Musk’s Secret Conference Call; Invitation To Parties

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Whitney Tilson’s email to investors discussing his invitation to his two parties at the Berkshire meeting; Kraft Heinz EBITDA vs. cash flow; follow-up on Tesla and Musk’s secret conference call.

I try to get my emails out by 4pm daily, but sometimes I get tied up. Today a video team was in town doing a promo film that will be part of my new newsletter that’s launching next month, and we were filming all over the city. They wanted a shot of me with the Statue of Liberty in the background, so we hopped on the Staten Island Ferry. It’s a beautiful ride that goes fairly close to the statue – and it’s free! Who knew? The best bargain in NYC! Here’s a pic (fortunately you can’t see my blue lips and chattering teeth – it was so cold!):

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Q4 hedge fund letters, conference, scoops etc

Whitney Tilson

1) On May 4 (eight weeks from Saturday) I will be attending my 22nd consecutive Berkshire Hathaway annual meeting. If you're going to Omaha that weekend (which I highly recommend!), I'd like to invite you to two parties I’m hosting on Friday evening and Saturday afternoon.

They are free, open to all, and will take place in the St. Nicholas Room (2nd Floor) at the Hilton Omaha, right across the street from the CenturyLink Center where the meeting is held:

1) My annual cocktail party from 8pm-midnight on Friday, May 3rd. No agenda, no speeches, no dress code – just come, enjoy the drinks and snacks, and meet other value investors.

2) A casual get-together immediately following the annual meeting (~3pm) on Saturday, May 4th. It will end at 6pm.

To RSVP for either/both of these events, please click here.

I hope to see you there!

2) I’m quoted in this story in today’s WSJ by Michael Rapoport about what I wrote about in two emails a week and a half ago about the big divergence between Kraft Heinz’s (KHC) Adjusted EBITDA vs. operating cash flow. Has Kraft Heinz Made $24 Billion Since Merger or $6 Billion? It Depends. Excerpt:

The problems Kraft Heinz Co. disclosed last month are shining a light on another concern: the company’s tailored financial metrics that help make its results look better.

Since the 2015 merger that created Kraft Heinz, the packaged-food company has reported adjusted operating earnings totaling more than $24 billion. But reported cash flow from operations under standard accounting rules for that same period was only about $6 billion.

… “Obviously, any wide discrepancy is a warning flag,” Whitney Tilson, an author and former hedge-fund manager, said in a recent interview. Mr. Tilson called Kraft Heinz “a melting ice cube—the only question is how rapidly it’s melting.”

3) My call on Tesla in yesterday’s email got quite a bit of press:

  • Tesla will shed more than 66% this year, predicts former hedge-fund manager, MarketWatch
  • Tesla is 'out of bullets' and will plunge below $100 this year, former hedge-fund manager Whitney Tilson says, Business Insider
  • Whitney Tilson: Tesla Shares Will Breach $100 By Year's End, Benzinga

4) It also led to some great feedback and discussions. Two of my readers had an interesting debate whether Tesla’s demise would impact other unicorn stocks:

Reader 1: I have to say I’ve been TSLA this from a distance.  Aware of the magnitude of the possible scam, but also experienced enough to know these take time, then go all at once (to paraphrase Ernest Hemingway).

Second order impact of TSLA blowing up will be huge.  Similar to Enron/Worldcom.  Suddenly, everyone doubted everything when the wonderboys of the early 2000’s were revealed to be frauds.  Junk absolutely blew up, with Worldcom bonds going to 0.  Energy was a mess for over a year sorting out the pieces. I had MLP and EP exposure that wasn’t fun to ride down.

How many $1bb+ unicorns will come public or be able to raise more cash?  WeWork, Softbank, VC’s, endless lists of vaporware companies with nosebleed valuations.

You think anyone will do the Uber/Lyft IPOs in that environment?  That window will be shut for years (unless valuation is realistic)

Ugh.  I feel sorry for the retail crowd.  Not an ounce of pity for the Wall St/California fools locked in.  They should know.

Reader 2: I STRONGLY disagree. TSLA blowing up won’t mean sh*t…

Enron/WCOM happened during the unwind of the internet bubble. The “unicorn” bubble is NOWHERE near the same size and has relatively little in common.

TSLA blows up and no one will ultimately care…

Reader 1: Well, that makes a market.

But I have several friends who hold Elon at near-godlike status for what he has achieved (or they think he has achieved) in car innovation and especially space innovation.  Generally, people don’t react well to their gods being proven mortal or non-existent.  (Imagine if Buffett had ever been caught in unethical behavior that made him look dishonest.)

And to think Tesla can blow up and be the only victim is doubtful….kind of naïve really.  That’s why I used both Enron and Worldcom as examples.  Very different industries, different scandals but one followed the next because once one scandal is public it’s much easier for people to accept that others are “doing it too.”

Similarly, after Madoff several other multibillion Ponzi schemes were suddenly ‘discovered’ after running for years.

Or as Charlie Munger might say “When the cops raid the whorehouse even the piano player goes to jail!”

Final point.  How many hundreds of billions in value is supported on nothing more than belief in the unicorns at some point in the future being very profitable, or worth a lot to someone else?  If $100B of that disappears because valuations become anchored to some kind of real numbers, it’s a loss on someone’s balance sheet.  Matters not if it’s public or private, a loss is a loss.

I don’t want any of my predictions on second-order impacts to come true.  As I said, I actually lived and traded my way through Enron and Worldcom.  It was awful, a friends energy company blew up and was ruined (Enron had sold them hedges that were worth nothing when it filed for bankruptcy).

It’s been an entire generation now that hasn’t had to deal with a huge scandal, and a straight up market the past 10 years has supported all companies; good and bad.

We’ll see.

5) Here’s Anton Wahlman on Musk’s secret conference call and selective disclosure: The Secret Tesla Conference Call To Which You Were Not Invited. Excerpt:

  • Tesla hosted a very secret conference call in conjunction with its Thursday announcement about $35,000 Model 3 and closing most of its stores.
  • A transcript of this secret call has found its way into the public domain. I provide links to it. You were not supposed to read or hear this.
  • Tesla gave new profit and loss guidance, as well as contradicted its written $35,000 Model 3 delivery estimate - June instead of 2-4 weeks from now.
  • Asked about the $35,000 Model 3 profit margin, CEO Elon Musk said “we’re not going to answer questions like that.”.
  • However, the report from the Deutsche Bank report merely hours thereafter says that Tesla provided precisely this guidance to them privately.

6) Good to see Musk – finally – admitting that the secret call was a “mistake” – though he blames “Tesla comms”:

Musk tweet

7) A good piece of sleuthing by Paul Huettner: in this tweet, he reveals that J.B. Straubel, Tesla’s Chief Technical Officer and Musk’s right-hand man, exercised options and dumped the stock right before Musk’s disclosures last week that tanked the stock:

Another $TSLA Executive selling shares just hours before news hits and stock crashes. Almost like major stock pumps are done intentionally so JB, Deepak, etc. can sell their shares via 10b5 plans that have predetermined sell dates at higher prices??

8) In yesterday’s email, I wrote that to understand the bull case on Tesla, “just pick up pretty much any analyst report.” In response, one of my readers made a fair point: “Bloomberg shows 13 buys, 7 holds, and 15 SELLS!! That has to be one of the more bearish analyst outlooks for any stock, particularly one of this market cap.”

9) Model 3 sales in China aren’t going to save Tesla: China suspends customs clearance for Tesla Model 3 imports. Excerpt:

China’s customs authority has suspended customs clearance procedures for Model 3 cars built by Tesla Inc, the financial publication Caixin reported on Tuesday.

The report said the customs authority in Shanghai had found various irregularities in 1,600 imported Model 3 cars, including the improper labeling of the vehicles.

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