And this article does a nice job rebutting this foolishness: Apple to buy Tesla? Is Tim Cook on autopilot? Excerpt:
The most dangerous strategy for highly successful companies is to throw spaghetti at a wall and hope some sticks. Tesla is by no means an overnight repair job. It needs the skills of Toyota to turn it around. Don’t forget Apple has no manufacturing expertise as its products are all built by 3rd parties.
4) Even more preposterous is the speculation that SpaceX will acquire Tesla. Here are some comments from friends:
The fascinating part of this though is the talk around SpaceX as an acquirer, albeit at much lower prices. Why do people assume that is worth $30 Billion? They did a $275 MM raise mainly by Elon and insiders. It might as well be worth a Trillion. I have no actual info, but, from what was reported in media around then, SpaceX actually burns cash. They were only cash flow positive when they assumed all forward payments for launches were realized in the current year. If I had to guess, SpaceX is or soon will also be scrambling for cash soon too.
I know very little -- practically nothing -- about the SpaceX business, let alone technology. However, this much seems to be clear: They wouldn't be scrambling to raise tiny amounts of money mostly from insiders who are trying to avoid having to mark down their existing investments, if they had a real business with financials that could attract new and larger money.
Farting around with $250 million here, $500 million here, once or twice a year, from insiders who seem to be behaving like Softbank in the Uber pre-IPO months/weeks, is hardly a sign of a business whose financials could withstand public examination.
So, while I couldn't tell a rocket from an Oklahoma grain silo, I suspect that the rumor of SpaceX's magnificence is much exaggerated.
Remember they laid off around 10% of their workforce in January. Hardly a sign of prosperity, profits or sufficient deficit funding.
SpaceX is EBITDA negative. One interesting tidbit: SpaceX’s docking systems use lidar.