It was a good idea to buy at $200, just a better idea to buy at $190 and $150 like Elon Musk did with the benefit of privileged access to insider information.
The stock will take off for the remainder of 2016 from mid to late Feb (I said that and it is/will).
I said the stock would be horribly volatile up until then, and it was.
I said the macro thing was a short term news cycle event rather than a long term reality, it was. For the most sincere acknowledgement of this, see Goldman Sachs recommendation to short GLD (Gold) for the remainder of the year.
I said that the year would be made up of positive operating results, the unveiling of a revolutionary car and insane quantities of reservations. With the bar set low to $1000 reservation per car this is absolutely correct.
I said that the reservations will challenge the notion that 500,000 cars built in 2020 is enough, it will be challenged this year and possibly revised upwards as a result of excessive registered demand.
I said that they would use the revolving loan facility to leverage operating cash flows for vehicles in transit and refinance actual lease vehicles. They did/promised exactly that.
I said that the Model X ramp inclusive of all of the issues discussed fit under the curve accurately described as an exponential ramp. This was precisely true and verified on ER.
I said the Gigafatory deal was extraordinary and that the bearish babble about scale and timing was bunk, it was bunk and the bears were directly targeted for debunking on ER.
I was (wrongly as is now obvious) labelled a fraud by a poster on TMC for stating all of the above and I reacted honestly to that accusation. I have volunteered some free time in a bid to protect retail investors from being rinsed out of their winnings and in that regard I trust and hope some good has remained, undiluted by the effect of the attack on my character and the way in which I chose to respond in self defense.
The two things that I have said that I believe are true and have yet to be borne out by history are the following:
I think it is massively under-appreciated by the markets – the impact that Model 3 reservations will have on market dynamics. Both in terms of auto market competition and in the capital markets. Customer demand shifting by the hundreds of thousands if not millions from dealer lots to Tesla’s servers will I think materially impact the performance of major players. Resulting in overproduction, channel stuffing, discounting/margin pressure, excessive advertising expenses/margin pressure. Major automotive players are traditionally profitable but those profits are slim. For example in 2014 GM cleared $2 billion in net profits on $150 billion in revenues. It does not take much of an error in demand estimation to put big auto in the red, throw in a recall or two and there is trouble.
The traditional auto industry and TSLA bears (practically the same thing) think that there is no competitive threat from Model 3 until the Model 3 is in full production in 2018 at the earliest, and bearish hubris envisages breathing room even longer than that. They are absolutely dead wrong about that for the reasons stated. They are making this error because they conflate ICE sales with demand for ICE vehicles and because they view competition only as competition between vehicle models standing in dealer lots. There is no demand for ICE vehicles in a market that presents a choice of something better. That choice has never existed before except in the discretionary $70 - $150K price class. In that class however Tesla Model S has taken a 25% market share as highlighted on ER - and still the bears imagine they can relax about Model 3 demand until 2019 when in fact the change in consumer demand patters will materialize as a result of reservations and within weeks, not years, and take effect continuously from this year through 2020 and beyond. In fact there is strong anecdotal evidence online already of consumers making preparations to keep their old car in service long enough to take delivery of Model 3 instead of buying a new car. If that takes root from March 31 on a mass scale as is likely then this year will be a very rough ride for big auto and TSLA shorts in general.
Secondly, Tesla Energy. I am reasonably convinced that Tesla Energy (at least the timing of it here in 2016) is the product of excess pre-silicon anode 18650 cell inventory. It does not matter that this year this is a relatively low margin exercise. It does not matter that the market in 2016 is limited to special economic cases for PowerWall in South Africa and Australia and maybe Germany and to pilot projects and partially incentive funded exercises for Power Pack. The near-term quantum of demand is still enormous compared with the relatively small scale of the Tesla business and more to the point, selling down excess inventory is a cash flow windfall. The eventual economics of Tesla Energy are equally extraordinary. Tesla has the advantage of brand, road-tested technology, advanced smart-grid and OTA controls, and first mover advantage in the direction of massive scale. This will yield fruit past the competitive tipping point of storing energy in rechargeable and fully recyclable batteries as opposed to storing energy in fully expendable fossil fuels retrieved via inefficient heat engines. Long term the corrupt protectionism of the fossil fuel utilities will break under the weight of economics.
One cannot force voters to overpay a fossil fuel utility forever. Same way that one cannot force consumers to buy overpriced and underperforming ICE vehicles plus gasoline and participate in a razor and the blades dealership sales and service model forever - given the choice of a Tesla vehicle.
Tesla is perfectly positioned to take advantage of a deck that is comprehensively stacked in it its favor. Musk is 100% correct to have positioned his recent trades accordingly. My opinion is that anyone that that has yet to follow suit, probably should in their own best interests.
There will be horrible political kick back and skullduggery from the ICE auto makers, dealerships, Big Oil and utilities and lobbyists political shills and entrenched shareholders of all of the above, but these industries are universally hated by consumers and are simply tolerated as a function of lack of consumer choice. Consumers that demand the ability to exercise consumer choice out-number the employees and shills of those industries 500:1 at least. That is where the real power is at, consumers and the technologies they want to buy, not companies and their sense of entitlement to sell outdated products and services that consumers no longer need nor want.
As I have said on TMC that 2016 is one long stock roadshow that will kick of in mid to late February (now difficult to deny). One of the most telling things to note is that Musk and team have commenced specifically targeting the shorts with rebuttals commencing with ER. An ER commencing with the description of how GAAP distorts revenues and profits as a result of lease accounting for residuals and the fact that market residuals are holding up higher than required to cover residual value guarantees, that these higher than expected, and have the added benefit of converting strongly and efficiently to upgrade sales. This targets and destroys yet another leg of the short thesis, one that I have been keen to explain for quite a while.
Musk and company on the offensive with regards to defending the stock is a good thing. No. It’s a great thing. They do not always do that. Might want to watch out for Musk changing his Twitter picture to the cat and tux.
They also confirmed on ER something else that I have been saying on TMC – that the spending phase on Model 3 production capacity will commence in earnest towards the end of the 2016 year i.e. Q4 (and hence by definition Model 3 spending will be modest prior to that while they target strong results from sales of Model S, Model X and Tesla Energy). This reaffirms the thesis that I have put forwards that the TSLA stock will peak in Q3 2016, probably at the crest of a multiple-quarter-long rolling short squeeze and probably as a prelude to a significant capital raise to expand GF and M3 production capacity ahead and beyond the 500,000 per year in 2020 schedule on the back of proven Model 3 reservations.
Good luck.
Julian.
