Frustrated with Tesla and GM, David Einhorn Amps Up Pressure
bloomberg.com
bloomberg.com
He, like some others, can't figure out why people like Tesla's stock. And because of that he has bet it will go down when those investors 'wake up' to the reality as he sees it. The problem is you can't really know which reality is 'correct' until later looking back.
People who value Tesla as a car company value it one way, people to value it as an energy company value it a different way. Who is right? We won't know for another 5 years at least.
[1] Yes there is this weird marginal point where either definition might apply. But derivatives are (for me) always a 'trading' play.
Also, should Elon Musk participate in puff pieces that promote Tesla? Or is that inappropriate?
When you look at companies, sometimes the boards and management stop acting in the best interest of shareholders. They may be doing this due to self-serving reasons or incompetence, but it doesn't matter.
Activists play an essential role in ensuring companies look out for the best interests of their shareholders.
Here's a good quote about some activist investors in a small public company.
"He said that the benefits of being public outweighed the costs. He had been at a private company and had worked under pressure from private-equity investors. Public markets, he said, enabled Tejon Ranch to operate under much less short-term pressure, and to take a longer-term perspective. We were flabbergasted: Many companies go private or stay private to avoid the short-term pressure that public markets can create. But the fact is, for companies the size of Tejon Ranch—and there are thousands of them, filling the portfolios of mutual funds and pension funds, even though most investors have never heard their name—Bielli is probably right. Because so many investors are passive today, most CEOs can relax, even if their performance is mediocre."
https://www.bloomberg.com/view/articles/2017-04-17/activist-...
Valuing the 'dividend stock' would be pretty easy, but what about the 'capital appreciation' stock? What value does that take on? I'm assuming that voting rights would still be split between the two - otherwise the company's board wouldn't concern itself with dividend issues.
But really - without dividends or the future promise of dividends, how would anyone value the 'capital appreciation' stock?
There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued...
There are tons of stocks that don't pay dividends, but investors value them based on the promise of future earnings and future dividends. Snap doesn't pay dividends, but either it will someday or they'll get bought up.
The cornerstone assumption behind stock valuation is self-interest in ownership - either dividends based on earnings or the promise of future earnings and dividends. Or getting bought up, which is still sort of a dividend - just a dividend for the buying company.
Given that GM isn't going to get bought up any time soon, what self-interest is an investor in GM satisfying by buying shares that are guaranteed to never issue dividends? Share price increases? When does that stop? Is there an upper limit? What is it based on and how do you know we haven't hit it now? How is this not a tulip-market?
The one with voting rights has slightly higher price, but they track each other pretty closely.
Microsoft stock was flat for years under Steve Balmer. Microsoft had become Con-Edison - a utility that would reliably make money year after year but wasn't going to see growth in earnings. Shareholders rightly demanded dividends if the company couldn't improve its earnings growth.
Thinking ahead to that, what's going to happen to everyone who owns "goog" when there's a sustained period without earnings growth at Google?
If I buy US stocks, I get taxed 15% US witholding tax on the dividends, then 30% Belgian withholding tax, leaving me with 59.5% net after dividend taxation. But if the share appreciates, I pay zero capital gains tax when I sell.
OK, I get that this was not the point of the operation, but it would definitely be a side benefit. Lots of Belgians buying Irish registered ETFs for similar fiscal reasons...
It tells a story of when Einhorn realized a company was more-or-less fraudulent, and his fight against the SEC and the company to release the truth. He had the incentive for this fight because of his short position. Einhorn was ultimately proven correct, and the company collapsed. The book is equally interesting, informative and infuriating.
https://www.amazon.com/Fooling-People-Complete-Updated-Epilo...
Well as a fund manager his #1 concern is maximizing his fund's investment returns.
He couldn't care less if GM/Tesla gets their "act together".
TSLA definitely seems over-valued, but the market is betting on the possibility of Tesla massively disrupting combustion cars, which explains why TSLA stock is soaring while GM stock is stagnating/flat.
[1] https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company
- Market cap: 50B
- Expected return on capital: 10%
- Expectable profit margin: 10%
- Expectable average unitary price: 50k
50B*10%/10%/50k = 1 million vehicles.
Tesla is selling about 80k vehicles yearly (at about double the above average sales price): http://www.ibtimes.com/tesla-motors-tsla-1q-2016-sales-14820...
The current valuation requires an increase in volume of five to ten times. Given the sales volume evolution of the current product lineup and the entry in a lower segment, it's definitely not out of reach in a five year horizon. Add up to five years to pay accrued debt (it should amount to about 10B before Tesla reaches steady state in the known product lineup).
All numbers are order-of-magnitude precision, but they surely do not point to a «certainly "wrong" stock value».
The market for ~$70,0000 sedans is not so great that increasing volume 10x is reasonable, within 5 years.
The margins for ~$30,000 sedans are lower then 10%.
So, volume may go up 10x, but returns might not.
Of course it is, and it will surprise no one but the eternal bulls.
Tesla has nailed the tech, but auto manufacturing is big and they're new at it (despite how many robots they've bought). You can see the prices at which the other manufacturers are having to subsidize their small EVs and still lose money. Tesla threw out the $35,000 years ago and have stuck with it.
So, it's really no surprise that the price will creep up; the real question is: how big is the market for a $50k EV? Is it as large as people are assuming? Can they make money on 250k cars annually?
Someone help me understand how come a person/entity who merely owns 3.6% of a company has the right to be this aggressive about the future growth and policy-making of the company?
Some help me to understand how an owner of a company is not entitled to be aggressive about the future of the company. It's mostly in Silicon Valley where nobody cares about shareowner's rights (and yet everyone is so concerned about the little get getting the short end of the stick).