A Perfect Storm

For better or for worse, there's a very unique feeling when everything goes completely according to plan yet nobody seems to care or notice. Such is the case with our favorite company of the moment, Tesla Motors. For those unaware, TSLA has rocketed upwards since its Q1 earnings release, mostly the result of the auto industry's biggest short squeeze since the VW/Porsche debacle, and currently sits at about $90 and a $10+ billion valuation. While I wish I could spend all night listing the million and one reasons why nothing has changed with this company except for its obscene price tag, I have no incentive to really do so, but my investors know and can be assured that everything we have predicted for this company has been 100% spot on. So, for their benefit, I will recap and add to the observations that have kept this business from ever really accomplishing anything close to worthy of its current valuation.

With the latest earnings, Tesla seemingly fulfilled its promise that it would achieve "full profitability," whatever that was supposed to mean, when it reported an approximately $11M net income on the wings of $6M in foreign exchange gains and a $10M non-cash reversal of the liability they were carrying associated with the DOE's future right to buy shares of the company. Tesla said they delivered approximately 4900 cars in the quarter, which net of credits, put their average price tag in the mid $90K range... still significantly higher than the base price on the higher-capacity battery Model S offering. Tesla said in their news release that they earned about $68M in 100%-margin regulatory credits sold to other car companies, and came away with a total gross margin in the 17% area.

In the end, by just about anyone's accounting standards, Tesla (and to their credit, they did admit it) had an operating loss of about $6M, but was able to record a profit on the back end with the $17M total in other one-time income. It's truly wild that they wouldn't have the visibility to inform their investors that their profitability would be contingent on these two things - the warrant reversal and unexplained foreign exchange gains that haven't shown up in previous quarters - but Tesla is not very big on transparency.

Speaking of transparency, the one thing we were certain of what Tesla's cessation of disclosing its reservation numbers (the equivalent of a backlog, and the only way to gauge the demand in the marketplace for Tesla's Model S) and cancellations, which management cited as no longer being important metrics to track. Not only would it be beyond comprehension that Tesla doesn't track them anymore, there's serious questions that need to be raised whenever a company stops reporting a number. Normally this is done because it is no longer good... so we have to ask, if demand is so great then why wouldn't they at least provide us with whatever newer metric they are using to gauge Model S popularity? And how do you know how many cars you're going to need to match supply to demand now? These answers should be obvious for management, and for our purposes it's fairly clear why they would stop reporting it. They've been working through their backlog much faster than it's been getting rebuilt. Beating their internal expectations of 4500 cars in Q1 is truly irrelevant, as all that they needed to do was make as many cars as they could and they could sell them given this is the first time their customers can actually get the car. We will see in the next few quarters whether or not that will continue to be the case. My guess is it won't.

Tesla also quietly lowered their guidance and tipped us on weak North American demand when CEO Elon Musk referred to the importance of pushing cars out to Europe to penetrate international markets. Now my question to you is, what car companies are ignoring demand in the US to focus on Europe right now?! Probably one who doesn't have much going on in the way of demand right now. Q2's delivery target is 4500 (when will they be on pace for their 20,000... or now 21,000 with recent revision upward?) and management qualifies this lower number by explaining that a chunk of Model S production will be shipped to Europe rather than delivered and recognized in Q2. This is beyond odd and gods unnoticed amid the glaring optimism we're seeing in the market right now, especially for Tesla.

Another observation: Tesla continues to misrepresent themselves in ways that are very strange for any honest management team. Tesla claimed $68M in regulatory credits in the first quarter and continued to hammer home that those ZEV (zero emission vehicles) credits will not be counted in their 25% gross margin guide for the end of 2013. They continue to mention these credits and how they will expect to decline, yet the $68M routinely referenced is a fairly significant understatement. Buried in the quarterly filing is a line nothing that "other credits" totaled $17.1M for the quarter, giving us a true total credits revenue of $85M. While analysts and investors were likely excited to see the Model S finally gross profitable on a per car basis (coming in at ~5% ex-ZEV credits), the truth of the matter was that backing out the full $85M in credits as we should still puts the Model S slightly in the red on a per car sales basis. Put simply, this car company still cannot make money by selling its cars, and that's something that hasn't even shown much of a sign of improvement at all. We continue to wait, but all signs point the way we've been looking lately.

To keep it short, the fact of the matter is that no fundamental change in this business has occurred, and if it has, then it certainly was a negative fundamental change. The only issue betting against a business like this is properly monetizing it. Fortunately for us, as we mentioned before, using a long-dated options approach that removes the short-term volatility and ridiculous short interest/cost of borrow, we are able to sit back and enjoy the ride for another 2 years and see how long the government-funded charade can continue. Who knows, maybe some day we will see an actual update on the business that shows legitimate progress. I have a hard time believing it, but I'm always open to changing my thesis... unfortunately for Tesla in this situation, it certainly has done nothing to change my mind.

I'll follow up with more in the next day or two. Stay tuned.

Comments (72)

May 16, 2013

Same for SolarCity. Goldman is putting $500 MM and the stock is up 200% since Dec. 2012 (it's up 10% today).

May 16, 2013
companion:

Same for SolarCity. Goldman is putting $500 MM and the stock is up 200% since Dec. 2012 (it's up 10% today).

Rode LDK, YGE, and SPWR down for a bit. Thinking about shorting it all again.

May 16, 2013

Awesome series and great analsis!

Quick question in terms of monetizing the thesis. You mentioned long dated options, but how do you decide which strike prices give you the best bang for buck? Do you just go for the least capital intensive (ie $18 strike)? It seems that your choice of option will have a pretty significant impact on monetizing the thesis so I'm just curious.

May 16, 2013

Interesting. Time will tell, as always :)

May 16, 2013

Woah there, sizzle chest. Are you saying those CNBC commentators don't know what they're talking about? We'll see about that, fruitcake.

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May 16, 2013
BTbanker:

Woah there, sizzle chest. Are you saying those CNBC commentators don't know what they're talking about? We'll see about that, fruitcake.

Thaaaaat's right tough guy!!

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May 16, 2013

I'm thinking it's time to buy some long-dated OTM puts, just having trouble choosing a strike price.

May 16, 2013

Posted this in the other thread too: TSLA basically admitted it was overvalued by issuing those new shares. It was a brilliant move, though. Musk is a smart man, he knows exactly what he is doing

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

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May 16, 2013

Good analysis.

I think what's fundamentally changed, however, is that their product is becoming nationally and globally recognized as one of the best automobile products ever built. The fact that they are turning a profit--even just an accounting profit--is so far beyond most upstart car companies of which virtually all fail. At the end of the day this is a growth stock--people are betting on the company long term; they're not necessarily diving into the fundamentals of the business. At the end of the day, if you put out what many have called the best car ever built you are going to get traction (no pun intended), especially in a period of artificially created (Fed inspired) near-zero interest rates, which has caused the entire stock market to grow at hyper fast rates.

May 16, 2013

Real bosses fake it till they make it

Losers bet against real bosses and take it in the teeth when their shorts get squeezed

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May 16, 2013
DCDepository:

Good analysis.

I think what's fundamentally changed, however, is that their product is becoming nationally and globally recognized as one of the best automobile products ever built. The fact that they are turning a profit--even just an accounting profit--is so far beyond most upstart car companies of which virtually all fail. At the end of the day this is a growth stock--people are betting on the company long term; they're not necessarily diving into the fundamentals of the business. At the end of the day, if you put out what many have called the best car ever built you are going to get traction (no pun intended), especially in a period of artificially created (Fed inspired) near-zero interest rates, which has caused the entire stock market to grow at hyper fast rates.

definitely agree with this

May 16, 2013

great analysis

May 16, 2013

Nice write up. All the back and forth is short vs. long, but what is a fair price? At what level would you guys be a buyer?

May 16, 2013

I remember I looked at shorting TSLA earlier after a firm I was recruiting with had it in their investor letter as a short...

I chose not to, however, because I didn't see any catalysts to bring down the price. Maybe someone can help me here... but I still don't.

I bet they produce slightly more cars next quarter, economies of scale kick in, some screwy accounting, they are still "profitable" and the market loves them more.

May 16, 2013

I mean, Tesla is producing an accounting profit and a tangible kick ass product. How many tech firms with no tangible product and no earnings have been valued at obscene sums? At least Tesla has an amazing product.

May 16, 2013

Its definitely over valued at 90 a share, but its not going to zero. No way it should have a market cap bigger than fiat when it has barely delivered any cars though.

May 16, 2013
H34D SH01:

Its definitely over valued at 90 a share, but its not going to zero. No way it should have a market cap bigger than fiat when it has barely delivered any cars though.

The stock was trading at 27 times estimates for earnings in 2016. Mr. Musk has plans to introduce a SUV that may sell for around $45,000. It is possible, but relatively improbable.

May 17, 2013
Financier4Hire:
H34D SH01:

Its definitely over valued at 90 a share, but its not going to zero. No way it should have a market cap bigger than fiat when it has barely delivered any cars though.

The stock was trading at 27 times estimates for earnings in 2016. Mr. Musk has plans to introduce a SUV that may sell for around $45,000. It is possible, but relatively improbable.

Did you just quote a P/E multiple based on 2016 earnings? 2016? Is this real life? Analyst consensus was off by a factor of 3 for the most recent quarter so citing estimates for T +3.5 yrs is beyond laughable.

May 16, 2013

Whitehat, thoughts on how to play it? Option pricing is out of control. I'm not willing to pay $20/contract for near the money puts.

May 17, 2013

Keep fighting the good fight WH, I'm long Jan 15 puts with a $30 strike price.

I could talk all day about TSLA (and I have been at work to the probable dismay of my coworkers), but the bottom line is they still need A LOT of things to go perfectly in order for them to justify a mkt cap anywhere close to what it currently is. And don't even try to make the "they should be valued like a tech company!" argument with me.

May 16, 2013

Can we all just state the obvious? "Fundamental analysis" is bullshit for many stocks. P/E ratio this, free cash flow that. It's just garbage. A nerdy fundamental view of many popular stocks is not going to make you money. You want to analyze the math? Look at your utility stocks. But arguing against a popular company's market cap and placing bets on your puts is fools gold. There are thousands of people and billions of dollars in smart institutional money out there with access to the same data, and yet the stock price is what it is. Tesla's stock isn't getting "over bought" because of inexperienced and giddy 18-year-olds with $500 E*Trade accounts. The reality is, your fundamental analysis may be "right" but it will have no bearing on whether or not you make money.

Buy the total market with 80% of your portfolio and gamble on the fun stocks with the other 20%. Enjoy the sugar rush of artificially low interest rates while it lasts. You're not going to reason Tesla's stock price down. There will come a time--maybe tomorrow, maybe in 6 months--when some negative news will come out or a large institutional investor will decide to take profits and the stock will tank. And then the naysayers will say their fundamental analysis was vindicated when, in fact, it had nothing to do with the stock's movement.

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May 17, 2013
DCDepository:

Can we all just state the obvious? "Fundamental analysis" is bullshit for many stocks. P/E ratio this, free cash flow that. It's just garbage. A nerdy fundamental view of many popular stocks is not going to make you money. You want to analyze the math? Look at your utility stocks. But arguing against a popular company's market cap and placing bets on your puts is fools gold. There are thousands of people and billions of dollars in smart institutional money out there with access to the same data, and yet the stock price is what it is. Tesla's stock isn't getting "over bought" because of inexperienced and giddy 18-year-olds with $500 E*Trade accounts. The reality is, your fundamental analysis may be "right" but it will have no bearing on whether or not you make money.

Buy the total market with 80% of your portfolio and gamble on the fun stocks with the other 20%. Enjoy the sugar rush of artificially low interest rates while it lasts. You're not going to reason Tesla's stock price down. There will come a time--maybe tomorrow, maybe in 6 months--when some negative news will come out or a large institutional investor will decide to take profits and the stock will tank. And then the naysayers will say their fundamental analysis was vindicated when, in fact, it had nothing to do with the stock's movement.

I think you lack a true understanding of what fundamental analysis is about. You think just because you can't analyze TSLA with fundamental analysis, fundamental analysis is bullshit? I agree that you can't analyze TSLA this way because TSLA is not a company that has any cash flow or any indication of what its earnings power is. Trying to apply these concepts to an example that does not allow itself to be examined this way doesn't mean that the concepts don't work. They just need to be applied in the proper setting.

May 16, 2013
HarvardOrBust:
DCDepository:

Can we all just state the obvious? "Fundamental analysis" is bullshit for many stocks. P/E ratio this, free cash flow that. It's just garbage. A nerdy fundamental view of many popular stocks is not going to make you money. You want to analyze the math? Look at your utility stocks. But arguing against a popular company's market cap and placing bets on your puts is fools gold. There are thousands of people and billions of dollars in smart institutional money out there with access to the same data, and yet the stock price is what it is. Tesla's stock isn't getting "over bought" because of inexperienced and giddy 18-year-olds with $500 E*Trade accounts. The reality is, your fundamental analysis may be "right" but it will have no bearing on whether or not you make money.
Buy the total market with 80% of your portfolio and gamble on the fun stocks with the other 20%. Enjoy the sugar rush of artificially low interest rates while it lasts. You're not going to reason Tesla's stock price down. There will come a time--maybe tomorrow, maybe in 6 months--when some negative news will come out or a large institutional investor will decide to take profits and the stock will tank. And then the naysayers will say their fundamental analysis was vindicated when, in fact, it had nothing to do with the stock's movement.

I think you lack a true understanding of what fundamental analysis is about. You think just because you can't analyze TSLA with fundamental analysis, fundamental analysis is bullshit? I agree that you can't analyze TSLA this way because TSLA is not a company that has any cash flow or any indication of what its earnings power is. Trying to apply these concepts to an example that does not allow itself to be examined this way doesn't mean that the concepts don't work. They just need to be applied in the proper setting.

I honestly wonder if people can read or if they just choose not to read. What you said is exactly what I said. I will quote for you:

"'Fundamental analysis' is bullshit for many stocks. P/E ratio this, free cash flow that. It's just garbage. A nerdy fundamental view of many popular stocks is not going to make you money. You want to analyze the math? Look at your utility stocks."

If you want to go to Harvard you're going to have to learn to read a little bit better than this.

May 17, 2013
May 17, 2013

I'm new to the site and can't post links yet but if anybody is looking for a laugh, check out this guy's reasons why the TSLA short sellers are wrong. The article is one of the first links on The Street's website and is titled "How the New York Hedge Funds Lost Their Shirts on Tesla." Two of his main points are:

1.) Most short sellers are from New York and never see TSLA cars on the roads.
2.) The people who have shorted the stock haven't actually driven the car.

Gotta love financial journalism.

May 16, 2013
El Jefe:

I'm new to the site and can't post links yet but if anybody is looking for a laugh, check out this guy's reasons why the TSLA short sellers are wrong. The article is one of the first links on The Street's website and is titled "How the New York Hedge Funds Lost Their Shirts on Tesla." Two of his main points are:

1.) Most short sellers are from New York and never see TSLA cars on the roads.
2.) The people who have shorted the stock haven't actually driven the car.

Gotta love financial journalism.

Did they or did they not lose their shirts? If the fundamentals supported shorting the stock then why did they lose their shirts on those bets? Maybe they had never seen or driven a Tesla...? Maybe fundamental analysis doesn't work for every stock? Maybe what you learned in college doesn't always apply to the real world?

May 16, 2013

Fundamentals are long-term tools. It's already been proven that markets are inefficient in the short-run, hence the huge rise in behavioral finance.

Fundamental analysis is not bullshit if it is used on the proper context (including time frame) and the user of such analysis understands the limitations on it.

People are always too quick to assume a stock is undervalued relative to its peers because its P/E or P/Sales is lower. Nobody looks at it from the standpoint of the investor, which is that the earnings or sales of the company aren't as valuable for the firm trading lower, compared to the other.

At the same time, it is always tough to determine whether the stock is overvalued or its earnings/sales are not as valuable until its hindsight.

May 16, 2013
peinvestor2012:

Fundamentals are long-term tools. It's already been proven that markets are inefficient in the short-run, hence the huge rise in behavioral finance.

Fundamental analysis is not bullshit if it is used on the proper context (including time frame) and the user of such analysis understands the limitations on it.

People are always too quick to assume a stock is undervalued relative to its peers because its P/E or P/Sales is lower. Nobody looks at it from the standpoint of the investor, which is that the earnings or sales of the company aren't as valuable for the firm trading lower, compared to the other.

At the same time, it is always tough to determine whether the stock is overvalued or its earnings/sales are not as valuable until its hindsight.

You and I agree 110%. No argument from me at all.

The point I'm making is that a person can write an amazingly accurate, prescient and lengthy piece on why investors are straight up crazy to be buying a certain stock at a certain price, and yet day after day after day what occurs in the market can contradict the numbers. It's because fundamental analysis is misapplied if the behavioral aspect is not applied and if timeframes are not properly analyzed. If Tesla stock collapses, say, in 2016, it may be because the sugar rush buyers of 2013 realized that their earnings estimates were a pipe dream and will never materialize in a reasonable timeframe. So fundamental analysis may be great for certain stocks if you're willing to wait 3-5 years. But to laugh at a new popular stock's market value and to bemoan the fundamentals is to miss the point IF the goal is to make money this year or this month.

If you're an equity analyst/asset manager and you're taking the relatively small and "speculative" piece of your clients' portfolio and applying a 3-5 year timeframe using fundamental analysis you're probably doing them a disservice in the same way that you'd be doing them a disservice to purchase 30-year municipal bonds with the speculative piece of their portfolio.

May 17, 2013
DCDepository:

You and I agree 110%. No argument from me at all.

The point I'm making is that a person can write an amazingly accurate, prescient and lengthy piece on why investors are straight up crazy to be buying a certain stock at a certain price, and yet day after day after day what occurs in the market can contradict the numbers. It's because fundamental analysis is misapplied if the behavioral aspect is not applied and if timeframes are not properly analyzed. If Tesla stock collapses, say, in 2016, it may be because the sugar rush buyers of 2013 realized that their earnings estimates were a pipe dream and will never materialize in a reasonable timeframe. So fundamental analysis may be great for certain stocks if you're willing to wait 3-5 years. But to laugh at a new popular stock's market value and to bemoan the fundamentals is to miss the point IF the goal is to make money this year or this month.

If you're an equity analyst/asset manager and you're taking the relatively small and "speculative" piece of your clients' portfolio and applying a 3-5 year timeframe using fundamental analysis you're probably doing them a disservice in the same way that you'd be doing them a disservice to purchase 30-year municipal bonds with the speculative piece of their portfolio.

I'd love to see you have a conversation with Warren Buffett re: why fundamental analysis is bullshit. I'll await your uproarious reply where you say, "I said many stocks, and Buffett invests in those stocks which fall outside the definition of 'many'." And you might be right, but on what basis, then, should an investor buy a stock irrespective of financial considerations? There's a reason why Buffett doesn't chase these pipe dream companies.

Are you serious? Putting institutional money to work on 3-5 yr horizon investments is a disservice to investors?? Please do explain.

May 16, 2013

.

May 17, 2013

Let me clarify: you said fundamental analysis is bullshit for most stocks. I'd argue that TSLA and similar companies fall in a very small bucket compared to the rest of the investment universe. Therefore, fundamental analysis is actually appropriate for most positions.

May 16, 2013
HarvardOrBust:

Let me clarify: you said fundamental analysis is bullshit for most stocks. I'd argue that TSLA and similar companies fall in a very small bucket compared to the rest of the investment universe. Therefore, fundamental analysis is actually appropriate for most positions.

What? I said "many" stocks. Where are you getting "most"??? Honestly, brother. You've got to READ what is written, not interpret what is written any way you wish.

May 16, 2013
NorthSider:

I don't know whose money you are managing in the equity markets, but if your L/S investment mandate bars investment theses that play out over 3-5 years, I submit that you have no real place responding to WhiteHat's pitch. I don't know that I would have taken the short at $40-50/shr. (though I'd certainly consider it), but at $90/shr., it's just indefensible. And if your best retort is "some stocks trade at indefensible valuations in the short- to medium-term", sign me up to take the other side.

Once again, it's like you're purposely misreading or not reading what I've said. I clearly indicated--at least twice now--that if you had a client or clients who were demanding high returns, high risk investments or if you had small portions of a client's portfolio that was demanding high risk, high return investments you wouldn't buy 30-year municipals and you wouldn't analyze Tesla or other stocks on a 5-year basis necessarily. I stated that clearly and you clearly ignored that. But whatever helps you make your argument.

May 17, 2013
DCDepository:
NorthSider:

I don't know whose money you are managing in the equity markets, but if your L/S investment mandate bars investment theses that play out over 3-5 years, I submit that you have no real place responding to WhiteHat's pitch. I don't know that I would have taken the short at $40-50/shr. (though I'd certainly consider it), but at $90/shr., it's just indefensible. And if your best retort is "some stocks trade at indefensible valuations in the short- to medium-term", sign me up to take the other side.

Once again, it's like you're purposely misreading or not reading what I've said. I clearly indicated--at least twice now--that if you had a client or clients who were demanding high returns, high risk investments or if you had small portions of a client's portfolio that was demanding high risk, high return investments you wouldn't buy 30-year municipals and you wouldn't analyze Tesla or other stocks on a 5-year basis necessarily. I stated that clearly and you clearly ignored that. But whatever helps you make your argument.

Forgive me, but I am under the impression that the quoted portion responds directly to your point...

Why, exactly, would your LPs be upset at you for shorting a company that you believe is overvalued by >2.5x via long-dated options?

May 16, 2013

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May 17, 2013
WhiteHat:

everything we have predicted for this company has been 100% spot on.

Except for the most important thing: where the stock was headed. You shorted at about 35, if I remember correctly. Honestly, this series of posts just reek of arrogance and I can't believe I'm the first one to call you out on this.

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May 17, 2013
SirTradesaLot:
WhiteHat:

everything we have predicted for this company has been 100% spot on.

Except for the most important thing: where the stock was headed. You shorted at about 35, if I remember correctly. Honestly, this series of posts just reek of arrogance and I can't believe I'm the first one to call you out on this.

Yeah, I agree with this, though I've been supporting WH in this thread. I'm short at $90, but layering on short positions at $35-50 valuations seems preemptive, at best. I don't think this post reeks of arrogance, but rather of someone that's trying to reconcile his thesis with a position that is moving dramatically against him. I think the market has proven his timing to be wrong. But I'd still give his thesis a few more quarters to play out. I realize this violates the good tenants of shorting stocks, but I don't think the thesis is deserving of quite so much disdain.

May 17, 2013
NorthSider:
SirTradesaLot:

WhiteHat:
everything we have predicted for this company has been 100% spot on.

Except for the most important thing: where the stock was headed. You shorted at about 35, if I remember correctly. Honestly, this series of posts just reek of arrogance and I can't believe I'm the first one to call you out on this.

Yeah, I agree with this, though I've been supporting WH in this thread. I'm short at $90, but layering on short positions at $35-50 valuations seems preemptive, at best. I don't think this post reeks of arrogance, but rather of someone that's trying to reconcile his thesis with a position that is moving dramatically against him. I think the market has proven his timing to be wrong. But I'd still give his thesis a few more quarters to play out. I realize this violates the good tenants of shorting stocks, but I don't think the thesis is deserving of quite so much disdain.

I don't even know how you recover from being down 200%

May 17, 2013
NorthSider:

someone that's trying to reconcile his thesis with a position that is moving dramatically against him. I think the market has proven his timing to be wrong.

sometimes, that's called falling in love with a position. If someone has a stock go from 35 to 90 and they're short, there should be some recognition that they made a mistake. I could see LPs getting kind of irritated that the explanation says nothing about the fact that shorting the stock was a mistake and there was an error in the analysis. The fact is, 45% of the shares were being sold short, which is unsustainable and is ripe for a squeeze. If I was an LP, I would want to know that a fact like that would be given a much stronger consideration the next time around.

Humility means being able to admit when you're wrong. The clients lost money. It was the biggest short position in the portfolio and there was a mention of being more confident than ever when the stock was around 50 (right before it exploded to 90). This is not good, no matter how well written the posts were. The herd has been shorting this name and the call was epically wrong. Everyone is wrong sometimes, but you should admit where you were wrong or you will never improve. That's what I think reeks of arrogance.

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May 18, 2013

it's very possible (through sucking off the US government's teet long enough of course) that tesla develops something that is sustainable in the long run. conversely, just because it doesn't go to zero doesn't mean bears can't make money off it. any stock that has a crazy run like this is almost guaranteed for a correction; let's just see if you're good enough to time it

May 16, 2013

The lesson to be learned here is that timing is everything. WhiteHat and his firm chose the wrong time to short the stock and because of it are getting screwed regardless of whether the short thesis actually works out. Doesn't matter if you were right if you lost your shirt in the process.

May 17, 2013
H34D SH01:

The lesson to be learned here is that timing is everything. WhiteHat and his firm chose the wrong time to short the stock and because of it are getting screwed regardless of whether the short thesis actually works out. Doesn't matter if you were right if you lost your shirt in the process.

Look, his timing was terrible, but you guys are being a bit preemptive in saying that he is "screwed regardless" and that he has "lost his shirt". He bet using LEAPs, which inherently limit his downside. Luckily for him, he still has two more years for his thesis to play out.

May 19, 2013

Just want to point out that the fundamentals *have* changed since $35, though not by nearly enough to justify the run to $90. Plenty of smart money was short at $35 and covered between $40-50 (them's the ropes) when two things happened:

- TSLA raised equity again
- TSLA met its production targets

Insufficient end market demand and an impossible Gen 3 is still the long-term case, but there were good catalysts for the short late last year that have now gone away. Normally a dilutive equity raise isn't such a great thing, but they were able to get it done and it covered the 2013 financing gap and meant the company wasn't going bankrupt in 2 quarters. Separately, there was some real skepticism they could actually produce 400 cars/week on anything like a normal labor cost, but they did manage to scale up effectively.

Now that they've raised more cash at an inflated valuation, I'd be wishing those puts were a few years further out - it'll take more time to burn through another billion dollars, and maybe they'll even get some return on that capital - it would be naive to assume it will be 100% wasted just because it's an annoying, overhyped, non-transparent company.

May 19, 2013

WhiteHat / BlackHat make a good case for why the long term might not work out here, but there seems to be a little bit of inability to admit some poor decision making. Yes, yes - I understand that with LEAPS the long-dated vol will prop your put price, but the fact is Jan 2015 $18 puts are substantially cheaper today than they were back in March when WhiteHat was adding to his position.

A good rule about shorting -- you need to do it ahead of catalysts; everybody knows this (including brothers Hat). And WhiteHat thought that he was going to get some with abysmal earnings, which is why he was ramping in the past 2 months, and not waiting until after earnings. I haven't analyzed TSLA myself, but I can tell that WhiteHat's analysis of the earnings result isn't unique, b/c the company was agreeing to a lot of his points on the call (as he noted), and yet the market still took the stock sky high. So that means that the bulls are aware of his concerns, but still seeing something worthwhile here from the results; if you don't address what that is, you're being biased.

Bottom line, no matter what's being said, there was a fuck-up here, and any LP (or PM) would be pissed to hear otherwise.

As I recall, one of the major short theses was the need for a dilutive capital raise as the company ran out of cash -- well, yeah you got that (sort of), but pretty sure that an extra $1bn of capital (w/ equity at $90 and a convert with a 35% premium to pay off the DOE loan which probably wasn't expected) just made the idea of the company having a liquidity crisis anytime soon a lot more remote. (And by the way, those are all investors who are willing to buy in at the new price, not short covers, since that's not allowed via sec regs)

I'm guessing this is a good lesson for all the aspiring hedgies on this board, and one you'll notice as you join the investment community -- there are lots of really smart guys around, with great pedigrees, great track records, the ability to talk your face off, and yet they will still all make mistakes. Think for yourself...

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May 19, 2013
xqtrack:

WhiteHat / BlackHat make a good case for why the long term might not work out here, but there seems to be a little bit of inability to admit some poor decision making. Yes, yes - I understand that with LEAPS the long-dated vol will prop your put price, but the fact is Jan 2015 $18 puts are substantially cheaper today than they were back in March when WhiteHat was adding to his position.

A good rule about shorting -- you need to do it ahead of catalysts; everybody knows this (including brothers Hat). And WhiteHat thought that he was going to get some with abysmal earnings, which is why he was ramping in the past 2 months, and not waiting until after earnings. I haven't analyzed TSLA myself, but I can tell that WhiteHat's analysis of the earnings result isn't unique, b/c the company was agreeing to a lot of his points on the call (as he noted), and yet the market still took the stock sky high. So that means that the bulls are aware of his concerns, but still seeing something worthwhile here from the results; if you don't address what that is, you're being biased.

Bottom line, no matter what's being said, there was a fuck-up here, and any LP (or PM) would be pissed to hear otherwise.

As I recall, one of the major short theses was the need for a dilutive capital raise as the company ran out of cash -- well, yeah you got that (sort of), but pretty sure that an extra $1bn of capital (w/ equity at $90 and a convert with a 35% premium to pay off the DOE loan which probably wasn't expected) just made the idea of the company having a liquidity crisis anytime soon a lot more remote. (And by the way, those are all investors who are willing to buy in at the new price, not short covers, since that's not allowed via sec regs)

I'm guessing this is a good lesson for all the aspiring hedgies on this board, and one you'll notice as you join the investment community -- there are lots of really smart guys around, with great pedigrees, great track records, the ability to talk your face off, and yet they will still all make mistakes. Think for yourself...

+1

May 19, 2013
xqtrack:

there seems to be a little bit of inability to admit some poor decision making.

The thing you're missing though is that you need to have conviction. You need to pick a side and never look back. You can't just be flip flopping all over the place. Even if returns go to -5000%, you absolutely need to stand your ground and speak with clarity and conviction, not faltering even the slightest amount.

    • 1
May 16, 2013

What?!? Not true at all, thats a great way to lose a lot of money. If returns go to -50% its time to rethink the thesis and catalyst to make sure it is still true. At -5000% you're delusional.

May 17, 2013
Going Concern:
xqtrack:

there seems to be a little bit of inability to admit some poor decision making.

The thing you're missing though is that you need to have conviction. You need to pick a side and never look back. You can't just be flip flopping all over the place. Even if returns go to -5000%, you absolutely need to stand your ground and speak with clarity and conviction, not faltering even the slightest amount.

I dunno man. I think knowing when to admit your wrong is a huge skill because obviously you're not going to win every battle...

May 16, 2013
Going Concern:
xqtrack:

there seems to be a little bit of inability to admit some poor decision making.

The thing you're missing though is that you need to have conviction. You need to pick a side and never look back. You can't just be flip flopping all over the place. Even if returns go to -5000%, you absolutely need to stand your ground and speak with clarity and conviction, not faltering even the slightest amount.

This dogmatic bullshit will lose you a lot of money. You need to be intellectually honest and recognize the limits of your own predictive ability.

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

May 16, 2013
Going Concern:
xqtrack:

there seems to be a little bit of inability to admit some poor decision making.

The thing you're missing though is that you need to have conviction. You need to pick a side and never look back. You can't just be flip flopping all over the place. Even if returns go to -5000%, you absolutely need to stand your ground and speak with clarity and conviction, not faltering even the slightest amount.

Bruce Kovner is laughing out loud at this comment.

May 17, 2013
Going Concern:
xqtrack:

there seems to be a little bit of inability to admit some poor decision making.

The thing you're missing though is that you need to have conviction. You need to pick a side and never look back. You can't just be flip flopping all over the place. Even if returns go to -5000%, you absolutely need to stand your ground and speak with clarity and conviction, not faltering even the slightest amount.

I thought this was pretty obvious sarcasm. I'm surprised so many people don't see that.

May 23, 2013

I am no expert on Tesla and believe a short is probably the no-brainer at these levels (never look at non European stocks) but isn't this statement stretching the facts a little too far?

"Tesla also quietly lowered their guidance and tipped us on weak North American demand when CEO Elon Musk referred to the importance of pushing cars out to Europe to penetrate international markets. Now my question to you is, what car companies are ignoring demand in the US to focus on Europe right now?!"

European despite our economic rut is still a market where quite a few cars are sold but regardless, the above line of reasoning seems to be packed with confirmatory bias

1percentblog.com

May 25, 2013

Cinderblock Capital, now that's a fund I would invest in.

May 16, 2013
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Sep 9, 2013
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Snootchie Bootchies

Oct 23, 2013
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