Long TSLA

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Make sure to see Whitehat's response inside the thread

Unlike WhiteHat ( "TSLA Taxpayers Stuck with Lifeless Assets" and "10 Facts/Headscratchers from the Ongoing TSLA Saga"), I’m a big fan of Tesla Motors.

Why I like Tesla:

Tesla has followed a typical learning curve - Tesla began in 2003 by taking stock Lotus Elise’s and converting them into fully electric vehicles. Essentially a proof of concept, the car’s purpose was to show the world that an electric vehicle could be sexy and fast.

Fast forward to today; the roadster has been put out to pasture and the Model S is the new flagship. So far the sedan has received both rave reviews (Motor Trends 2013 car of the year) and media criticism (New York Times), but every single driver (including me!) will tell you the same thing: the car itself is phenomenal. It is leaps and bounds better than the Roadster and still less expensive.

The model X, due out in 2014 (pushed back to “focus on 2013 profitability”) is designed to follow the same path.

Tesla sells energy at a profit – Clearly the supercharger network is still in its infancy: There aren’t enough stations to take care of the existing Tesla customers let alone a nation dominated by EV’s, and it takes far too long (>1 hour) to charge a Model S to capacity. That said, more supercharger stations are being installed regularly, and as battery technology improves (According to U.S. Energy Secretary Chu, costs for a 40 mile range battery will drop from a price in 2008 of $12K to $3,600 in 2015 and further to $1,500 by 2020: http://www.reuters.com/article/2012/01/11/us-autoshow-batteries-idUSTRE80A1FA20120111) the frequency and duration of charges will decrease substantially.

Furthermore, the supercharger networks are Solar Powered, with parts and labour supplied by sister company SolarCity, so any excess energy is sold back into the grid at a profit.

Tesla has partnered with industry leaders – Rather than trying to take the 900 pound gorillas head-on, Tesla has elected to partner with them. Daimler, Toyota, and Panasonic have all invested 10’s of millions of dollars in Tesla, and Toyota jointly developed their new Rav4 with Tesla. Tesla sells advanced powertrains to Daimler and Toyota. When major players in the industry are coming to a small player for engineering assistance, you know they are doing something right.

The CEO is a genius - For those who don’t know, serial entrepreneur Elon Musk is at the helm. Armed with a degree in business from Wharton and another in Physics from Penn, past successful ventures include:

Zip2 – online content publishing software for news organizations (sold for $340 million when Musk was 28).

Paypal – online transaction processing system (sold for $1.5 billion 3 years after the Zip2 sale)

Along with Tesla, Musk serves as CEO of Spacex, the aerospace firm that became the first commercial launch company to dock with the International Space Station in May of 2012. Elon also provided seed capital and serves as Chairman of the Board for SolarCity (founded by his cousins Lyndon and Peter Rive), North America’s largest solar panel installation firm.

Management has a large stake in the company – It is reported that Elon himself owns 32% of Tesla, and Tesla employees own another 33%. When the company nearly went bankrupt in 2008, Elon led the investment round by offering to put up the entire $20 million that was required.

Electric vehicles are fundamentally better than their gas powered counterparts– Electric vehicles provide instant power and torque, no pollution, low repair costs, and get their energy from a renewable source. The inverse is true for internal combustion engines. Once the technology has fully matured, there is no question that the internal combustion engine, much like it’s fuel, will be a relic of the stone age.

Now, to some of WhiteHat’s points:

For what it’s worth, they expect 4,500 of Model S deliveries to come in the first quarter of 2013

And they met that goal as you note here:

Musk posts a blog on Tesla’s website just after midnight on April 1 announcing that Tesla has achieved profitability for Q1 and exceeded its company-supplied guidance of 4,500 Model S deliveries, clocking in at “over 4,750 Model S sales,”

Getting to 4,750 Q1 deliveries was a stretch for the business in one aspect or another, or in all aspects.

Agreed. They set very ambitious goals... And then exceeded them.

On the other side of the coin, an all-electric car just doesn’t meet the demands of the average Joe yet.

No, but at one time DVD players cost over $1000 and were only available in high end video stores... Now you can pick one up for 40 bucks at Wal-Mart.

However, a few things can’t be denied by anyone: Tesla has a lot of work today before they have officially proven themselves.

Agreed. The company is still very much a startup.

In order to even get remotely close to a $500/month lease payment, according to Tesla’s lease calculator, one must live in California and receive a full $13,000 EV tax credit, have a superior credit rating, be able to deduct the Model S as a business expense, value their time at a minimum of $100/hr and take advantage of EV access to the carpool lane on the highway to save several hours worth of time doing so. Also, the lessee will need to save at least 2-3 hours a month (at a rate of $100/hr minimum, again) by not having to waste time pumping gas. Tesla does not account for the fact that charging a Model S typically takes at minimum 1 hour and filling up a tank of gas takes around 10% as long. For what it’s worth, most estimates so far have the monthly rate pegged at about $1200/month, not including the 10% down payment required to begin the “blease.”

Not mentioned on the conference call or in the press release but present at the bottom of a page on Tesla’s website pertaining to the leasing program, the “blease” financing is only available in 8 states: CA, CO, IL, FL, NJ, NY, OR and WA. Coincidentally, these are all higher-income states and all have generous EV kickbacks for owners, as well as emissions credits for anyone who sells a car in their jurisdiction. That would mean Tesla gets their all-important emissions credits on leases as well.

Yeah I played with the Model S financing tool on their website and unless you meet most/all of the strict conditions mentioned here, the incentives offered in the “blease” will not make a significant dent in your monthly payments.

That said, the Model S’ target market are the same people who are most likely to be able to take advantage of the incentives:

With the introduction of the Model S, Elon Musk and his gang at Tesla have aimed to capture the doctor, lawyer, and mid-level businessman who can afford the 60-70k the car may cost them with modest upgrades.

A lawyer/doctor/business owner in California or Florida making 300k a year actually does value their time at over $100/hr, so saving X hours per month would be very valuable to them.

And you’re absolutely right that charging a Model S typically takes 1 hour and filling up a tank of gas takes around 10% as long... But you would never go to a Tesla charging station in a normal day, you would simply plug it in when you got home at night; most people don’t drive over 270 miles to and from work every day. Now cross country drives? Totally different story, and EV technology is not there yet, but at one time neither was the internal combustion engine.
Besides, the important piece here is the buyback program:

On Tuesday, 4/2 at 2:00pm PST, Tesla makes its much-awaited major announcement: they have reached an agreement with Wells Fargo and US Bank to provide financing for the Model S, with a guaranteed buyback agreement in which Tesla will repurchase the Model S from the customer after 36 months (if they so choose) with residual value pegged to that of the Mercedes S Class. Tesla announces on a conference call that the financing will be in the area of $500/month for qualified lessees.

This is the first step towards a REAL leasing program, something that is absolutely crucial for the Model S. Higher end vehicles are leased more often than not, and by providing a price floor for used Tesla’s, Elon Musk has made it simple for banks to value pre-owned Model S’ and thus provided the groundwork for future lessees.

Bottom line for me, and hopefully for many others, is that normal, legitimate companies do not act this way. Executive officers do not spend this level of time on spin, publicity, and media access; they are too busy running their companies [properly].

I beg to differ. By all accounts Elon is intimately involved in every aspect of Tesla, from design and production, to accounting and finance. He has gone on record multiple times saying he would much rather be behind the scenes building products, that he is only the CEO because he does a better job of it than everyone he has hired so far. CEO’s of public companies in the 21st century are expected to maintain a public profile. Personally I think his tweets, Youtube videos, and battles with the media are pure genius – he is turning his customers into evangelists, and driving interest in his company. The man plays the game better than anyone I’ve ever seen.

Also, let’s not forget about Detroit Electric company, a new Tesla-lite firm that is marketing a $135,000 luxury EV that may compete with the higher-end Model S configurations. While they could easily flop due to Tesla’s great name recognition, we can’t deny that if anything it can only have a negative impact on TSLA.

Disagree. New players in the market suggests others see profit potential, which bodes well for the industry as a whole. The fact that you, an esteemed hedge fund worker (lol), is aware of a tiny EV startup suggests electric cars are gaining ground. Furthermore the SP01 would have been a direct competitor to the Tesla roadster, not the Model S.

And if he thinks breakthrough technology isn’t something the car business is very good with, yet he runs a car business that essentially sells breakthrough technology… well, I don’t know what to make of that.

Sounds like an excellent opportunity for innovation.

Tesla misrepresented their financing product in many material aspects.

A little harsh, no?

Not only that, but Tesla has additional support from the government in the form of a mid-$400M loan from the Department of Energy (DoE), which provides capital Tesla would be powerless without.

Keep in mind that Nissan as well as Ford, a company you have used as a benchmark for Tesla to be measured against, received funds from the same Advanced Technology Vehicle Manufacturing program. Goldman Sachs has received billions of dollars in loans from the government, would you short them? You can’t look at Tesla as you would a Fortune 500 company. Given the role the government has taken in the economy, Elon’s ability to get government funding is actually encouraging to me.

I think Secretariat was spot on when he said “Your upside is literally 10x or more if they execute on Gen III and manage to walk the tightrope with Model S subisidzing R&D for the next 1 - 2 years. Being short as a trade could work, but I would not hold on too long. And what you said about nobody intelligent ever wanting to invest in this company is clearly off base, there are a lot of smart shareholders who have done a lot of work and probably are well aware of the negative points you bring up....arrogance can be fatal in investing so keep that in mind.”

I hope some people found this write up thought provoking.

Comments (130)

 
Apr 15, 2013 - 1:08pm

Here is what I see as someone who has no skin in the game: whenever someone is short Tesla they use numbers in their analysis, when they are long they compare it to DVD players (or any technology that was more expensive than it is now, see: all) being $1,000 to start with. Take that for what it is worth.

This to all my hatin' folks seeing me getting guac right now..
 
Aug 5, 2017 - 12:06am

Long TSLA - One Year Later (Originally Posted: 09/21/2014)

1 year ago I posted an article that argued Tesla was on its way up - Long TSLA - effectively taking the opposite side of a formerly popular poster’s “trade” - (See here and here.)

I received a ton of flak from various members, and I wanted to take the time to address some of the negative comments now that more of the story has played out (although it is certainly far from over).

BTbanker:
: Hydrogen fuel cell, solar, and wind energy costs will never be affordable.

What I like about your answer is the fact that it’s based on solid science, and not just random nonsense you heard from someone else. While I can't speak for hydrogen fuel cells or wind, Scientific American, The Economist and Deutsche Bank have all provided excellent coverage on the efficacy of solar power:

http://phys.org/news/2013-04-german-bank-solar-power-india.html
http://blogs.scientificamerican.com/guest-blog/2011/03/16/smaller-cheap…
http://www.economist.com/news/21566414-alternative-energy-will-no-longe…

The Phantom:
: I don't even want to waste my time criticizing this write up. Comparing an electric car to a DVD player? fucking LOL

I never understood all of the hate for this analogy. New technology always starts out very expensive, and then as science, engineering, manufacturing, supply chains etc. improve, prices gradually decrease until you approach opportunity cost or the physical bottom price limits of the raw materials used in production (assuming no monopoly). This is a fundamental aspect of capitalism and modern economics, and it's fucking sad that people on a FINANCE forum can't grasp this concept. Anyways if it really bothers you go ahead and replace DVD player with Airplanes/Submarines/Rockets/Spaceships/Whatever and the analogy still holds true.

WreckEmFinance:

Wrong on so many different levels, my dear misinformed WSO friend. Ummmmm so where is the power coming from when you plug it in to recharge? Ohhhhh yaaaaaaah I remember now- power plants burning fossil fuels!!! Sure, you can say ohhh I live in a place that uses wind power or some such bullshit. Well guess what so I do I. West Texas where the biggest wind farm in the whole entire world is. And guess what? It doesn't provide anywhere near a majority of consumers energy needs. Not to mention the whole "fossil fuels aren't renewable" argument is debatable in the first place.
BOOM

When on the road, the power is coming from the solar powered tesla supercharger stations. When plugged in at home or another non solar powered location, energy is most likely coming from power plants burning fossil fuels (for the time being) as you suggested. However, fossil fuels burned at a large power plant provide a greater energy:weight ratio than fuels burned in a small internal combustion engine, even when accounting for energy lost in transmission, so it's a fundamentally more efficient process.

Schumpeter
If the CEO really was a genius, maybe he'd invent a better battery?
The problem is that, right now, we're missing a few fundamental inventions (i.e. real discoveries) to make electric cars a mainstream thing.

So the whole talk about innovation, learning curve, etc. is pretty much irrelevant. Innovation happens following an invention, where for many years you refine that invention, make it available on the market, improve its production process to reduce its cost, etc.

Funny, it looks like the CEO IS building a better battery - http://www.teslamotors.com/sites/default/files/blog_attachments/gigafac….

Innovation happens following scientific progress - lithium ion battery technology WAS the invention, and it improves at an average of 7-8% per year and should continue to do so for another ~5-10 years before we start seeing significant slowdowns as we approach the limits of the technology in its current form.

KarateBoy:

Here’s one way to compare the electric car to a DVD player: the industry economics structurally suck. I truly believe this is poor technology.

Cars are a hugely capital intensive business with price sensitive consumers.

So how can a small company with limited scale survive long term? Most other small car companies haven’t, except for Ferrari/Lambo.

Tesla will never have the status, or the price premium of Ferrari.

I always hear the Tesla bulls bring-up how a lower price point will attract new consumers, but the Volt and Leaf have largely failed to do this. I don’t see why Tesla would be different.

And the award for worst comment in this thread goes to KarateBoy.

You truly “believe” Tesla is poor technology? Based on what facts? Belief = emotion = irrationality when evaluating companies.

The economics of the car industry can be phenomenal: There are tremendous barriers to entry, there is tremendous brand loyalty, and there can be tremendous profits (Volkswagen and Toyota are two of the top 20 most profitable companies in the world according to Forbes)

Who said Tesla was going to be a small company long term? Just because “most other” small car companies haven’t survived doesn’t mean this one won’t succeed.

Tesla does not need the status or price premium of Ferrari, they are going after 2 completely different market segments.

Again, just because the Volt and the Leaf have not been incredibly successful does not mean that Tesla won’t be. Altavista and AskJeeves were very poor search engines, but Google seems to be doing pretty ok.

BlackHat
Disclaimer: WhiteHat has some of my money, so he better not fuck it up.

Sorry to hear that BlackHat.

WhiteHat
Full disclosure, so you can all keep score... my short position is in the form of a combination of Jan 2015 $18 puts at an average of $2.20, Jan 2015 $25s at an average $4.30, and common stock average cost basis high $38s... very heavily weighted towards the puts and particularly the $18s. If you see volume on those on big green days, you'll know who it was.

I can’t see the scoreboard from courtside, how are things looking from the cheap seats?

To be fair to WhiteHat, his $18 put options won’t expire worthless until Jan 15 of 2015, so he still has another 4 months for Tesla to lose >90% of its current market cap… I just don’t see it happening.

Anyone else?

@"WhiteHat" @"BlackHat" @"Edmundo Braverman" @"KarateBoy" @"AndyLouis" @"Schumpeter" @"BTbanker" @"The Phantom" @"WreckEmFinance"

 
Aug 5, 2017 - 12:07am

I think this story would've turned out very differently had the equity markets gone the opposite direction. Musk has been able to raise cheap equity on multiple occasions with extreme ease. Not sure how they could've managed otherwise with their heavy operational costs/investments and having to pay back the DOE loan.

Looking back and considering the huge amount of short % at the time (close to 40%,I believe, when I started to take a look at $40/share), I still think the "success" of Tesla was left up to a coin flip.

 
Aug 5, 2017 - 12:08am

HFer_wannabe:

I think this story would've turned out very differently had the equity markets gone the opposite direction. Musk has been able to raise cheap equity on multiple occasions with extreme ease. Not sure how they could've managed otherwise with their heavy operational costs/investments and having to pay back the DOE loan.

Looking back and considering the huge amount of short % at the time (close to 40%,I believe, when I started to take a look at $40/share), I still think the "success" of Tesla was left up to a coin flip.

That's a very valid observation, but to be fair you could say the same thing about almost any other company during almost any other time period; external factors can make or break you.

 
Aug 5, 2017 - 12:09am

Well, I guess you took that criticism pretty hard, considering you are writing about it a year later...

At the end of the day the stock went up and you (presumably) made money. You win. It doesn't even matter if you were right for the wrong reasons.

Whatever happened to WhiteHat? Was this a career ending stock call? It would have been difficult to be more wrong about a stock.

 
Aug 5, 2017 - 12:16am

DickFuld:

Well, I guess you took that criticism pretty hard, considering you are writing about it a year later...

At the end of the day the stock went up and you (presumably) made money. You win. It doesn't even matter if you were right for the wrong reasons.

Whatever happened to WhiteHat? Was this a career ending stock call? It would have been difficult to be more wrong about a stock.

It's not enough that I succeed all others must fail.

 
Aug 5, 2017 - 12:20am

hiit:

“The market can stay irrational longer than you can stay solvent.”

dammit, beat me to it.

CSCO went from 27-56 from May 99 to May 2000, and even though it peaked in the interim, it went from a PE of over 70 to a PE of over 100. just because something goes up in a rocketing equity market does not mean it's a viable long term business. now CSCO is one of the weird cases where it got caught up in the tech bubble but is still a great business today, but the same could be said about Yahoo, AOL, and others. now, if TSLA went way up in a down market, I'd say you have something.

I didn't even read your thread/comments/whatever you're referencing, but I commend you for staying butthurt for an entire year, I only regret that the market lets you think you were right.

ok, now some less dickish advice: respect others' opinions, learn to take criticism well, it will help your thesis for an investment. if you become an investor who wants to go on a shooting spree everytime someone criticizes you, you'll never make it. likewise, if you go around boasting every time a position goes your way, you will lose all credibility and likely all allies. be humble, be modest, and take criticism in stride. and also, shut the fuck up about TSLA.

 
Aug 5, 2017 - 12:30am

@"Babyj18777" Did you make any money off of your call? If so... go buy me a watch it'll make you feel better. If not... I was going through all of my old records (tedious) earlier this year, which is what happens when you get on the dark side of boredom. Over the course of years and many thousands of trades in my personal accounts, I was "right" a little north of 65% of the time. Which coincidentally means I've been wrong a few thousand times and I've managed to do quite well for myself.

I didn't read your original post, but it sounds like @"WhiteHat" was the only one with the balls to put up their position and coincidentally lose a bunch of money in front of an audience. If he is anything like me, that trade will be nothing more than a bump in the road on his long term PnL and thus immaterial. Managing your risk is a far better measure of success than "calling it right". If you ever have any doubts about that, ask yourself why Goldman is on top. My only question is, what's your next trade?

@"thebrofessor" Has given you some good advice about being humble. You could've gotten your point across without coming across as a petulant child.

 
Aug 5, 2017 - 12:31am

ArcherVice:

@Babyj18777 . You could've gotten your point across without coming across as a petulant child.

Yeah but that would have been wayyyy less fun for the spectators.

"We're not lawyers, we're investment bankers. We call you for the paperwork. We didn't go to Harvard, we went to Wharton, and we saw you coming a mile away."
 
Aug 5, 2017 - 12:38am

I love talking about trading and seeing posts with trade ideas so I don't want to discourage this type of thing, but I definitely think it pays to be humble when you get one right. This is obviously an internet forum and not "real life" but when I have a good counter-consensus call that makes me money I do exactly the opposite of bragging...I use the opportunity to praise those who were wrong about it and discourage those who are snickering at them behind their backs. This is how you make allies...it is good politics and good politics are very important even in a black and white business like trading. As the great Bert cooper from Mad Men said "One never knows how loyalty is born".

It is also extremely bad karma to brag about trades that have worked out especially when the trade is still on.

 
Aug 5, 2017 - 12:41am

Bought TSLA 6mnths ago, sold yesterday with a increase amongst some other decentish perofrmers.
BUT I also bought TSCO.
The combination of TSCO & some Indonesian nickel bets where my exit was totally off effectivley ruined my PnL.

Congrats on the TSLA move. But my guess is that if it is this necessary for you to prove yourself a regular ol' Buffett on WSO whilst having gone back to quote everyone 1 yr ago in this manner you're probably a bit of a snide little bitch in the real world too.

 
Aug 5, 2017 - 12:42am

KOTM:

Bought TSLA 6mnths ago, sold yesterday with a increase amongst some other decentish perofrmers.

BUT I also bought TSCO.

The combination of TSCO & some Indonesian nickel bets where my exit was totally off effectivley ruined my PnL.

Congrats on the TSLA move. But my guess is that if it is this necessary for you to prove yourself a regular ol' Buffett on WSO whilst having gone back to quote everyone 1 yr ago in this manner you're probably a bit of a snide little bitch in the real world too.

The main takeaway here is not that OP's thesis was correct, but rather why Tesla was a poor short candidate... attributing a failure simply to a "bull market" is gross oversimplification and puerile at best...

 
Aug 5, 2017 - 12:40am

I agree with everyone here calling for humility....that being said, many of the people who were saying TSLA was an obvious short last year were doing so in a way that also lacked even the smallest degree of humility as well. Given that this is the interwebz, I kind of understand why the OP is calling people out, even if I might have handled it a little differently.

 
Aug 5, 2017 - 1:00am

Agreed. Maybe if we held people more accountable there would be less silliness on this website not to mention in finance and the media in general. Would be great if every finance talking head had a stat line below their name everytime they made an appearance (0 for their last 24 predictions... looking to turn it around here...).

With respect to everyone calling for humility, the exact same can be said for not pushing morals and values on others... I suppose you could say the same thing of that sentance... OH GOD, NO

 
Aug 5, 2017 - 12:45am

Please justify:

1. The 33 billion valuation.

2. The volatility: If it's so damn good, why is the Tesla valuation going up and down 50% or so in stretches? Surely the crock baked DCF offers a steady valuation, no?????

Pennies from JcPenny
 
Aug 5, 2017 - 12:47am

Babyj18777:

1 year ago I posted an article that argued Tesla was on its way up - Long TSLA - effectively taking the opposite side of a formerly popular poster’s “trade”

I stopped reading right there, and just thought to myself what a wanker you are.
I grabbed my bloomberg screen to see the performance over a year vs the main index it's part of. Tesla up 58% and Nasdaq up 26%
Given how the overall market has performed and the high beta that must be attached to this stock, your performance is PATHETIC. Absolute crap. That stock is way too volatile and your performance is called luck, could have bloody gone the polar opposite way if there had been a down move.

Next time you come and brag about the performance about 1 stock in your portfolio be more humble about it. Your analysis of the company or whatever you jerk off to might be good. But i have no interest in reading it.

Good luck getting a job - with this attitude and this knowledge of the market.

So I repeat: YOUR PERFORMANCE IS SHIT VS THE INDEX AND THE RISK YOU ARE TAKING - just to make that clear

 
Aug 5, 2017 - 12:48am

you really should post more often. also, please keep up the British slang (wanker, bloody, etc.) as a gringo, it's great, I feel like I can hear your accent when I read your posts, and it's awesome.

oh and I agree with everything you're saying, but OP is probably too afraid to tell us how he went long something like WTW or AMZN this year.

 
Aug 5, 2017 - 12:52am

Disjoint:

Babyj18777:

1 year ago I posted an article that argued Tesla was on its way up - Long TSLA - effectively taking the opposite side of a formerly popular poster’s “trade”

I stopped reading right there, and just thought to myself what a wanker you are.

I grabbed my bloomberg screen to see the performance over a year vs the main index it's part of. Tesla up 58% and Nasdaq up 26%

Given how the overall market has performed and the high beta that must be attached to this stock, your performance is PATHETIC. Absolute crap. That stock is way too volatile and your performance is called luck, could have bloody gone the polar opposite way if there had been a down move.

Next time you come and brag about the performance about 1 stock in your portfolio be more humble about it. Your analysis of the company or whatever you jerk off to might be good. But i have no interest in reading it.

Good luck getting a job - with this attitude and this knowledge of the market.

So I repeat: YOUR PERFORMANCE IS SHIT VS THE INDEX AND THE RISK YOU ARE TAKING - just to make that clear

Lol jeez take it easy pal.

I never said Tesla offered a superior risk adjusted return profile, I never predicted the company would explode the way it has, and I'm not even bragging about the performance of the stock.

If you actually read the post, you would see that the purpose was to respond to people that verbally attacked me previously, and to expose a series of logical fallacies.

Most of the comments in the original thread boil down to "every electric car company has failed in the past, therefore every electric car company will fail in the future" and this is just plain wrong.

I'm obviously not a professional investor, but I thought it was clear that barring some market catastrophe Tesla was a winner. It's ironic that all of the people shouting about how the company was destined for failure actually caused a dramatic spike in the paper value of the company, allowing for a low cost of capital that has all but assured long term success.

 
Aug 5, 2017 - 12:50am

I really appreciate OP's follow-up post as a reminder to examine both sides of why folks took the positions they did on TSLA.

Not that the internal strategy of a company can be predicted as it's not public information, you might still be able to glean nuanced signals that a company is headed in the right direction (not that the TSLA story anywhere near over).

Array
 
Aug 5, 2017 - 1:01am

Gotta say I disagree with everyone who is calling out the OP for posting this....I would've done the exact same thing. People have been shitting on TSLA for so long and were so confidentially arrogant in their short thesis (with no sign of humility at the time) that they deserve to have this shoved in their face (along with the massive losses if they didn't cover early enough).

 
Aug 5, 2017 - 1:02am

I made money from going long TSLA puts and would/probably will do it again.

OP you do realize that you posted this during the same week that the company lost 10% of its value in a single day because its biggest cheerleader (Adam "Pacman" Jonas) called into question 2028...?

At this point in time the TSLA bull thesis is only one that works out in hindsight. Anyone who has been around for longer than about 15 minutes knows that you can make a lot of money while being wrong and lose a lot of money and still be correct.

[quote=patternfinder]

Of course, I would just buy in scales.

[/quote]

See my WSO Blog | my AMA

 
Aug 5, 2017 - 1:03am

I think the bottom line is that anyone getting involved with a company like TSLA, on either side of the trade, is crazy. The distribution of potential value for a company like this is ridiculously wide, and yes, maybe the median of that distribution is below the current trading price (giving the shorts a slight intellectual advantage when it comes to arguments like this), but that doesn't mean the risk-reward makes sense for shorts.

I think the lesson from value investing about shorting is that you only do it when (a) stock is trading well above fundamental value, (b) based on your assessment of potential fundamental value, there is limited 'tail risk' that it could be worth significantly more than where you're entering [the shape of the distribution is more important than the expected value], (c) you have a short-term and well-defined catalyst that will cause the market to realize the stock has been overvalued. Without all of those three points it's a foolish game to be playing.

 
Best Response
Apr 15, 2013 - 1:27pm

Regardless of what following comments say, props to OP for taking the other side of a heavily shorted idea that was laid out publicly on this site and endorsed by lead members. I've done it before and understand that it takes balls to do so because everyone in the world can find at least 3 things to criticize about these kinds of companies.

 
Apr 15, 2013 - 1:40pm

floppity:
Regardless of what following comments say, props to OP for taking the other side of a heavily shorted idea that was laid out publicly on this site and endorsed by lead members. I've done it before and understand that it takes balls to do so because everyone in the world can find at least 3 things to criticize about these kinds of companies.
Agreed.
 
Apr 15, 2013 - 1:41pm

floppity:
Regardless of what following comments say, props to OP for taking the other side of a heavily shorted idea that was laid out publicly on this site and endorsed by lead members. I've done it before and understand that it takes balls to do so because everyone in the world can find at least 3 things to criticize about these kinds of companies.

Agreed, nicely put.

This to all my hatin' folks seeing me getting guac right now..
 
Apr 15, 2013 - 1:31pm

Not the greatest analysis, so you'll probably get reamed. I like Tesla and hope they succeed. Not sure if I have the stomach to ride their stock's rollercoaster.

Array
 
May 1, 2013 - 10:14pm

Mr. Hansen:

Not the greatest analysis, so you'll probably get reamed. I like Tesla and hope they succeed. Not sure if I have the stomach to ride their stock's rollercoaster.

I got on the ride and I have a 50% gain right now. I'm happy with that.

“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” --Benjamin Graham B.K.
 
Apr 15, 2013 - 2:10pm

Rode this bad boy from $34 to $44 (options of course). Out now, but re-entering tomorrow. Will short the stock, buy some puts and some calls to cover my booty. Thoughts? I see it hitting either $20 or $60 in a year's time. Although I doubt that Elon is going to let this company fail.

Good write-up.

"Come at me, bro"- José de Palafox y Melci
 
Apr 15, 2013 - 2:34pm

BTbanker:
Let's just keep in mind that the Prius was the exact same price 13 years ago even with inflation.

Hydrogen fuel cell, solar, and wind energy costs will never be affordable. Natural gas is here NOW; fucking use it.

This. I think the 'flying car' thing that runs on tap water is seriously sidetracking us from actual possible shot/mid term solutions.

My drinkin' problem left today, she packed up all her bags and walked away.
 
Apr 15, 2013 - 2:38pm

BTbanker:
Let's just keep in mind that the Prius was the exact same price 13 years ago even with inflation.

Hydrogen fuel cell, solar, and wind energy costs will never be affordable. Natural gas is here NOW; fucking use it.

I can't speak to anything other than solar, but:

http://www.economist.com/news/21566414-alternative-energy-will-no-longer-be-alternative-sunny-uplands

 
Apr 15, 2013 - 3:12pm

evilbyaccident:
BTbanker:
Let's just keep in mind that the Prius was the exact same price 13 years ago even with inflation.

Hydrogen fuel cell, solar, and wind energy costs will never be affordable. Natural gas is here NOW; fucking use it.

I can't speak to anything other than solar, but:

http://www.economist.com/news/21566414-alternative-energy-will-no-longer-be-alternative-sunny-uplands

Wow judging from the monkey shit I got for simply posting this link, I wonder what will happen if I post why I like SolarCity?

 
Apr 15, 2013 - 2:46pm

I'll write-up a more thoughtful response later, but I do think that battery technology is silly. Best case scenario, its a bridge (for hippies/yuppies) between gas and the next energy source.

In the meantime, I'd rather drive a diesel.

Follow me on Twitter: https://twitter.com/_KarateBoy_
 
Apr 15, 2013 - 8:07pm

evilbyaccident:

Tesla has followed a typical learning curve - Tesla began in 2003 by taking stock Lotus Elise’s and converting them into fully electric vehicles. Essentially a proof of concept, the car’s purpose was to show the world that an electric vehicle could be sexy and fast.

Fast forward to today; the roadster has been put out to pasture and the Model S is the new flagship. So far the sedan has received both rave reviews (Motor Trends 2013 car of the year) and media criticism (New York Times), but every single driver (including me!) will tell you the same thing: the car itself is phenomenal. It is leaps and bounds better than the Roadster and still less expensive.

There's really nothing here to contest except for the blatantly obvious. The demographic of the Model S driver is along the lines of the following: median annual income > $200,000. Average age: 45. Mostly located up and down the progressive neighborhoods of the West Coast, concentrated in Southern California, and a significant following in the affluent Chicago suburbs and portions of the Carolinas. It's typically a 3rd car, overwhelmingly skewed towards males, etc. So of course the driver is going to love his new toy. This car is the quintessential liberal midlife crisis, if such a thing exists.

And the widely-touted distinction of Motor Trend Car of the Year is nothing to be overly proud of. The car tends to go to whatever car will garner the most media attention with little regard for the actual significance of the car itself. Sharing that award with the Chevy Volt, PT Cruiser, and Caprice does not exactly qualify as being in the best of company. I'll admit though that the car is amazing, and I loved my test drive. That does not stop the thing from being the least economically viable automobile on the road.

The model X, due out in 2014 (pushed back to “focus on 2013 profitability”) is designed to follow the same path.

Late 2014, if that.

Tesla sells energy at a profit – Clearly the supercharger network is still in its infancy: There aren’t enough stations to take care of the existing Tesla customers let alone a nation dominated by EV’s, and it takes far too long (>1 hour) to charge a Model S to capacity. That said, more supercharger stations are being installed regularly, and as battery technology improves (According to U.S. Energy Secretary Chu, costs for a 40 mile range battery will drop from a price in 2008 of $12K to $3,600 in 2015 and further to $1,500 by 2020: http://www.reuters.com/article/2012/01/11/us-autoshow-batteries-idUSTRE80A1FA20120111) the frequency and duration of charges will decrease substantially.

Furthermore, the supercharger networks are Solar Powered, with parts and labour supplied by sister company SolarCity, so any excess energy is sold back into the grid at a profit.

The supercharger networks are far from solar powered. Parts and labor are supplied by SolarCity for reasons far beyond being the best partnership for Tesla.

And quoting a man who's politically motivated to promise to make leaps and bounds in alternative energy efficiency is not the most credible of sources. Remember when Obama said we'd have a million electric vehicles on the road by his 2nd term? I highly doubt Mr. Chu is qualified to make that assessment, but he damn sure is obligated to make it nonetheless.

And what makes you think they are selling this back at a profit? Tesla pays for their electricity just like everyone else, it's not all ponies and unicorns for these guys. If Tesla does become wildly successful and there are millions of Teslas driving around, there will come a day when they will stop paying for everyone's free electricity. Hell, if the vehicle was as popular as they say it is, they'd probably have already made an announcement of when they'll stop dishing out free charges already....... and wait, how many superchargers are actually out there right now again? Remember when Tesla promised 100 supercharger stations within 12 months...but haven't announced the opening of a new one in over 4 months? 13 in California by the end of 2013 if they're lucky. They know they have bigger fish to fry with that cash unfortunately.

Tesla has partnered with industry leaders – Rather than trying to take the 900 pound gorillas head-on, Tesla has elected to partner with them. Daimler, Toyota, and Panasonic have all invested 10’s of millions of dollars in Tesla, and Toyota jointly developed their new Rav4 with Tesla. Tesla sells advanced powertrains to Daimler and Toyota. When major players in the industry are coming to a small player for engineering assistance, you know they are doing something right.

There's no logic here. Next argument.

The CEO is a genius - For those who don’t know, serial entrepreneur Elon Musk is at the helm. Armed with a degree in business from Wharton and another in Physics from Penn, past successful ventures include:

Zip2 – online content publishing software for news organizations (sold for $340 million when Musk was 28).

Paypal – online transaction processing system (sold for $1.5 billion 3 years after the Zip2 sale)

Along with Tesla, Musk serves as CEO of Spacex, the aerospace firm that became the first commercial launch company to dock with the International Space Station in May of 2012. Elon also provided seed capital and serves as Chairman of the Board for SolarCity (founded by his cousins Lyndon and Peter Rive), North America’s largest solar panel installation firm.

First of all, who cares? Mark Pincus had distinctions up the ass from Wharton, as do I, but that doesn't stop him from being a retarded CEO. PayPal is very cool and much of its success was due to Musk's amazing ability to market. But let's not give him credit for being a genius because of it. He and his pals bought the PayPal name and idea from another startup and merged it with X.com before eventually taking the PayPal name once it gained traction thanks to Musk's marketing. Great marketer, great face to have on a business, but he was not the principal architect behind that business strategy.

And either way, doesn't it worry you that your CEO is essentially the leading mind behind 3 multi-billion dollar businesses? Worried he's stretching himself a bit thin, or may run into eventual conflicts of interest? Much more troublesome than advantageous in my book, but to each their own.

Management has a large stake in the company – It is reported that Elon himself owns 32% of Tesla, and Tesla employees own another 33%. When the company nearly went bankrupt in 2008, Elon led the investment round by offering to put up the entire $20 million that was required.

What's hilarious is that your two percentage totals add up exactly to 65% of the company. The Department of Energy's loan requires that "Mr. Musk and certain of his affiliates" own at least 65% of the company at all times in order for the covenant to be satisfied. Tesla employees, as in the "little people," aren't the ones holding most of that 33% you quote there, either. This group owns the bare minimum required to keep their company afloat and not a penny more, which is saying something. Poor guy couldn't liquidate even if he wanted to... I'd pump the stock too in his shoes.

Electric vehicles are fundamentally better than their gas powered counterparts– Electric vehicles provide instant power and torque, no pollution, low repair costs, and get their energy from a renewable source. The inverse is true for internal combustion engines. Once the technology has fully matured, there is no question that the internal combustion engine, much like it’s fuel, will be a relic of the stone age.

Low repair costs? Have you ever seen the service bills on these things? And what is renewable about electricity if the most efficient and most common ways of creating it are fossil fuel burning and nuclear fusion? Unless hydro, wind, and solar catch on in a cost-effective way in a hurry, that argument won't hold water for long. IF the technology matures, then sure, you may be right. But I humbly submit that it is much more of an "if" than it is a "once" as you simply put it.

And to finish, I don't really feel a need to rebut any of your points breaking down my last post since it seems like you presented nothing new there really. But just to the one point about bailouts that was laced with whatever number of logical fallacies is that Tesla is dead without their DoE loan. They know it, they openly admit it in their statements, and if it ever got pulled the market would know exactly how to react to it. If that wasn't the case they certainly wouldn't care so much about renegotiating the covenants twice a quarter.

My claim that Tesla misrepresented their financing product is definitely far from harsh considering that you don't even understand it. Tesla is letting you lease its cars. Tesla is selling its cars to you, financed by two third-party financing groups, and offering within that sale to repurchase the car from you (or the bank) at a residual value of 43% or whatever figure they end up quoting for the Mercedes S Class. You own the car. You put up the entire purchase price on day one, borrowed money or not. Tesla just had to convince Wells and USB that there would be some value leftover in order for them to provide attractive enough rates on the loan they are giving you, so they made the salvage value promise. And Elon standing behind it means nothing, since those words mean nothing and there's no actual documentation that he's doing what he appears to be saying he's doing. If he really wanted to help out, he'd cash in those options, help pay down the loan, take the company private, or a million other ways to pump a little more capital into what's presumably his baby.

By the way, what the fuck is a "hedge fund worker?" Is that like back office?

Edit: Full disclosure, so you can all keep score... my short position is in the form of a combination of Jan 2015 $18 puts at an average of $2.20, Jan 2015 $25s at an average $4.30, and common stock average cost basis high $38s... very heavily weighted towards the puts and particularly the $18s. If you see volume on those on big green days, you'll know who it was.

 
Apr 15, 2013 - 11:37pm

Tesla has followed a typical learning curve - Tesla began in 2003 by taking stock Lotus Elise’s and converting them into fully electric vehicles. Essentially a proof of concept, the car’s purpose was to show the world that an electric vehicle could be sexy and fast.

Fast forward to today; the roadster has been put out to pasture and the Model S is the new flagship. So far the sedan has received both rave reviews (Motor Trends 2013 car of the year) and media criticism (New York Times), but every single driver (including me!) will tell you the same thing: the car itself is phenomenal. It is leaps and bounds better than the Roadster and still less expensive.

There's really nothing here to contest except for the blatantly obvious. The demographic of the Model S driver is along the lines of the following: median annual income > $200,000. Average age: 45. Mostly located up and down the progressive neighborhoods of the West Coast, concentrated in Southern California, and a significant following in the affluent Chicago suburbs and portions of the Carolinas. It's typically a 3rd car, overwhelmingly skewed towards males, etc. So of course the driver is going to love his new toy. This car is the quintessential liberal midlife crisis, if such a thing exists.

And the widely-touted distinction of Motor Trend Car of the Year is nothing to be overly proud of. The car tends to go to whatever car will garner the most media attention with little regard for the actual significance of the car itself. Sharing that award with the Chevy Volt, PT Cruiser, and Caprice does not exactly qualify as being in the best of company. I'll admit though that the car is amazing, and I loved my test drive. That does not stop the thing from being the least economically viable automobile on the road.

I don’t see your point. Tesla’s first vehicle was very expensive – base price of $109,000 – low production – 2400 total sold as of September 2012 – and was an all-around mediocre vehicle.
Tesla’s second vehicle is more moderately priced – base price of $72,400 – has a greater production volume – 7400 sold total as of end of Q1 2013. The car has been very well received by its target market.
The Model S certainly isn’t perfect, but it is remarkably better than Tesla’s first gen car, and has reached a wider audience with greater profit margins than the Roadster ever did. Did you really expect them to produce a high-quality, low-cost vehicle right out of the gates?
Not that the Model S is designed to be, but please explain to me how this sedan is the least economically viable automobile on the road.

The model X, due out in 2014 (pushed back to “focus on 2013 profitability”) is designed to follow the same path.

Late 2014, if that.

Sure, late 2014.

Tesla sells energy at a profit – Clearly the supercharger network is still in its infancy: There aren’t enough stations to take care of the existing Tesla customers let alone a nation dominated by EV’s, and it takes far too long (>1 hour) to charge a Model S to capacity. That said, more supercharger stations are being installed regularly, and as battery technology improves (According to U.S. Energy Secretary Chu, costs for a 40 mile range battery will drop from a price in 2008 of $12K to $3,600 in 2015 and further to $1,500 by 2020: http://www.reuters.com/article/2012/01/11/us-autoshow-batteries-idUSTRE80A1FA20120111) the frequency and duration of charges will decrease substantially.

Furthermore, the supercharger networks are Solar Powered, with parts and labour supplied by sister company SolarCity, so any excess energy is sold back into the grid at a profit.

The supercharger networks are far from solar powered. Parts and labor are supplied by SolarCity for reasons far beyond being the best partnership for Tesla.

And quoting a man who's politically motivated to promise to make leaps and bounds in alternative energy efficiency is not the most credible of sources. Remember when Obama said we'd have a million electric vehicles on the road by his 2nd term? I highly doubt Mr. Chu is qualified to make that assessment, but he damn sure is obligated to make it nonetheless.

And what makes you think they are selling this back at a profit? Tesla pays for their electricity just like everyone else, it's not all ponies and unicorns for these guys. If Tesla does become wildly successful and there are millions of Teslas driving around, there will come a day when they will stop paying for everyone's free electricity. Hell, if the vehicle was as popular as they say it is, they'd probably have already made an announcement of when they'll stop dishing out free charges already....... and wait, how many superchargers are actually out there right now again? Remember when Tesla promised 100 supercharger stations within 12 months...but haven't announced the opening of a new one in over 4 months? 13 in California by the end of 2013 if they're lucky. They know they have bigger fish to fry with that cash unfortunately.

Ok, not every supercharger station is solar powered. And yes, they do sell the electricity generated by solar powered stations back into the grid at a profit. What makes you think they don’t? Once they purchase the solar panels they own them, and any excess electricity generated is pumped back into the grid (My cottage has solar panels installed on the roof and we do this). And they could definitely afford to provide free electricity to all TESLA owners. Here’s an idea – Tesla doesn’t charge Tesla owners, but does charge owners of other cars for a fill-up.

I read that Tesla promised 100 supercharger stations by 2015. If you can post a link to an article/post that says otherwise it would be appreciated.

Agreed I did not pick the best person to quote, but the reality is the technology gets better every year.

Tesla has partnered with industry leaders – Rather than trying to take the 900 pound gorillas head-on, Tesla has elected to partner with them. Daimler, Toyota, and Panasonic have all invested 10’s of millions of dollars in Tesla, and Toyota jointly developed their new Rav4 with Tesla. Tesla sells advanced powertrains to Daimler and Toyota. When major players in the industry are coming to a small player for engineering assistance, you know they are doing something right.

There's no logic here. Next argument.

Um, ok? Industry leaders are investing in Tesla. Industry leaders are coming to Tesla for advice. Industry leaders are partnering with Tesla for new products. What is the problem here?

The CEO is a genius - For those who don’t know, serial entrepreneur Elon Musk is at the helm. Armed with a degree in business from Wharton and another in Physics from Penn, past successful ventures include:

Zip2 – online content publishing software for news organizations (sold for $340 million when Musk was 28).

Paypal – online transaction processing system (sold for $1.5 billion 3 years after the Zip2 sale)

Along with Tesla, Musk serves as CEO of Spacex, the aerospace firm that became the first commercial launch company to dock with the International Space Station in May of 2012. Elon also provided seed capital and serves as Chairman of the Board for SolarCity (founded by his cousins Lyndon and Peter Rive), North America’s largest solar panel installation firm.

First of all, who cares? Mark Pincus had distinctions up the ass from Wharton, as do I, but that doesn't stop him from being a retarded CEO. PayPal is very cool and much of its success was due to Musk's amazing ability to market. But let's not give him credit for being a genius because of it. He and his pals bought the PayPal name and idea from another startup and merged it with X.com before eventually taking the PayPal name once it gained traction thanks to Musk's marketing. Great marketer, great face to have on a business, but he was not the principal architect behind that business strategy.

And either way, doesn't it worry you that your CEO is essentially the leading mind behind 3 multi-billion dollar businesses? Worried he's stretching himself a bit thin, or may run into eventual conflicts of interest? Much more troublesome than advantageous in my book, but to each their own.

I like the fact that he has a degree from Wharton because he understands the business side of his companies; he is not simply an engineer turned CEO. I also like the fact that he has a physics degree (arguably the most difficult field of study) from Penn (one of the best Physics programs in the world) because he understands how his technology works; he is not simply a CEO hocking someone else’s wares.
Elon developed a method of securely transferring funds, and founded X.com as an online bank. He then merged with Confinity which did in fact have the PayPal name. But before Musk merged the two, PayPal was focused on transferring funds between palm pilots – hardly an amazing business strategy. And yes, Elon is a brilliant marketer.

And why didn’t you mention Zip2?

To be fair, the CEO is the leading mind behind 2 multi-billion dollar corporations – he has publicly stated that he is not involved in the day to day operations of SolarCity. But yes, stretching himself thin is a real problem. That said, Tesla has benefitted from aerospace design techniques developed at SpaceX so it has been advantageous thus far.

Management has a large stake in the company – It is reported that Elon himself owns 32% of Tesla, and Tesla employees own another 33%. When the company nearly went bankrupt in 2008, Elon led the investment round by offering to put up the entire $20 million that was required.

What's hilarious is that your two percentage totals add up exactly to 65% of the company. The Department of Energy's loan requires that "Mr. Musk and certain of his affiliates" own at least 65% of the company at all times in order for the covenant to be satisfied. Tesla employees, as in the "little people," aren't the ones holding most of that 33% you quote there, either. This group owns the bare minimum required to keep their company afloat and not a penny more, which is saying something. Poor guy couldn't liquidate even if he wanted to... I'd pump the stock too in his shoes.

If Musk was going to bail, he would have done so in 2008. Instead, he invested $20 million dollars in a company that was on the brink of bankruptcy. If Elon was in this for the money, he would not have founded a car company and a rocket company; he would have kicked back after he personally pocketed over $150 million from his first 2 ventures.

Electric vehicles are fundamentally better than their gas powered counterparts– Electric vehicles provide instant power and torque, no pollution, low repair costs, and get their energy from a renewable source. The inverse is true for internal combustion engines. Once the technology has fully matured, there is no question that the internal combustion engine, much like it’s fuel, will be a relic of the stone age.

Low repair costs? Have you ever seen the service bills on these things? And what is renewable about electricity if the most efficient and most common ways of creating it are fossil fuel burning and nuclear fusion? Unless hydro, wind, and solar catch on in a cost-effective way in a hurry, that argument won't hold water for long. IF the technology matures, then sure, you may be right. But I humbly submit that it is much more of an "if" than it is a "once" as you simply put it.

Again, repair costs are more expensive now because there are few people qualified to work on them. An electric motor has only one moving part, so yes, it is fundamentally cheaper to repair.

Solar power is nearly there, this is much more of a "soon" than an "if." It’s at grid parity right now in some states, and the technology is advancing so rapidly now that in 20 years solar will be the number one power source worldwide. There is a reason solar power manufacturing is one of the fastest growing industries in the world; the world itself is already solar powered, we’re just getting better at harnessing the nuclear fusion that powers it for our own needs.

And to finish, I don't really feel a need to rebut any of your points breaking down my last post since it seems like you presented nothing new there really. But just to the one point about bailouts that was laced with whatever number of logical fallacies is that Tesla is dead without their DoE loan. They know it, they openly admit it in their statements, and if it ever got pulled the market would know exactly how to react to it. If that wasn't the case they certainly wouldn't care so much about renegotiating the covenants twice a quarter.

So would all of the major financial institutions in the United States. Tesla definitely needed the loan from the DOE. They got it, and now they are prospering. What is the problem? Probably the one smart move the US government has made in the past 10 years.

My claim that Tesla misrepresented their financing product is definitely far from harsh considering that you don't even understand it. Tesla is letting you lease its cars. Tesla is selling its cars to you, financed by two third-party financing groups, and offering within that sale to repurchase the car from you (or the bank) at a residual value of 43% or whatever figure they end up quoting for the Mercedes S Class. You own the car. You put up the entire purchase price on day one, borrowed money or not. Tesla just had to convince Wells and USB that there would be some value leftover in order for them to provide attractive enough rates on the loan they are giving you, so they made the salvage value promise. And Elon standing behind it means nothing, since those words mean nothing and there's no actual documentation that he's doing what he appears to be saying he's doing. If he really wanted to help out, he'd cash in those options, help pay down the loan, take the company private, or a million other ways to pump a little more capital into what's presumably his baby.

My harsh message spoke to your comments about the “money saved” by owning a Tesla (access to car pool lanes, time saved by not charging gas, etc.).

As I said before, I see this “blease” program as the first step to a real leasing program.

FWIW I think your trade could work, but I think your analysis is short-sighted. And I presented plenty of new thoughts and opinions that you flat out ignored.

But thanks for responding!

 
Apr 15, 2013 - 8:22pm

WH how the fuck did you not address the DVD player in that long ass rant

I hate victims who respect their executioners
 
Apr 15, 2013 - 10:21pm

BlackHat:
WH how the fuck did you not address the DVD player in that long ass rant

To expand on this for the benefit of the OP and junior monkeys:

Here's one way to compare the electric car to a DVD player: the industry economics structurally suck.

I truly believe this is poor technology, but if government keep subsidizing this industry you may get growth. However, I'd expect competition will eat away all the margin as different OEMs compete for volumes to leverage their fixed costs.

Cars are a hugely capital intensive businesses with price sensitive consumers. Even established car companies can struggle to earn an economic profit throughout a cycle.

So how can a small company with limited scale survive long-term? Most other small car companies haven't, except for Ferrari/Lambo.

I think its fair to compare Tesla to Lotus: great cars for a niche consumer but never really a profitable business. Better yet, we should compare it to Fisker.

Tesla will never have the status, or the price premium, of Ferrari.'

EDIT: I always hear the Tesla bulls bring-up how a lower price point will attract new consumers, but the Volt and Leaf have largely failed to do this. I don't see why Tesla would be different.

Some recent numbers: http://cleantechnica.com/2013/04/07/nissan-leaf-crushes-volt-in-march-2013-sales-breaks-previous-record/

Follow me on Twitter: https://twitter.com/_KarateBoy_
 
Apr 15, 2013 - 8:57pm

WH, you bring up an very real point about the DOE loan. First, I sincerely doubt they will be able to repay their loans 5 years early.

They are probably going to need to go back to the capital markets within the next year or two, unless their R&D spending suddenly plummets. Their cash burn is monstrous, and I doubt the "accelerating free cash flow" cited by Ahuja will materialize. Hint: growing (I assume he thinks it will be growing) capital-intensive businesses do not generate much FCF.

I agree, Elon Munsk is brilliant. But this is not a particularly investable. As WH said, it is first and foremost a toy. The infrastructure does not exist. Even the superchargers take far longer than pumping gas.

Yes, you can plug it in at night. But everyone buying the car will stop to think about "what if I need to go further than this car's range?". 99% of the time, they won't need to. But it will be a massive hassle when they do. Why wouldn't they just buy a Prius at that point? or, hell, a Volt?

There is no demand for this product. Anybody who wants an electric car enough to buy one is probably on that pre-order/lease list. People are not suddenly going appear to buy this thing, even the model X & Gen III. I would expect total sales for the Gen III to fall below those of the Chevy Volt (assuming a similar price point). And that is not enough to sustain a company, much less one as high up the S-curve as TSLA.

 
Apr 16, 2013 - 7:42pm

um, i don't know enough about Tesla to bash it. and if it is commercially viable well then hell, i'm a capitalist. my one sticking point having not read the entire article, but first few paragraphs

"Electric vehicles are fundamentally better than their gas powered counterparts– Electric vehicles provide instant power and torque, no pollution, low repair costs, and get their energy from a renewable source. The inverse is true for internal combustion engines. Once the technology has fully matured, there is no question that the internal combustion engine, much like it’s fuel, will be a relic of the stone age."

Wrong on so many different levels, my dear misinformed WSO friend. Ummmmm so where is the power coming from when you plug it in to recharge? Ohhhhh yaaaaaaah I remember now- power plants burning fossil fuels!!! Sure, you can say ohhh I live in a place that uses wind power or some such bullshit. Well guess what so I do I. West Texas where the biggest wind farm in the whole entire world is. And guess what? It doesn't provide anywhere near a majority of consumers energy needs. Not to mention the whole "fossil fuels aren't renewable" argument is debatable in the first place.

Therefore, while I am all for "technology maturing" and being a capitalist it would be cool to see yet another new innovation succeed, you at least need to get your mind facts straight on the whole "renewable" argument. The fact of the matter is that fossil fuel fired electric generation is not going anywhere, and any way you cut the cheese, electric vehicles ARE dependent on it, though more indirectly than internal combustion.

Until a truly efficient solar panel is made or cars with windmills charge the battery, you, dear sir, are gravely mistaken on you rosy renewable energy arguments.

BOOM

"Everything comes to those who hustle while they wait." -Thomas Edison
 
Apr 16, 2013 - 8:42pm

If the CEO really was a genius, maybe he'd invent a better battery?

The problem is that, right now, we're missing a few fundamental inventions (i.e. real discoveries) to make electric cars a mainstream thing.

So the whole talk about innovation, learning curve, etc. is pretty much irrelevant. Innovation happens following an invention, where for many years you refine that invention, make it available on the market, improve its production process to reduce its cost, etc.

 
Apr 16, 2013 - 9:17pm

Some of the guys I work with love the tesla sedan and I think at least one will be a buyer. They are not hippies and really don't even care about the environment at all if we're being perfectly frank. I would consider them more likely to be a part of the 'Pave the Earth Club' than the 'Save the Earth Club'.

What they love about Tesla is the low end torque. In real world driving, electric cars have a huge advantage over gas powered cars in acceleration because the power is immediate off the line. I think that assuming the only potential buyers of these cars are hippies is a mistake. There's a lot to like about this car without considering any environmental benefits at all. One can assume that the technology will become more affordable and have longer range capabilities over time and it's a good of a guess as any that Tesla could be on that leading edge.

As CAFE requirements become higher for car companies, Tesla becomes more interesting as an acquisition candidate for traditional manufacturers. It will be difficult for them to meet these increased CAFE requirements with traditional gas engines. Tesla needs to sell a shitload more cars for this to become meaningful though.

Obviously, this firm has a long way to go before you can have any certainty that it will be a going concern, but the potential is huge. It's valued pretty richly. But it's expensive to short it and options are expensive as well. In 5 years, this thing will probably be at/near zero or will be a ten bagger. I wouldn't get in front of this train. I think this thing is going higher.

Disclaimer: I don't have and will not take any position in this stock or the derivatives of it in the foreseeable future. I'm not an equity analyst, but I am a little bit of a car guy.

 
Apr 22, 2013 - 9:35pm

As I have previously written in other WhiteHat threads I've researched Tesla for 100+ hours for a term paper - I questioned WH's bearish stance back when TSLA was at 35. As it has past 50 today, I'm curious as to people's thoughts on a short squeeze.

Also, for discussion sake, let's assume WH is indeed wrong, and myself and others are indeed right. At what point does your own personal bais cloud your judgement. I feel all too often investors become too inthralled in their own analysis and perspective that they are more trying to justify why they are right and others are wrong more than actually having a true unbiased perspective. I think this is a huge reason why people blow themselves up, almost like being in tilt in poker. I think egos and arrogance play a huge role in some major decision and can be sometimes just as influential as deep intelligent analysis. Thoughts?

 
Apr 22, 2013 - 10:29pm

ke18sb:
As I have previously written in other WhiteHat threads I've researched Tesla for 100+ hours for a term paper - I questioned WH's bearish stance back when TSLA was at 35. As it has past 50 today, I'm curious as to people's thoughts on a short squeeze.

Also, for discussion sake, let's assume WH is indeed wrong, and myself and others are indeed right. At what point does your own personal bais cloud your judgement. I feel all too often investors become too inthralled in their own analysis and perspective that they are more trying to justify why they are right and others are wrong more than actually having a true unbiased perspective. I think this is a huge reason why people blow themselves up, almost like being in tilt in poker. I think egos and arrogance play a huge role in some major decision and can be sometimes just as influential as deep intelligent analysis. Thoughts?

To be fair I really expect/hope WH has spent more than 100 hours on this to have hard conviction on it, so I'm not really sure if writing a term paper is the right kind of credential for comparison. But anyway, what does a short squeeze have to do with fundamentals? I don't think we'll know the actual outcome on TSLA until it's either pumping out 100K+ units from 3 different models in 2015 or in the bankruptcy courts doing a circle jerk with Fisker and the boys. What happens in the meantime is really just noise given WH (to my knowledge) isn't betting on the near-term value of the stock...

Disclaimer: WhiteHat has some of my money, so he better not fuck it up

I hate victims who respect their executioners
 
Apr 22, 2013 - 10:58pm

Sorry for the misinterperation as I was not trying to create a pissing match of time spent researching more so providing a frame of reference - ie I'm not writing based on reading one article. That said, is it wrong to assume that research by WH for a position is any greater than research for a paper, especially given you don't know about my background nor the extent/output of what I was doing (IB/PE 5 years - again just to provide a reference point). I'm not saying it is or isn't on par (who knows without actually comparing) but nonetheless the instant trivialization isn't really based on anything.

As for my comment, I was just curious about a short squeeze and if people thought it would happen. You are right it has nothing to do with fundamental but that wasn't my question so I'm not sure why you felt the need to attack it, while not providing an opinion. And to your point it does effect short players such as WH because while betting long term on fundamentals rising price puts liquidity pressure on the short holders.

Anyway, I never intended for this to digress into this dialogue. I was just curious about people's thoughts on a potential short squeeze and the potential physiological impact that comes into play in ones investment analysis, especially as time passes.

 
Apr 22, 2013 - 11:20pm

ke18sb:
Sorry for the misinterperation as I was not trying to create a pissing match of time spent researching more so providing a frame of reference - ie I'm not writing based on reading one article. That said, is it wrong to assume that research by WH for a position is any greater than research for a paper, especially given you don't know about my background nor the extent/output of what I was doing (IB/PE 5 years - again just to provide a reference point). I'm not saying it is or isn't on par (who knows without actually comparing) but nonetheless the instant trivialization isn't really based on anything.

As for my comment, I was just curious about a short squeeze and if people thought it would happen. You are right it has nothing to do with fundamental but that wasn't my question so I'm not sure why you felt the need to attack it, while not providing an opinion. And to your point it does effect short players such as WH because while betting long term on fundamentals rising price puts liquidity pressure on the short holders.

Anyway, I never intended for this to digress into this dialogue. I was just curious about people's thoughts on a potential short squeeze and the potential physiological impact that comes into play in ones investment analysis, especially as time passes.

Never intended for my comment to come across as harsh or attacking you, so my apologies. What I was trying to say was that research for an academic paper and for investment purposes (unless your paper was something financial/investment related).

But in regards to the short squeeze you're completely right: the very nature of the short squeeze supports the idea that shorts aren't always able to hold on and are forced to cover when they become insolvent or lose confidence. Though I think even if the stock went to $200 tomorrow on no fundamental changes whatsoever it wouldn't invalidate the short thesis any more than the impact it would have on the ease of raising financing now that your stock price is huge. And as for holding on due to stubbornness or shortsightedness, look no further than Bill Ackman for a few great examples of that. Again though, only once some of your carefully reasoned arguments completely disappear on an investment thesis do you start to re-assess your position. Just seeing a stock price move against you doesn't make you wrong (see: Einhorn, David re: Allied).

I hate victims who respect their executioners
 
Apr 29, 2013 - 1:07pm

it looks like you are getting a bit of a squeeze right now. Most of the shorts are likely hanging on for Q1 earnings, but if that proves to be a non - catalyst then you could see the stock squeeze even more in my opinion. Say Tesla raises money (one leg of bear thesis is that they need to raise capital), fesses up to weak reservations in the US (the primary catalyst shorts are banking on, I believe) but says they are seeing strong demand abroad and thus does not cut production. It is hard to see the stock falling much on this and it defers out the bear case of a liquidity crunch. Since the shorts are paying a high borrow rate it is almost certain some will elect to move on if there is no longer an extremely near - term catalyst to trigger re-rating. There won't be much incremental shorting to pressure the stock since it can't be located, and the position will be reaching heights where it is becoming too large and must be covered which could trigger panic covering and a further squeeze. Hard to figure out who the incremental long buyer is at these levels, though, and that is what could keep it from becoming too manic.

I recently had to cover out of a very high conviction long - term short to avoid what I predicted would be a rally / squeeze in GME. Covered at $27 when earnings were terrible, guidance was terrible and the stock still rallied and management made it into a 2014 story. Shorts need a near term catalyst especially when they have a high borrow.

 
Apr 29, 2013 - 7:18pm

secretariat:

I recently had to cover out of a very high conviction long - term short to avoid what I predicted would be a rally / squeeze in GME. Covered at $27 when earnings were terrible, guidance was terrible and the stock still rallied and management made it into a 2014 story. Shorts need a near term catalyst especially when they have a high borrow.

Funny. I posted GME as a high conviction long earlier in the year on this forum.

http://www.wallstreetoasis.com/blog/blackhat-loves-orly-o-really-i-asked-why

Follow me on Twitter: https://twitter.com/_KarateBoy_
 
Apr 29, 2013 - 4:37pm

Long thesis: $200/share

http://www.businessinsider.com/presentation-why-teslas-the-next-apple-2013-4#forget-the-bears--tesla-will-be-trading-at-200share-in-5-years-1

Follow me on Twitter: https://twitter.com/_KarateBoy_
 
Apr 29, 2013 - 10:00pm

Well nice call then! I believe that the move to cloud content and digital downloads will wipe out physical game sales over the medium term, and while the business is exceptionally profitable now it is typical retail (thin margins and massive deleverage on neg. comps will occur), so if 20 - 30% of the market goes to digital download then GME's EBITDA goes to nil. However your poitns about the console refresh cycle and mgmt being very shareholder friendly are totally valid, and a big part of why I covered. Post E3 though I think GME is a short. The digital download model is so superior to retail. Games don't even ship with much documentation anymore so there is no value add from a physical copy and delivery is cheaper, updates easier via dig. DL and you can phase out the used game market, too. GME is like blockbuster IMO, similarly little value add from a physical DVD as a physical game.

 
Apr 30, 2013 - 9:56pm

secretariat:

Well nice call then! I believe that the move to cloud content and digital downloads will wipe out physical game sales over the medium term, and while the business is exceptionally profitable now it is typical retail (thin margins and massive deleverage on neg. comps will occur), so if 20 - 30% of the market goes to digital download then GME's EBITDA goes to nil. However your poitns about the console refresh cycle and mgmt being very shareholder friendly are totally valid, and a big part of why I covered. Post E3 though I think GME is a short. The digital download model is so superior to retail. Games don't even ship with much documentation anymore so there is no value add from a physical copy and delivery is cheaper, updates easier via dig. DL and you can phase out the used game market, too. GME is like blockbuster IMO, similarly little value add from a physical DVD as a physical game.

I disagree, I think that physical console games are gonna stick around for 5+ years and by then, GME can build up other businesses like its Kongregate.com or consumer products recycling. On top of all that, they'll probably generates $2.5+ billion in FCF.

What most people don't get is that consumers generally want physical copies of games, and GME's core customer wants it more than anyone else. These guys are video game collectors.

The thesis that shift to digital will wipe out GME's EBIT/EBITDA sounds to me like someone is just viewing used games as a plug in model. It cannot be stressed enough that used game demand is a moat for physical games.

As an example, if you're buying a new game for $60 and you know that GME will buy it back for $20, then your total acquisition cost is $40. In contrast, most digital video games are still $60. GME's wholesale cost is $48.

You're also ignoring the fact that the publishers like ATVI and EA LOVE GME because they're a sales powerhouse. GME sell more DLC content for CoD than ATVI does!

WAY to many people want to compare GME with Blockbuster and audio stores it's a different product and a different consumer. GME is more of a destination than a retailer.

I can go on and on about this...but I'll just say that stock's going to $50+ before it's going to $20.

I always get a little riled up/excited about a stock debate :)

Follow me on Twitter: https://twitter.com/_KarateBoy_
 
Apr 30, 2013 - 10:03pm

I got burned on a significant (for me) number of GME puts. I knew the valuation was cheap and although Cash is King, I really felt the stock would get dragged down for future problems, similar to say AAPL.

I find that generally my take on a stock or company is sound, but I struggle to time the trade. For instance, I rode Solar companies down from Feb to early April but didn't get out in time before they started to rise again. Still made a decent profit on medium-term puts, but if I had sold a week or two beforehand, I would have made 20-30% more.

What annoys me is, if an investor used the same type of fundamental valuation on a stock like LDK as it did with GME, that stock should already be sub-$.50.

 
May 2, 2013 - 10:38am

Interesintg points. I'll follow up when I have a chance to organize my thoughts some more. However I have these questoins off the top of my head:

1) Why can't the digital storefront model be vastly improved vs. current console interfaces? Won't publishers ultimately be able to target promotions and use loyalty programs to "own" their customer much better via digital than via physical retail? Can't they cut out retail margins and won't they be able to optimize pricing of the product better than today when retail is disintermediated?

2) What gives you confidence that the majority of GME's market likes to "collect" physical copies of games? Is there data to back this up? Will this overcome convenience and potentially lower price points of the upfront sale on digital? Keep in mind that Sony has said they will have games downloading in the background so they are ready to turn on and play as soon as you purchase them on the digital ecosystem, which sounds lke a pretty compelling model for the user.

3) If the bull story hinges on used games, then what happens if the pubs really start to crack down on that? I know that some bulls think pubs won't do that because used games are additive to the overall market (due to the lower effective cost from trade - in driving higher consumption), but they have been vocal in the past about cracking down on used game sales?

I have more but gotta actually do my job...will be back love a good exchange of ideas on a controversial stock

 
May 9, 2013 - 1:05am

curious if Whitehat is riding this one out or if he covered. If you are still short as your largest portfolio position, I feel for you man...probably best not to cover on the open but wait for the squeeze to taper off if you can tolerate the pain

 
May 9, 2013 - 1:41pm

Disclaimer for the Kids: Any forward-looking statements are solely for informational purposes and cannot be taken as investment advice. Consult your moms before deciding where to invest.
 
May 10, 2013 - 7:51am

Not going to speak for WH any more than this but pretty sure he's got this as a 2015 position... shorting would be retarded given the cost and already ridiculous short interest

I hate victims who respect their executioners
 
Aug 2, 2013 - 12:38pm

BlackHat:

Not going to speak for WH any more than this but pretty sure he's got this as a 2015 position... shorting would be retarded given the cost and already ridiculous short interest

What do you mean by having this as a 2015 position? He'll be holding his short position until then?

And what do you mean by cost of shorting? If you short at this point, you're better off than if you shorted at $20 per share, no?

 
Aug 2, 2013 - 7:55pm

secretariat:

Interesintg points. I'll follow up when I have a chance to organize my thoughts some more. However I have these questoins off the top of my head:

1) Why can't the digital storefront model be vastly improved vs. current console interfaces? Won't publishers ultimately be able to target promotions and use loyalty programs to "own" their customer much better via digital than via physical retail? Can't they cut out retail margins and won't they be able to optimize pricing of the product better than today when retail is disintermediated?

2) What gives you confidence that the majority of GME's market likes to "collect" physical copies of games? Is there data to back this up? Will this overcome convenience and potentially lower price points of the upfront sale on digital? Keep in mind that Sony has said they will have games downloading in the background so they are ready to turn on and play as soon as you purchase them on the digital ecosystem, which sounds lke a pretty compelling model for the user.

3) If the bull story hinges on used games, then what happens if the pubs really start to crack down on that? I know that some bulls think pubs won't do that because used games are additive to the overall market (due to the lower effective cost from trade - in driving higher consumption), but they have been vocal in the past about cracking down on used game sales?

I have more but gotta actually do my job...will be back love a good exchange of ideas on a controversial stock

Sorry for not answering these questions earlier. They are legitimately good, I just got swamped with the real work.

I just want to say three things:
1) At the end of the day, there is a judgement call that needs to be made on GME, like with most other stocks. I'm also a BIG believer in the gaming cycle.
2) EA will tell you that digital only sales of console game is very small % (don't remember the exact number but I think less than 3) The bear thesis really relies on the expectations that this $9B company does nothing to combat these headwinds. They made XBox scream "uncle" because they have too much power.

P.S. Stock is near $50, more than 100% gain YTD. My PT was always $60+.

Follow me on Twitter: https://twitter.com/_KarateBoy_
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