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Which other car company do you think have the darkest future?

Discussion in 'TSLA Investor Discussions' started by Perfectlogic, Oct 28, 2014.

  1. Perfectlogic

    Perfectlogic Member

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    #1 Perfectlogic, Oct 28, 2014
    Last edited: Oct 28, 2014
    As a guy with a large investment in Tesla I was thinking about hedging my bet with a short of some kind (will probably be options) on a competitor in the auto industry. But which company? The industry is already valued pretty cheaply on a P/E basis and especially on a P/S basis, which ofcourse means a small uptick in margins would crush a short, but as the industry is also ridden with debt so bankruptcies are a real risk as the shift in technology is substantial and a lot of companies doesn't seem very enthusiastic about electric, and if they rest on their laurels for too long the catchup game will be very difficult as electric is moving much faster than BEVs.

    GM was the first that came to mind as they already went under once, but their mkt cap is pretty depressed at the moment. I actually like Toyota the best as a short candiate right now, being the largest mkt cap in the industry with a healthy profit margin they seem to have the most room to fall, and they happen to be advocates of hydrogen too instead of electric, which I personally feel very certain about being a horrible move, which I think will be obvious over the coming few years as we get some colour on the Model 3. Toyota also happens to have an enormous amount of debt; a whopping $152B, with $42B more in accounts payable and accrued expenses. Their cash and short term investments totals $41B. That is some hefty liabilities for a company valued at a relatively high 0,82 times sales, their P/E is 10,6 but their margin might tumble down to industry standards, earnings seem to be artifically inflated right now, might be becuase of the significantly weakened yen. Toyotas profit was half in FY13 compared to FY14, about 1/5 in FY 12 and 11 compared to FY14. What do you think?
     
  2. Zythryn

    Zythryn MS 70D, MX 90D

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    I consider shorting a form of gambling, so I would never suggest shorting anyone. Possibly the one exception would be Axion Power, but they have so little room to fall it is more a jab at J. Peterson ;)

    That said, for any of the big guys to actually fail takes huge events and Toyota is stronger than most imo.
    When you have revenue streams as big as Toyota you an support a lot of debt.
    As for hydrogen, imo, it will be a boondoggle. However, Toyota is getting a lot of the money from governments and taxpayers. The amount they are spending themselves on R&D isn't going to break the bank.
     
  3. Perfectlogic

    Perfectlogic Member

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    How is shorting more gambling than going long a stock? I would argue that the use of shorting along with going long would lessen the risk of a portfolio, as you earn money when the market goes down as well.

    Why?

    I am pretty sure Toyota has the highest debt to revenue in the business. It is more than 50% of their market cap, aside from their accounts payable and accrued expenses.

    Even though those expenses wont be their downfall, being late to the electric party could.

    Anyway I am not saying they necessarily will go bankrupt, but looking back 3 years their stock were as low as $62 ($115 right now) and I think there is at least a 25% chance of them seeing that level again in the next few years as electric gain more traction, hydrogen will be unveiled as fool cells, and their profit margin falls a few percent. I see the first two scenarios as very likely, I don't know if their margin will edge close to the industry average but it doesn't seem unlikely. The implied volatility is low for TM, which is also why I like this trade, you can get 2017 $70 puts for $1,45.
     
  4. Robert.Boston

    Robert.Boston Model S VIN P01536

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    Shorting is generally considered riskier because it has a theoretically unlimited downside, while the worst that can happen when you buy an equity is that you lose your entire investment. The potential for margin calls also makes holding short positions disruptive to your portfolio cash management.
     
  5. Perfectlogic

    Perfectlogic Member

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    Might be riskier but I wouldn't say any play with higher risk than a normal share is gambling. Anyway as I mentioned the trade I have in mind will probably be puts to take advantage of the low IV.
     
  6. adiggs

    adiggs Active Member

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    I haven't look at the financial reports, so I'd have a lot more research to do before I stake this out as an actual position... the company that I look at and think will be feeling the effects of Tesla's growth in the most dramatic way sooner than later is Porsche. Unlike Toyota / GM / Ford, Porsche is largely located in similarly priced markets as Tesla, with worldwide volume on the same order of magnitude as Tesla. To the extent the Model S / X represent purchases by people that would be buying in the same price range anyway and are moving from other brands to do so, the effect on Porsche will be outsized due to them being "about" the same sized.

    By about the same sized, the unit sales numbers I saw for the US put Porsche at about 2x Tesla in the US. That was including an SUV as well, where Tesla doesn't yet have unit sales of an SUV (if you exclude SUV's from the units, then Porsche and Tesla in the US are about the same # of units this year).

    The way I look at it - what would it take for Tesla to take 10% of Porsche's unit sales? I think they're in position to do that already, and certainly next year with Model X. To take 10% of Toyota's sales, Tesla has to be selling units that are what - 2 orders of magnitude higher than they're at right now? The first Gigafactory at full production doesn't get them there.

    So that's my candidate for shorter term pain - short term being the next 3 years or less - who is selling in the same priced market as Tesla, and is currently operating at volumes that are higher but still within an order of magnitude of Tesla. I expect Porsche and Tesla to swap positions on unit sales in the next year or 2.
     
  7. Familial Rhino

    Familial Rhino Endangerous Herbivore

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    That isn't hedging your Tesla bet, it's doubling down.
     
  8. Perfectlogic

    Perfectlogic Member

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    Isnt Porsche a part of the Volkswagen Group? Meaning you can't short them directly? I agree they are a good candidate if possible. I realize Tesla won't take a significant part of Toyota's sales anytime soon, but if Toyotas profit margin slide just a few percent close to the industry average and their bet at hydrogen turns out to be wrong they could take a large tumble given their lofty valuation at the moment.

    I am hedging against a market downturn / industry downturn.
     
  9. Familial Rhino

    Familial Rhino Endangerous Herbivore

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    Got it.

    GM and Fiat/Chrysler seem to me more vulnerable than the rest. I'm not that confident to short them myself, though. Too much uncertainty for me.
     
  10. Skotty

    Skotty 2014 Model S P85

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    Chrysler feels weak to me. I have no idea what their current valuation is though. Dodge has been a strong brand in the past, but I feel the once mighty Ram trucks are losing their appeal to the public, and their cars I've looked at feel bulky and overpriced. They may have a saving grace in their new Dart, but I don't have any confidence in that. I've also always felt that Jeep was probably their strongest holding, but I'm afraid to my own dismay the brand will slowly diminish up against a new generation of city dwellers who think off roading means walking on foot.
     
  11. siai47

    siai47 Member

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    I think the darkest future award should go to Mitsubishi. They are a small car company attached to a huge corporation. Their products are aging. They are re-badging other makes with their name to fill in holes in their product lineup. One of their hottest sellers, the PHEV Outlander, never made it to the US because of battery supply constraints (sound familiar?). I don't think they have their hearts in the production of automobiles. I think Mitsubishi's stock would soar if they got out of the automobile business.
     
  12. Johann Koeber

    Johann Koeber Member

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    I have been thinking about this. Car companies might still 'get it' and eventually succeed. Elon will help them (e.g. by sharing patents). We know Tesla cannot do the shift to sustainable transportation alone.

    But what about oil companies? I see their future as much less bright. I am considering shorting BP. It's more of a long term thing.

    Then there are utility companies. That discussion would deserve a separate thread, maybe in another forum.
     
  13. RobStark

    RobStark Active Member

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    #13 RobStark, Oct 29, 2014
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    ~64% of oil is used for ground transportation.

    Then there is fertilizer,plastics, lubricants, jet and rocket fuel etc etc etc.

    And you can even make synthetic graphite for lithium ion batteries.

    As demand for gasoline and diesel fall the price of oil will fall.

    Making oil more economical to use for these other purposes.

    Much like Rail Roads were the most powerful industry in the USA,Canada,and Britain in the 19th century then slowly fell in importance so to will Big Oil.

    But not to the point of becoming irrelevant and shuddering their doors.





    As far as legacy automakers?

    How about companies like Mazda and Subaru with zero EV game?

    And least Fiat Chrysler has some experimental stuff going on with Ferrari and they are supposedly bringing out the PHEV-BEV minivan they have been working on for 20 years just in case they absolutely positively were forced to make to meet CARB requirements.








    BTW I have seen several statements by Mitsubishi Motors executives saying they see their future in EVs. At the very least that gives them an advantage over Subaru/Mazda.
     
  14. Yggdrasill

    Yggdrasill Active Member

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    I would short Toyota.

    They don't actually have to start losing money for their stock to fall. Once the Hydrogen hype wears off, which is as soon as people can actually buy one, and realize it's not a magical futurecar of awe and glory, Toyota's bet on the future will seem quite foolish.

    Maybe Toyota can recover from their mistake before they lose their shirt, but before then, I think their stock will suffer.
     
  15. Johan

    Johan Took a TSLA bear test. Came back negative.

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    It's true that Toyota is currently making a very wrong bet with the FCVs which will play out very poorly for them up until 2020. But, Toyota although it is a very large company has a long history of great organizational skill, quality control, administrative know-how etc. which puts them in a position to perhaps be able to turn the ship around efficiently once they realize their mistake. The big "if" of course being how much their pride will hinder them from realizing this before it's too late.
     
  16. RobStark

    RobStark Active Member

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    I think the better word would be acknowledging.

    My guess is that at least few executives already know it is a boondoggle.

    They are hopping Nobel prize worthy discoveries/inventions will save them.

    Or they know they will be in retirement before the humiliation of acknowledging their decades long billion(s) dollar mistake.

    Saving face avoiding humiliation is even more important in Japan than Europe and North America.
     
  17. Johan

    Johan Took a TSLA bear test. Came back negative.

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    This is true. I'm not an expert on Japanese company culture, but I do know and have read about their work on internal company culture (The Toyota Way - Wikipedia, the free encyclopedia) which to my knowledge challenges some of the traditional Asian "save face" reflexes. For example I read that when a worker in their factory find something wrong with a vehicle the line would stop, the teams would gather to work out what was wrong on that vehicle before the lines would be restarted. There would not be any focus on who's fault it was but instead on how to fix that vehicle so that it would be "perfect" (in line with their strict internal quality goals). If this holds true, it would suggest that their company culture would be focused on resultas rather than apperances.
     
  18. Auzie

    Auzie Tree Hugger Member

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    My guess is that such commendable process applies to minions on the assembly line. Toyota ship captains appear to be beyond anyone's scrutiny regarding their strategy. Who is going to yell out 'stop' to Toyota board?
     
  19. RobStark

    RobStark Active Member

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    But that did not happen regarding the cases of sudden acceleration.

    Absolute secrecy regarding the data and absolute company loyalty was the name of the game. Dealer techs could not access the data only a handful of executives had the electronic keys to access the data. In other words saving face.

    Settling of lawsuits with iron clad non-disclosure agreements

    Internal transparency with regard to quality control is one thing dealing with the outside world is another.

    It is easier to adhere to these lofty principles when the going is good. Continuing sales increases,market share increases, and public respect bordering on adoration. In this setting acknowledging small mistakes might even add to your reputation.

    We will see how easy its to acknowledge decades long billion(s) dollar mistake.
     
  20. Johan

    Johan Took a TSLA bear test. Came back negative.

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    You make some really good points. Toyota is most likely in an inevitable slide towards failure but I would be careful to count them out completely just yet. If (when) a giant like this goes down, even if it happens gradually, it will have a lot of effect on the landscape. Some of the old automakers will rise from the ashes and I believe other new ones, beside Tesla, will arise.
     

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