I have spoken about Tesla (NASDAQ - TSLA) at the last two UK Investor Shows and written about it extensively as a once in a generation short opportunity. Given that it is probably the most covered and talked about stock in the world, I do not propose to continue writing about it for a while but do make the following observations after its Q1 release on Wednesday… The numbers were worse than the most pessimistic projections and even long-term bulls such as Daniel Ives of Wedbush appear ready to throw in the towel...
He wrote: “To this point, in our 20 years of covering tech stocks on the street, we view this quarter as one of top debacles we have ever seen while Musk and Co. in an episode out of the Twilight Zone act as if demand and profitability will magically return to the Tesla story”. As he appears to have discovered, Tesla is not a tech stock – it is an inefficient, loss-making, automobile manufacturer with an unsustainable debt burden and a CEO whose compulsive lying and empty promises are finally getting under the skin of all but his most diehard cult followers. With all the noise around Tesla, the latest news essentially moves the debate on from “Is Tesla a growth story?” - which has been emphatically answered in the negative, to how much money it needs to stave off bankruptcy, how soon it needs it, and in what form the raise will come.
A few weeks ago I feared that, given the irrationality of the average Tesla investor, a discounted equity raise might, against normal convention, see the share price rise as the move would be greeted as the final barrier to growth being removed. I think that risk has receded. Musk’s attempt to deflect attention from the company’s dire situation with last week’s ‘Autonomy Day’, in which he promised fleets of driverless cars next year, earning money for their owners uber-style, was met with ridicule and disbelief by the serious press and the shares now trade at 2 year lows.
The other important question is the level at which Musk faces margin calls on the huge loans he has taken out against the value of his shares. I have read no definitive analysis on this, but the consensus seems to be that around $200 it could start getting messy. With the shares trading under $250 that doesn’t seem so far away. I believe that Musk is well on the way to booking his place in the great pantheon of charlatans and that when people look back in a few years’ time and think that they bought the story of a man who talked confidently about colonising Mars, they will hang their heads in embarrassed disbelief. It is my view that the shares trade below $100 this year if a raise is pulled off - which is by no means a certainty - and go to zero in Q3 if it is not. I look forward to reporting back in September.
Filed under: Tesla, Ferro-Alloy Resources, Nexus Infrastructure, Anglesey Mining, Lok 'n Store, Trakm8
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