Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla
cnbc.com
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But their price only makes sense if they end up being the only car maker left.
That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the price, but what I see right now looks like there is many players, old and new, moving in.
I won't short them tough, in the end I'm just a dog on the internet and have no clue how stonks work.
I don't hold TSLA right now, regretfully, I entered pre-split at $27 and sold at $200. I also think the current price is way too high, for what it's worth. WAY too high. But it's not at all about cars, at least not for me, when trying to justify the valuation. It's about energy at large scale, and transportation at large scale. Not just car sales. Or battery sales.
Edit: Currently P/E is ~570! I remember it being 1,300 recently. Yikes.
With Tesla's ridiculous valuation, they can make all sorts of terrible purchases like that and still succeed just fine.
Criticism of Musk is one thing. The whole “remove the veil” sorta “red-pill” type language, criticism that Musk has never done anything useful or noteworthy other than scamming falls apart for anyone who has been paying attention for more than a couple years. Electric cars pre-Tesla were a joke. Tesla had enormous influence. And SpaceX (which was founded by Musk, who runs it as chief engineer) launched more mass to orbit last year than the rest of the world combined, a remarkable turnaround from the failure of US companies to be commercially competitive.
There are things worth being skeptical of. “Full self-driving,” for instance or even, sure, the Solar City deal (although arguable). Perma-skeptics like Thunderf00t, though, never acknowledge this kind of stuff.
However, there's plenty of stuff to be skeptical about and I do not get the rebuttals that Musk created jobs, or helped put electric cars on the map therefore he's beyond criticism. I was his fan right till Thailand cave story developed.
I think the hate Musk gets is fuelled by such shenanigans and more so by his fanboys online.
I'm not informed enough to dig into your SpaceX claim but my first instinct would be to check if SpaceX lifted so much cargo just because they have that largest client (the US), that had no alternative options (Shuttle program discontinued). That is, no one else had clients with so much cargo lifting needs so no one lifted as much, but not because of technical ability. Because Musk likes to play with numbers like that. For example his claims about Boring company's price per mile looks impressive because he compares the boring price with the price of a complete metro project price (Thunderf00t's SpaceX debunked video has more details).
All three technologies are really key parts of the future, and controlling that aspect of the suburban home energy profile have absolutely huge synergies.
As we get to higher penetration of renewables, our grid will change from the current model of supplying whatever power is demanded, to a far more two way mode where excess supply will drive time-shifted demand.
Right now the only monetization strategy on the grid for solar/storage providers are 1) net-metered solar, and 2) backup electricity for outages. This will change.
The most expensive component of an EV is the battery, and it's likely we will have as much grid-attached non-EV storage as we have EV storage.
IMHO the current price is unhinged from any analysis, and fully in the tulip bulb stage of share pricing. But I think that Tesla is better positioned to take advantage of three core technologies of our energy future, three techs that must be tightly coupled, and no other player is even really thinking of that.
I think the primary reason Tesla has not shipped more batteries that are permanently attached to the grid, either in from or behind the meter, is that selling a car is a far higher margin destination for their batteries. So as long as Tesla car sales can suck up batteries, the battery factories are probably going to be using most of their time making batteries for cars.
I'm not sure really. They keep throwing the entire company at insanely poorly leveraged bets with unfulfilled promises. (Cybertruck is on track to be delivered at a longer timeframe than any car tesla has ever made, they haven't even built the factory or unveiled the final design, same for Semi and Roadster, the new Model S was supposed to be shipping in..uh.. March?) I think they are scaled too big to breathe and survive, eventually being bought in a post-Elon world by a Ford, GM, or possibly Google or Apple.
They don't need to now. The 3 and Y are quite successful and quite profitable.
The Truck, Semi, Roadster, Leaf Blower, and such are all distractions that aren't worth building until they've managed to establish much larger battery volumes and aren't selling every Y and 3 they make months before they make them.
What's their run rate? They've got a ton of cash and viable products (3 and Y) where there are people lined up to buy them before they're even made. And they've got the supercharger network which is an enormous differentiator against any other EV.
Their biggest threat is if there's some enormous unseen flaw in their battery design where they get swamped with battery warranty claims.
The share price is absurdly high, but it is similarly absurd to project the company going out of business.
Additionally, they are merely meeting demand on Model 3 sales right now, don't forget that they spun down production rate on the 3/Y and are slowing China production as well. US charging networks are growing at a faster rate than Superchargers as well, so in roughly 2 years you are looking at a market where Electrify America is as big as the Supercharger network, the current NY to LA EV record is held by a Taycan on EA's network, not a Tesla.
The Model 3 is not very profitable at all either, sure it sells well (as it should, it's a great car being sold at almost a loss!) but a M3 without AP is not profitable. Still, to this day, they haven't made a penny on their business other than with selling credits but they are not even investing that heavily back into the business right now. Finally, the Cybertruck was told to reservation holders to be shipping in 2021... which isn't happening.
What I find kinda funny is this: You call the truck a distraction..when it is the #1 best selling category in the US AND they have fast encroaching competition that owns the market. That's like calling the Rav4 a distraction for Toyota. The Ford F150 Lightning will likely outsell the cycbertruck in the US as Ford will have two years to scale and keep it in that scale by time the Cybertruck does actually launch. It has been Ford's #1 R&D goal for the last three years as it should be, it's their #1 selling vehicle. Ford sells two F150s in the US for every car Tesla makes globally and the margin is way more per unit.
I'm not saying they are going to go out of business today or this decade. I'm just saying that their differentiation will disappear, customer's will to deal with terrible timelines will evaporate when they can go the next door over and get it today, and once Elon is gone from TSLA (which will happen and should terrify shareholders; he clearly wants little to do with Tesla), the stock will fall like a rock and the debt leverage will fall with it finding Tesla way upside down on a LOT of money that they can't borrow more to cover and without the market and profit explosion the company is betting on.
What makes you think that? I mean he sure has more fun with other stuff, and I don't follow him closely, but I didn't get the impression he hated the business.
Regarding 3rd party fast-charging networks; look at https://abetterrouteplanner.com/ and a/b test a tesla vs non-tesla going from where you might want to be to where you might want to go.
For the most part it is practical to use a tesla as a normal car including long-distance trips, the same isn't nearly as true for other EVs. Plus, a modern tesla can use 3rd party charging networks.
As far as truck / semi / etc goes -- I suspect tesla simply doesn't have the battery capacity to make those new products and the existing product line.
Tesla's a battery manufacturing concern looking for the highest profit-margin products to wrap around batteries. As they've expanded battery capacity they've expanded from unreliable sports car to luxobarge / weird SUV to BMW 3 / Audi A4 competitor and now have expanded to include competitors to the Q5.
Lastly, when looking at the market cap of Tesla vs some other car company, keep in mind that tesla includes a global dealership network while other car manufacturing companies outsource the dealership side of the business to others. What's the global value of ford + all ford dealerships vs Tesla?
[1] https://www.benzinga.com/news/21/02/19638445/teslas-debt-ove...
I'm not sure I would define the sales as successful. Tesla would still be in the red if it wasn't for bitcoins and emission certificates they sell to other manufacturers (and this income will be gone in a few years). VW has barely started switching to EVs (ID.3 launched in July 2020) and yet they sold half as many EVs in 2020 as Tesla did, so maybe in that light it is kinda successful but at the same time VW sold almost ten million passenger cars. I predict that Tesla will be run over as a car company in a few years but will maybe become successful in investments.
To be clear, Michael Burry didn't short Tesla, he bought put options, which gives him the right but not the obligation to sell Tesla stock for a certain price, on a certain date.
If the bet works against him, his options expire worthless. This puts an upper limit on his losses.
If you have an actual short position, your potential losses are unlimited.
Isn’t this a bit like saying that the potential upside of holding any stock is unlimited?
To use a slightly anomalous stock which hasn't split as an easy example, if you had shorted $BRK in 1980 when the price was $300, the potential upside was just 100%: In your best outcome, they go bankrupt and the most you earn is $300. Unfortunately for you, Berkshire Hathaway shares are now worth $430,000, so your $300 or 100% upside turned out to be a rounding error against the approximately -150000% loss.
Edit: The reverse is technically symmetrical, but the consequences make it work out differently for the markets and society. Yes, if you'd bought BRK in 1980 you'd have had a liability of $300 (your cash input could be worthless if they went bankrupt) and a potential upside of hundreds of thousands if it went to the moon.
The difference is that if you held the stock and it goes bankrupt, you're only liable for the amount that you put in. Worst case, you bet the farm and you're going to be washing dishes to put food on the table, but it's your loss to lose and your gain to win. If instead you bet the farm in a short position, you never had and will never have thousands of farms to bet in the first place; you're going to declare bankruptcy and someone else is going to have to pay for the bad bet you made. That effectively pushes the losses back on society but privatizes the gains.
However, if you lose $300 that you brought to the table, that's your problem, too bad for you. If you lose $430,000 when you only brought $300 to the table, that's beyond being just your problem, that's the system's problem.
A system which allows this situation to happen is fundamentally flawed, it's vulnerable to exploitation and collapse if this kind of behavior allowed to go on unchecked.
Those guys in finance and regulations have been here before we were born, they managed to cover most basic stuff by now.
If you have a stock you have to sell and there are no offers to buy on the books you can't offer to sell then keep raising the price, instead you would need to keep lowering the price. The price is either limited by what's on the books, or you need to wait an indeterminate amount of time for some one to buy at the price you are selling. During this time you are trying to sell your profit is decreasing (as you lower the price to get a buyer) and bounded by $0 (for a limited liability company).
So while it's true that if you hold a stock indefinitely the value you could get is unlimited with a short the value you could lose could be unlimited over a much shorter time frame.
[1] Whether you actually need to cover your shorts may be a matter of some debate if you look at the wild rumors around GME
This means with the cash it takes to buy 1 share you can short as many shares as someone will lend which can multiply your loss to more than you have.
Short positions (for some reason) are not on the 13F.
So he could be long TSLA and have purchased put options as a hedge or any number of other strategies.
https://www.sec.gov/Archives/edgar/data/1649339/000156761921...
I'm sure there's other intricacies in short vs buy a put, but I don't think you can infer too much from the choice without knowing a lot more. I think all you could say is that he's bearish on the stock in the short term.
I could be wrong though so I would love to hear other interpretations or whether there's some liability apart from your margin in a naked short.
Similarly, with a short position, you'll be paying a borrow fee which will vary over time based on short interest.
If you sell a put option, then you have the obligation to sell in the future at the fixed price, regardless of the market price at the time. However, many of these positions are "covered", meaning that someone can sell a put option while owning as many stocks as they sell in options. So if the stock goes above the strike price, they have the option of selling the shares the already own. Thus, the seller is not on the hook for infinite losses. They merely trade the potential for unlimited gains in return for a fee.
I've always thought it would be fun to get into options by regular, automated, selling of covered put options. You get paid by speculators for underwriting their speculating. But... options pricing models are like real academic. It's like a real job.
When you sell a put, your obligation is to pay the strike to buy someone else's shares.
For instance, AMD is trading at $77. Let's say I'm long-term bullish on AMD, but don't want to pay more than $70 for it. I can sell $70 puts every week, collect the premium up front, and then if AMD closes below $70 on the expiration date of my short put, I'm obligated to pay $70 for the shares, even if they're trading much lower. I win because I get to collect the premium no matter what, and if I get assigned, I bought at a discount to the market price when I sold the puts.
A covered call gives you the obligation to sell your shares to someone else if the option expires in the money. This is a great way to exit a position, for the same reason. You can sell calls repeatedly at the lowest price you'd accept for your shares, and if it moves down, you've hedged. If it moves up, and you get assigned, you sold for above market price as compared to when you sold the call.
A covered call is where you sell options backed by long shares. A covered put is backed by short shares. A common way of selling puts without shorting the underlying stock is just having enough cash on hand to buy the underlying asset if the option is exercised.
And yeah, some small investors do claim to make decent income primarily writing options. The basic idea is that if you can eke out like 0.5% a week on average, you can get around 25% annual returns. I've been looking into trying to automate some basic strategies, but it's rather daunting just getting started in automated trading. Figuring out how to just get the data you need for implementing a strategy is a pretty big hurdle, for instance.
Surely your liability is to the shares you borrowed, not the fraction your account has to meet margin requirements? If not, why would a broker ever let you short on a margin account under the same rules as other margin?
Joking, joking :D
Stable genius, if they can find one, yes!!
Your comment kind of reminds me of how much shit "Big Tech" gets for data collection, just because they're highly visible, while the really scary shit (e.g. cell carriers offering granular per-user location data APIs to anybody with money) flies under the radar because it doesn't have that sexy down-with-big-tech angle that (ironically?) seems to drive the most clicks.
That's not to say the usual "Big Tech" suspects are choirboys, but the public discourse's focus on their data collection activities is absurdly myopic.
"Big, dominant" in the same sense as maybe Ferrari: Prestigious cars for a niche audience that are willing to pay a premium for the brand.
Porsche is perhaps a better comparison.
Ten years ago, Apple was worth $297 billion dollars, today it's worth $2.1 trillion dollars. I think Tesla stands a good a chance to be worth these seemingly absurd valuations. The market price isn't solely defined by the current value. With tech companies especially, it reflects expected value, and Tesla still has a lot of room to grow. I'd be more skeptical but EVs are eventually going to cost way less to make than typical ICE (internal combustion engine) cars, and per unit that savings translates into a lot of fucking profit. Not to mention the additional profit they're raking in thanks to the public's image of Tesla's and the experience generally being "magical" (even if gimmicky). Also, a "green crypto" if a Tesla branded play (I feel musk is bringing this soon) will cause a pretty gigantic boost to the company's bottom line.
For at least the next 2-5 years Tesla is gonna be pretty safe, and I'd guess that 2-5 will buy it like 3-5 more years just being the incumbent... I don't think Burry is going to be to happy on this one. Mark Spiegel has already fallen to the beast, and I suspect Burry is likely going to as well.
shrug just my two cents.
Yes, Tesla's managed to do something somewhat similar, but will that continue to hold? Even as automobile competitors finally wake up and start competing on electric cars? Will they become the largest automaker in the world? Tough questions to answer.
Apple has dominated high-end smartphones for over a decade. Amazon has dominated eCommerce for that time and longer.
Tesla dominates EV, which is a tiny portion of all auto sales. There is about to be huge competition in the EV space from legacy auto manufacturers and a car is not the same as a phone.
There are plenty of cars with a WAY better driving experience than a Toyota Camry but it's still the best selling sedan on the road. So really hard to believe Tesla can win by offering "premium" driving experience.
Tesla is priced as if it's going to absolutely dominate the automotive market. And there's no reason to believe that's true.
Automotive is currently a super fragmented market with many players, why will that change in a couple decades when it has been true for the past century or so?
There will be at least 3-4 major players in NA just as there are now, maybe more.
What's the basis for this? Battery tech evolution and ICE cars have no more (safe) optimizations to make to get costs down?
Do people really believe that Tesla is literally run 10x better than Toyota, Volkswagen, Daimler, BMW or Honda? I don't think so.
Then there's the nightmare of trying to appeal to two wildly different consumer groups.
At the low end: does Tesla have a meaningful reliability advantage versus Honda and Toyota? From what I have seen, it appears not. This matters less when you're dealing with premium buyers, but will not work with the mass market. Fans will put up with hassle (I own an AMG... I'm more than aware of the extra expense I am constantly paying for - and that's a trade-off I'm happy to make in return for a powerful v8).
Secondly from a clout point of view: why would anyone buy a Tesla over a comparatively priced Audi, Porsche, Mercedes or BMW. The people who talk about their Model 3 with a burning passion aren't trading in a 911, or an E Class or a Q7. They're excited to upgrade from a 2015 Camry. Massive expectation gap.
Plus, all of these companies are valued far more realistically. Tesla being worth more than every other automaker or whatever gives them very little room to breathe. If Tesla is ever valued as the hardware manufacturer with relatively low margins (when compared to say a tech stock like Facebook or Salesforce).. is the day that we will see an enormous valuation haircut.
Because you want to drive far?
Tesla model 3 range: 354 - 504 km
Porsche Taycan range: 333 - 463 km
(and most certainly not comparatively priced)
An EV drivetrain is also far, far simpler. Fewer parts, and less complexity in those parts. No clutch, gearbox, carburetor, differential, starter, pumps, exhaust…
A modern ICE car is an absolutely unbelievable engineering marvel, but unless battery progress unexpectedly stalls there's just no way they can keep up in price or reliability with EVs.
Part of his argument was that even companies like Apple have gone way beyond any valuation anyone would have thought reasonable as little as 10 years ago.
Not in a competitive market which is where Tesla may be in 10 or 15 years, especially if everyone commutes by robo-taxi.
When Berkshire Hathaway was still a textile company the operating manager excitedly told Warren Buffett about a new loom machine being developed which was far more efficient. Buffett's responded that if the report was true he would likely close the business, because he cost savings would flow to the customer and the long-term return on the new capital investment would be low.
It's likely margins remain the same and prices fall substantially. That's what competition does, and the auto world is full of it.
> Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you.
This couldn't be further from the truth. While making a prototype EV is relatively easy, yes. EV industry followers will note that the real challenge is scaling EV production, and specifically the batteries' production. You don't need to look further then to answer: 'Why don't all of these automakers have tonnes of EVs on their lots available today as we speak? Why are they all '2022 release' or even 'dozens of models in 2025'. Because all of the tier 1 and tier 2 li-ion battery supplies have already been allocated from now to several years out, and if you want 'EV model volume' scale batteries, you better be ready to fork over the capital or purchase commitment for a batttery cell production line that might not have had a shovel hitting the ground yet. And waiting a few years for assembled product.
> But their price only makes sense if they end up being the only car maker left.
Assuming both the gross margin profile and auto ownership model stay the same - sure. Tesla has proven to generate more gross margin per vehicle than other automakers as is, they have 'practically' infinite demand (stimulated by expanding geographies and targeted price reductions when demand sags). And this isn't accounting for GM expansion for vehicles that could be a part of a ride hailing network (autonomous or not).
I do believe, like other 'Tesla fans', that when factoring in their lead in scale and tech, unit cost advantage as well as how things look on a decade or two time horizon, I think it is quite likely that there will not be a better time to become a shareholder in the next 1-2 decades.
One way I look at it is by comparing it to Apple, a ~$2T market cap company in 2020 dollars. ARPU of an Apple customer compared to a Tesla customer is probably between 1/4-1/10 (how much iphone/mac/apple services does one buy versus transportation spend on an annual basis). If you project Tesla margins to look more like Apple's 10 years from now (yes, a big bet), even with similar market share breakdowns of iOS/Android today - it isn't a huge stretch to imagine with ~50-100M EVs on the roads by then - that you could have Tesla with a market cap between 10T and 20T in 2020 dollars. Particularly when factoring in their business segments beyond personal transport/light vehicles.
They are so far the only company making EVs to have crossed the 'valley of death'[See: crossing the chasm]. Startups and established automakers will need to spend billions in order to get EVs sold at scale that generate FCF per unit. It is a tall order.
(Not financial advice do your own research etc etc)
EDIT: Also note that Tesla has stated in an earnings call that they are looking at 50% CAGRs moving forward, and I do think that they could be undershooting this number a bit.
The outselling of Tesla I’m not going to take at face value yet until Tesla’s Berlin factory comes online. Note that Europe sales thus far have been dependent on imports and that it’s quite likely Tesla has been focused on delivering and collecting cash on NA/Asia sales and having the European customers wait a few quarters.
Tesla probably leads in batteries, whereas VW leads in factory capacity.
Source: https://insideevs.com/news/504647/global-plugin-sales-march-...
Tesla is building that Berlin factory to decrease shipping costs and time and also to not have to pay the tariff.
Perhaps more interesting is that the more popular EVs in Europe are hatchbacks. Hatchbacks are more popular than sedans in many European countries. Tesla is missing a car to compete in that segment.
The current normal of competition between countries is to allow foreign car companies to build factories in their country. I bet that if a country's car industry faces an existential threat, the country will tilt the playing field further in that country's car companies favor.
I do not expect that Tesla will be allowed to wipe out other country's car industries. It may be allowed to become the preeminent EV maker (which it already is if you count by market cap). I think that Tesla will need to try to win in other areas: EVs for countries without strong car industries, energy storage, self driving cars, etc...
All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for a total enterprise value of $160B.
So Tesla isn't worth as much as all of the companies put together, it's worth about as much as 2 or 3 of the big ones. Which is still a lot.
But all the other car companies are facing an existential threat. Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.
Tesla also has a really good profit margin. If they can keep that up, it goes a long way to justifying their prices. Pretty big if, that one -- the general assumption is that it will go down as they go downmarket to chase volume. Vertical integration might let them keep it up, though. Think of it like Apple -- 20% market share but >80% of the profit.
What I'm saying is that if Toyota or Volkswagen had no debt, a Tesla level profit margin and no overhanging challenge like the transition to EV, they'd have a market cap similar to Tesla's.
That still doesn't justify Tesla's market cap, but it makes it seem less insane.
I believe that's a bit misleading because it includes Ford's lending arm. They borrow money and lend it out at higher rates. So lots of Ford debt is lent back out to consumers at profit.
They don't net out -- if you default, my asset will disappear without taking the liability with it. But it might be strange to say that I'm worth $300,000 based on my debt, when the whole concept of that debt is that it's theoretically guaranteed by, and related to, that asset. This combined situation does not suggest that I'm personally worth $300,000; I'm earning the difference in interest, and my debt to my creditor is based mostly off of your net worth, not my net worth.
I imagine that "120B in debt" means net debt, but I'm not sure.
[follow-up] yes, that's $120B net debt. They have a total $160B of debt, and ~$23B of that is from the automotive side of the business, not the financing side.
https://stockdividendscreener.com/auto-manufacturers/ford-to...
That works if the debt is for things like building factories or designing cars. But when's it's borrowed and then lent straight out it doesn't make sense.
The majority of their debt comes from financing the sales of their cars to fleets, dealers, or consumers. This earned them 1.7B last year.
Tesla's real advantage imo comes down to not having dealers eat into their margins.
The actual term was "less insane" which isn't really the same thing.
For certain companies, market capitalization is a good proxy for enterprise value, but as this poster is mentioning, that's not always the case for companies with debt.
enterprise_value = market_cap + debt - cash
Looking at the market caps of long-standing US car manufacturers is doubly problematic cause they have significant pension obligations. They're producing cars to build shareholder value and pay for retirements.
Comparing market capitalizations of companies that have completely different debt / pension obligations is misleading.
Does it have to be? I can imagine that going from 100 years[1] of internal combustion engines to an entirely different type of drive train is going to be jarring, to say the least. But neither are EV completely new at this point, nor is a car just its drive train.
Surely other comparable transitions have been successful? Any older computer corporation has more or less reinvented itself a few times. More topically, airplane manufactures must have gone from piston engines to vastly different jet engines at some point[2].
[1] BMW for example exists since 1916. [2] Apparently Boeing was originally founded in 1916, too.
Exactly this. The EV drivetrain is also simpler than an ICE because a transmission is not needed[1]. I think the hardest part about vehicle manufacturing, which is the issue Tesla seems to run into repeatedly, is dependable mass production.
The major auto conglomerates have a lot of experience with cranking out massive volumes of quality vehicles. I don't think that re-tooling their production lines is going to be a problem. The primary issue with switching to EVs, which Tesla should capitalize on, will continue to be energy storage. Sourcing large quantities of batteries is tricky. Tesla had the right idea to just vertically integrate cell production and likely has a lot to gain by being the premier battery producer for the industry.
As an aside, hopefully the switch to EVs will help fund research for the next breakthrough in battery tech.
[1]: Application-dependent but most 2-axle consumer electric vehicles should not need a transmission
Musk agrees substantially. He says prototypes are fun and easy and it's the mass production scaling that is the most hell.[0]
Their net profit margin is barely 2%.[1]
I would not call it good by any stretch.
By contrast Apple has a 25% net margin[2]. That is what I call good.
[1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/profit-...
[2] https://www.macrotrends.net/stocks/charts/AAPL/apple/profit-...
From a market valuation standpoint, this is also why Apple valuation is 44 times higher than Ford's.
[1] https://www.apple.com/newsroom/pdfs/FY21_Q2_Consolidated_Fin...
[1] https://www.bloomberg.com/news/articles/2021-05-05/tesla-wil...
- Tesla is achieving vertical integration to a degree no other mainstream auto OEM has achieved. The only other example of vertical integration to the extreme that I can think of is Koeneigsegg, and they are _very_ niche. This only helps Tesla make cheaper cars faster while collecting more margin per car.
- Tesla's FSD marketing is highly contentious, but they are the only auto manufacturer that is building (designing) their own SoCs explicitly for this. I wouldn't be surprised if they are outspending other auto OEMs on autonomous driving R&D by several degrees of magnitude.
- Tesla still has a major, major lead in EV battery tech which will only be cemented if they can get 4680 into revenue production. They also own the largest and (arguably) most reliable charging network in the world, which is growing at a faster rate than Electrify America, the second biggest competitor.
I think that Tesla is overpriced long term in a world where 91% of American cars are EVs and 48% of them are self-driving, but I think they are correctly priced for _right now_
This is crucial. It’s also why Tesla vs automakers reminds me of Apple iPhone vs existing cell phones. Sure making an electric car is “not that hard,” but because the carmakers didn’t take Tesla seriously for 10+ years, they now have a lot of catching up to do.
Even the SPEAKERS inside of the Model 3 and Y are designed by Tesla (and manufactured by a vendor).
That's the big difference. It's also the reason why legacy manufacturers will struggle to effectively respond to Tesla. It takes a LOT of money and egos to upend generations of culture (and accept hundreds of millions in losses in the process)
In this particular case, is this really a good thing? Porsche's high end option for example is getting the speakers, amplifiers, tuned filters etc. from Burmester. Since Burmester specializes on this kind of thing, and the sound system (not the head unit and interface) are pretty much entirely distinct from the rest of the car, except that it has to be tuned to the environment it will exist in, that intuitively feels better conducive to focus areas and quality all around.
Source: https://twitter.com/PaulMaric/status/1160777733825150976
I think the German manufacturers just understand their customers vanity, sadly, where being seen to have the brand matters. The label is practically more important than the sound beyond a certain point.
But you may have a point anyway: The Bose system in the same car (a vastly more popular option because it is much, much cheaper) sounds worse than the cheap sound system in my old Ford.
https://www.suncoastparts.com/product/SKUBERTWEET.html https://www.suncoastparts.com/product/SKU680TWEET.html
Tesla has made a lot of claims - volumetric efficiency, worrying about air resistance, when Musk toured the Toyota factory there was talk of them moving at granny pace. After the worlds most dramatic production ramp they still have yet to reach the capacity at Freemont of their predecessors (GM/Toyota).
Vertical integration represents the biggest issues with Tesla, a lack of focus. During the ramp of their mass production car, they went and bought Musk's cousin's company for a product that didn't even actually get released until basically this year. I don't see how that is a competitive advantage.
That's because other OEM have worked hard NOT to be vertically integrated. There are benefits to splitting the value chain and letting each supplier concentrate on what they are best at, and get economies of scale from selling to multiple clients.
It seems to me that Tesla lack of focus is actually one of their biggest problem. You can't the best at making cars, batteries, solar panels, etc. all at the same time.
* Convincing the public to spend 50-70K on a car
* Convincing the public to buy an EV
* Convincing the public that Tesla can be trusted for long term repair costs/reliability
Right now Tesla is squarely in the luxury vehicle market, competing against Lexus/BMW/Mercedes, rather than against Mazda/Honda/Kia, and it's a new automaker, so we don't have good long term reliability or serviceability data, nor do we have good info on how long the batteries will last, or what costs someone buying a 10 year old model Y will face.
These questions will resolve themselves with time, but whether they will all resolve in Tesla's favor is another matter.
I've been joking to my wife for years now that we should get a Tesla eventually. Over that time, I've seen her going from "what's up with these EVs anyway?", through "that's a really expensive car", to "sure, but if anything breaks, IIRC the closest shop that can repair it is in Norway".
Both of these have been happening for years now. You can even look up parts/diagrams and order directly from Tesla if you provide your VIN here: http://epc.tesla.com/
Maybe these are not obvious to non-owners. But it's silly to assume things where you have incomplete/false information.
You can talk to actual owners here: https://teslamotorsclub.com/tmc/. I lurked around and asked questions to owners for years there. When I was researching if owning a Tesla is even viable. I own 2 now and never looked back.
Also on your reply above. There are already 10 year old Model S's out there.
My old neighbor just sold his Toyota 4Runner and got a 2012 Model S with 75K miles for $25K that still runs like new. He has it for almost two years now with ZERO maintenance/issues and spends $15-20 a month on electricity.
The Model 3 SR+ starts at $39k. For a while, the Model 3 SR was available by special order for only $35K [1] but it did not include autopilot (Autosteer+TACC) and other things.
For $39K it's actually a tremendous value. If you plan on keeping it for more than 5 years. It will actually beat a comparable Accord/Camry Hybrid in terms of TCO.
"Calculating insurance, maintenance, repairs, taxes, fees, financing, depreciation and cost of electricity, we get the true cost of ownership for the Tesla Model 3 which is $25,209."
2020 Tesla Model 3 SR Plus: $25,209
2020 Toyota Camry Hybrid : $36,571
As for reliability. There are already plenty of really high mileage Teslas out in the wild. Like this guy who put 800,000+ miles on his 2014 Model S: https://twitter.com/gem8mingen
Sources:
[1] https://www.youtube.com/watch?v=w_-_t29bciw
https://www.wheelsjoint.com/toyota-camry-vs-tesla-model-3-co...
https://cleantechnica.com/2019/04/25/tesla-model-3-vs-honda-...
https://cleantechnica.com/2019/09/27/tesla-model-3-vs-toyota...
Rear drive standard range model 3 starts at 40K. There is simply no universe in which this is either affordable or a bargain. This is entry-level luxury car pricing. If you are buying an out of warranty used Tesla for 20K, say 5 years old, then your TCO is going to be far higher than if you buy a 5 year old out of warranty Camry or Toyota. It is also foolish to include temporary government subsidies when determining the long term viability of a company. Those will all go away shortly at which point your TCO will also go up, and used car buyers do not benefit from these subsidies.
And the Camry is the more expensive sedan, with the cheaper Corolla outselling it regularly.
That's kindof the point. If you want Toyota style volumes, be prepared to have Toyota-style reliability, repair costs, parts eco-system, independent mechanics, and selling prices.
The weighted average retail price for new Toyota cars sold is 34K, and 2/3 of cars purchased each year are used cars. The weighted average selling prices of Teslas is ~60K, nearly double the price of Toyotas. And remember that Toyota is a premium brand due to their legendary reliability. Let me know the lifetime service costs of a Tesla and then we can compare that to the Toyota. Include battery replacement costs in that figure and get back me to me with a real TCO.
For Tesla, there are real question marks about out of warranty cost of ownership and battery replacement costs for purchasing used Teslas. For example, I've never paid more than 13K for a car, always have it serviced at independent mechanics I have a relationship with, and I have always kept my car for at least 7 years, with relatively cheap maintenace cost -- the biggest repair ticket item I ever needed to pay was a clutch replacement. So I am not willing to eat 5-7K in depreciation+maintenance per annum that Tesla buyers will pay. I've only ever suffered at most 1.5K per annum in depreciation+maintenance over the life of cars I've purchased. So don't talk to me about the great deal of paying 40K for a tesla that will lose 20K in depreciation over 5 years. I don't care how much cheaper electricity is than fuel, there is no universe in which this is a cost effective form of car ownership for the majority of the public (2/3 of car sales are used car sales).
I buy reliable used cars that are 5-7 years old that are easy to service. So do other cost-conscious purchasers. For this demographic, there are too many question marks for me to dip into the EV market now, but wait 10-20 years for more reliability data to come out and to see if a cost-competitive third party aftermarket springs up for Teslas that has replacement parts and service costs comparable to what you can get with a good local mechanic working on Toyotas or Hondas, as well as battery replacement costs that are less than the price of the car when the battery dies -- unless the plan is to sell disposable cars, at which point the value proposition is even worse for cost-sensitive purchasers, and Tesla will have a hard time competing if their intention is to sell disposable cars for a higher price than cars that can be maintained for 30 years.
Even if you round up $39K to 40K. It's still a far cry from your initial $50k assumption. $10K is not even close to being a rounding error and makes it seem like you're reaching.
You also made quite a bit of other assumptions here. You should actually fact check some of your claims. You can do the math yourself. Numbers don't lie.
If you can somehow show that the articles and data is wrong. I genuinely would love to see how. Because I put a high value on facts/data vs opinion and that will be news to me.
Tesla 3's ASP was ~60K in 2018 https://cleantechnica.com/2018/08/23/tesla-model-3-average-s...
That was the latest data I could find and I decided to give them a break. You will find in analysts calls a number of 50K is a common estimate.
> Numbers don't lie.
Agreed
> Agreed
So... Do you have that calculation handy where a Camry/Accord cost less to own after 5 years? I would love to see it, so we can compare notes.
(The other posted also talked about ASP of Toyotas, so his comparison was fair btw.)
Apple worked hard to make an iPhone a different product segment to a smart phone the App Store, iMessage and an ecosystem of Apple-compatible services and products. As a result of you want to buy an iPhone you need to pay the premium Apple is asking.
Tesla have the supercharger network and brand name recognition. Neither of them would allow them to completely own the EV market.
That's not an impossible outcome. I have no bets in this market, I'm strictly wait-and-see.
It's worth pointing out that Apple's valuation before it carved out that "Apple-sized share" was much, much lower.
But tesla price was never based on actual company financial, they were based on the dream Elon was selling his investors.
"The market can remain irrational longer than you can remain solvent" applies to both amateur traders and the most seasoned investor/genius alike.
Sure, he's been talking short since September, but the size of his position has grown considerably since then - almost certainly timing the S&P inclusion (sorry index investors, you quite literally paid the top price for a stock that has lost almost 45% since you bought it).
He's almost certainly made a killing with his position and the beauty is we don't even know what it is today. He could have realized hundreds of millions in gains, or he could have them all still open.
If he has the position from the filings - just today, when Tesla is down $22 - he has made over $16 million dollars in unrealized gains.
It will be hilarious watching the Musk Zealots crying to have Elon tweet something to fraudulently try to pump the stock price and try to trigger a squeeze. Meanwhile they don't realize he's doing this with options, not shorting directly.
> As of March 31, Burry owned 8,001 put contracts, with unknown value, strike price, or expiry, according to the filing.
So what are you basing any of this on?
If there's a single index investor that feels saddened by this stat, in the slightest way, they should stop index investing right now. The great joy of index investing is that this single stock is down, while on average everything else is way up...
We don't have enough information to determine that. We would need to know strikes and expirations to even start to figure that out. AFAIK, we don't have either.
It's possible both of them are wrong and Tesla has fundamental value at a level they were unable to analyze. Or it's possible that Tesla's future will be determined by things beyond fundamental value. But it's also possible they're right on some timeline.
(Not that anything Musk tweets should be taken as anything other than.. an indication that one or all of TSLA, Bitcoin, or Dogecoin is about to move rapidly in one or both directions..!)
Cisco Systems is a great example of a fantastically profitable business with a stock price that's still below peak. It's an incredibly successful company that makes more than $10 billion in profit every year. The stock price is still below the March 2000 peak.
If Tesla "only" made $20 billion in profit a year, the market would probably consider it a failure. Expectations are high.
I can see the bull case for Tesla becoming a multi-trillion dollar company or the bear case. Hard to assess Burry's position without knowing the expiration date and strike price of his puts.
$10k invested on 1/2000 would have peaked at $14k in March, and now would be worth $9.5k
Even if you knew the exact pieces of paper that he held today, that would tell you nothing about his overall plan. Very few options strategies involve a one-time purchase of contracts in hopes that the dates & prices on those will hold until conclusion. For something this big, you would continue to acquire (and sell) contracts at a range of strike prices & expiration dates until the overall play is concluded.
> long puts against 800,100 shares
I find the title misleading. Unless I misunderstand, Michael Burry has not actually put $530M of his money at risk. He's made a much smaller, leveraged bet. $530M is just the notional value.
You can't figure out his position with this information.
For example, you could buy very, very out-of-the-money puts for a penny. (Your bet would basically be: TSLA loses 95% of it's value in the next week.) My total value at risk for this bet (of 8,001 put contracts) would be $80.
For example, a $450 put for September 17th 2021 would cost about $16.70 per share:
https://finance.yahoo.com/quote/TSLA/options?strike=450&stra...
One option counts for 100 shares, so that would be a (8001 * 16.70 * 100) 13.36 million dollar bet. Suppose that TSLA is worth only $400 on that date, with your right to sell at $450 you'd be in the money for 40 million dollars, or roughly $26 million in profits. If TSLA is worth $450 or more on that date, your options expire worthless.
So when you buy a put you are betting that the stock is going to go down. Each put usually gives you right to sell 100 shares, and since you can buy/sell the contract itself, you can easily get leverage when compared to actually trading the shares.
Without knowing what the strike prices and how much he paid for those contracts you can't really determine how much he is going to gain/lose. His gain is capped though as TSLA cannot go below 0.
I just bought a 2-month expiry put option at a strike of $10k on your car.
Two month later, I check the resell value for your car.
If it's more than $10k, let's say 13, I buy yours at 10 and resell it at 13K. I won 3-1=$2k
If it's less that $10k, I just pass, I lost $1k.
So let’s say Acme Class A is currently trading at $50/share. If you think, for whatever reason, Acme Class A common stock will be trading at $1 next week you might want to buy a put that lets you sell 100,000 shares for $10/share. If the price of Acme Class A stays the same, you would never exercise the option to sell because you’d lose money - why would you sell Acme Class A for $10/share when you could sell it on the open market for $50/share? But if you’re right, and Acme Class A is trading at $1/share, you would then of course want to sell as many shares as possible at the $10/share rate. So you’d go on the open market, buy yourself 100,000 shares for $100,000, then turn right around and exercise your option to sell those shares for $1,000,000.
So the only money at risk is the cost of the contract itself because you don’t have to actually buy the shares until you decide whether you want to exercise the option to sell them.
If you want a put contract that allows you the option to sell 100,000 shares of TSLA for $0.01/share tomorrow it wouldn’t cost much because it’s highly unlikely you’d exercise the option and so, for the person on the other side of the agreement, it would basically be free money. When there’s more uncertainty then the cost of buying the contract is higher because the person on the other side is taking a risk that they’ll be stuck buying a bunch of securities at a price much higher than what they’re actually worth.
TLDR: when you buy a put contract you’re essentially paying money to someone to lock in a price.
You can buy very cheap out of the money options at small fractions of the cost of the shares by making bets that TSLA will drop hard in the next year while the market thinks that in that timeframe it will not.
Most of the time you lose money doing this.
Time it right, though and you can make 10x returns, but you have to be right and the rest of the market needs to be wrong, which is often unlikely.
But even if you're right in the long-term you need to also get it right in the short-term.
I don't think I'd be betting against this market right now, there's no guessing how irrational we'll wind up getting. Post-pandemic I would guess we'll have even more of an irrational bubble around back-to-normal, and a rising tide lifts all the boats.
The ELI5 subreddit describes it in its rules as such:
"Rule 4: Explain for Laypeople
As mentioned in the mission statement, ELI5 is not meant for literal 5-year-olds. Your explanation should be appropriate for laypeople. That is, people who are not professionals in that area. For example, a question about rocket science should be understandable by people who are not rocket scientists."
If you take out credits and crypto, they look like most other car manufacturers, struggling to make a profit.
> As more automakers produce battery electric vehicles of their own, ostensibly fewer will need to purchase environmental regulatory credits from Tesla, which they have done in order to become compliant with environmental regulations.
> In the fourth quarter of 2020, Tesla’s $270 million in net income was enabled by its sale of $401 million in regulatory credits to other automakers.
Hopefully not (for Burry), because where are those going?
Even minor automakers like Suzuki or Kia still make multiples of Tesla's profit without breaking a sweat
A short is a gamble all the time because you don't know the time component. Burry was "lucky" in that it happened fast enough. There are lots of people who want to short Tesla but don't dare to because of the cost involved in it and unpredictability of when their bet would pay off.
The remaining pieces now are solar generation on building surfaces, battery tech, smart grids to route the energy efficiently, cheap space travel, cheap tunneling, and maybe hyperloop if no one picks it up.
https://www.investopedia.com/trading/introduction-to-momentu...
Outside of entertainment, it isn't worth the time to follow celebrity investors.
For example, even amid ongoing China defamation efforts, 4680 battery production 'postponed', updated S and X still being tweaked, upcoming V9 FSD beta release could make the stock blow up again as it did around V8.
"Burry previously mentioned in a tweet, that Tesla’s reliance on regulatory credits to generate profits is also an impediment to the company’s long-term prospects"
When the Tesla stock price is tied ostensibly to some ephemeral aspect of Elon Musk, who gets his lulz from wreaking havoc on cryptocoin markets, does that kind of analysis really matter? I guess it doesn't until maybe, possibly, eventually it does?
Betting against Elom Musk seems like betting from first principles against first principles guy. Popcorn and watch.
Burry is probably right about the market for electric cars and TSLA's exposure to raw materials prices and china, but he's wrong about the strategic ability of its leadership.
It means you can sell tranches of it to make your quarterly numbers do what you want them to, with a crypto-hammer you can use to shore up numbers wherever you want. As an accounting device, their liquidity and volatility means you could use them to obliterate shorts by uncloaking a realized massive "profit" just before an earnings call.
Crypto can absorb loose cash that creates other liabilities, while carrying the value of that cash over calendar years in a super liquid asset. I'm not a corporate accountant at all, but I would wonder if these properties of crypto could be used as a superweapon against shorts.
To clarify, Burry was long on GME, I think his bet was done in January, and ended it late december, so very likely more than 5x returns.
Battery storage is becoming cost competitive with natural gas peaker plants: https://www.greentechmedia.com/webinars/webinar/will-energy-...
"Cheap" or "cost competitive" is irrelevant if you don't consider the carbon cost.
It is very difficult to have an accurate carbon accounting, not to mention that fossil fuels will be burned when there's no wind or sun.
The best energy/carbon ratio has always been nuclear if you make an accounting on a full year.
It's important to define on what field one would compete, because there are no moral incentives to compete on carbon emissions, and monetary cost is decorrelated from the carbon cost. It's easy to shift emissions from one place to another. Anybody can say "green energy is cheaper", and define solar panels as being green while their carbon balance sheet is not so good.
If the contracts were listed, option traders would look at big trades that hit the tape without contingent stock printing simultaneously, and call the brokers that crossed those trades to ask which bank sent the order to the floor. Then they'd compare that against banks which are believed to trade with Burry, and filter to get a guess at how much he traded. This may be tough with TSLA because there is so much activity, but in smaller names where only a couple of big prints go up daily, it's pretty easy to figure out who trades what. The banks that trade options against big players get quoted on a lot of stuff that eventually trades at a different bank, so they can often infer the identity of the client when they see the print hit the tape.
CNBC, on the other hand, know nothing and simply report what they are told and what they observe in regulatory filings. Their chief function is not to break news, but rather to distribute it -- like a buddy who is very up-to-date on current events.
TL;DR You can often deduce some of the characteristics of a position, but there are ways for a very stealthy market participant to hide the characteristics of his stake.
Except I remember reading that he sold for before the price exploded [1]. So although he made a profit, he missed out on the squeeze because he sold too early.
[1] https://markets.businessinsider.com/news/stocks/big-short-mi...
and buying puts integrates the timing directly into whether or not you're right. so if he's too early again, he'll be wrong.
https://www.youtube.com/watch?v=pLLgNi5UmB0 (4 minute clip from the movie, warning, spicy language gets used when rich dudes worry they might end up a little less rich.)
1. This is a Q1 report. Positions might have been closed out by now.
2. He also bought a large number of FB and GOOG calls, indicating he's positive about those 2 companies. (Same comment as 1. applies though).
3. Strike prices of all these options positions are unknown.
4. Premiums paid are unknown.
The market action following someone like Elon Musk’s tweets about $GME, DOGE, and others, show high correlation with the sentiment in those tweets, at least from my armchair. Sure, Burry was correct in a similar scenario before. I don’t believe that means others should immediately believe/trust and follow individuals like this to the end of the earth, however.
Shorting a stock is a very different - and far more risky - investment “strategy” than the purchasing of a stock. I should know, I lost 2 months of gains on a single short over a 3 day period, despite all market intelligence, facts, and the logic which follows, pointing to the fact which the stock should have bottomed, not skyrocketed.
Despite most of its participants being relatively predictable, the market never ceases to surprise. Headlines like this should at least lead to an article with a highly visible notice or disclaimer about the risks of mimicking the mentioned behavior.
Edit: I see I am being downvoted without discussion. I’m open to learning what I may have missed.
The most talented young people all want to work for Tesla. They have made tons of progress and they have the culture and plans to continue to innovate. None of the old car companies can attract the talent the way Tesla does. They only need to capture the market on one of their big bets to be a runaway tech stock like FAANG.
They've got electric cars, batteries(Powerwall), Solar roofs, cross country supercharger stations, and full self driving. Any one of these things could fuel a company by itself.
....so short?
When the truth about housing was exposed, the financial system was forced to reconcile. The system has measures in place that must be taken by policy. Ergo, the truth shatters that house of cards.
But Tesla? Meet Nikola! The fakest company ever, with no product, no development, a proven liar/scammer leadership, with failed deals and vapourware. Still. Worth. Billions.
The kids on RobinHood (and many others) are playing a different game, so the 'truth' matters less.
This is why I'm wary that market reality may not take hold for Tesla - and - that this reality is skewing a lot of other securities as well.
I almost wishing the Fed would bump up interest rates just a little to bring some reality into the markets.