Hello Folks,

More on Tesla being not such a great bull pick:

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For some odd reason, I can't attach his extensive spreadsheet evaluation here, but, he does offer it in his "The bottom line" section of his blog.




  • I agree. Although there's a great article from the FT regarding TSLA. "To be rational about Tesla is to miss the point" - http://www.ft.com/cms/s/2/bb6abd4a-4b4f-11e5-b558-8a9722977189.html#axzz3vF8BsX3O
  • I'm complete bear on Tesla, but I would like to hear a rational reason to buy Tesla. I understand there is a lot of short positions, but I want not have confirmation bias.
  • *Full disclosure I am an investor in Tesla with a small position for the last few years.

    I think that the article snow_crashing posted makes a good case for Tesla as a speculative investment. My view on Tesla for what it is worth is more of a publicly traded venture capital deal. Once a company goes public it has become commonplace for investors to view a company based on on a "what has it done for me lately (or quarterly)" mentality. Tesla, on the other hand, is a company that has a long-term vision that is second to none in the world today, understandably with the cash burn to match. With that said, it is common to hear that Tesla over promises and under delivers which in common practice is a bad thing to do. In Tesla's case, the magnitude of the promises are usually such that if they under deliver they still tend to deliver something that is substantial.

    Tesla is interesting for the following 4 reasons:

    1. The Driverless Future
    With all the talk in the world of driverless cars and the driverless future (trucks, busses, taxies) I always find it amazing how little value people tend to give to the Tesla AutoPilot program. This is a program that has arguably been the best in breed since its inception. The argument to that idea is "not everyone can afford a tesla to take advantage of this" and this is true, but what this program has afforded Tesla is a headstart in the data collection of autonomous vehicles and the production of a world class system. Tesla has logged over 1.3 Billion miles or driving data (https://www.bloomberg.com/news/articles/2016-12-20/the-tesla-advantage-1-3-billion-miles-of-data) that can be used to improve its systems and possibly be sold to other companies for use with their potential self-driving projects. With the rise of big data, a cache of self-driving information that is ahead of the pack will be increasingly valuable to the entire automobile industry.

    Additionally, Tesla has stated their aims to have autonomous buses and trucks which I am even skeptical on their timeline or vision with such little information but its expansionary options and vision like this that serve to justify its valuation.

    2. Energy
    You will notice that Tesla has removed the "Motors" from its company name and is now just Tesla since its acquisition of Solar City. Tesla is fully invested in the green energy revolution which will only grow in coming years as increasing talk of climate change spurs action from nations around the world. Granted the US looks to be slower adopters of green technology than one would like but I believe the opportunity lies in the developing world. The cost of solar in the developed world has come down dramatically and many countries such as India, China & Saudi Arabia are investing in Solar and other forms of renewable resources. As these countries build their economies they will find it less cost prohibitive to build an energy infrastructure that is conducive to renewable energy. I don't think Tesla will be the seller of all the world solar panels by any stretch of the imagination but I do Believe that Tesla will be a key supplier of storage solutions for renewable energy.

    Also, Musk has come out with innovative products such as the solar shingle that may prove to be potential revenue streams in the future.

    3. Space
    This is more of a long shot idea but ultimately you can not overlook the fact that Musk is also the CEO of SpaceX which currently has multiple contracts for delivery of NASA equipment and satellites for companies the likes of Facebook.
    (Note the SpaceX rocket actually exploded destroying the facebook satellite, but unfortunately, that happens in the aerospace industry) Space does not look like it will be a cash cow as of yet but In the future, it has the potential for revenue generation that is unclear currently. Musk is not the only one in the space business now but he has made a strong effort and has an innovative vision for the future of space travel.

    4. Musk himself
    It is probably ill advised to bet the ranch on one man and by no means would I advocate that but Musk is an incredible individual and the management is definitely one criterion to which a company should be measured. Musk is viewed on the same level as visionaries and great chief executive officers like Jobs, Bezos & Gates. Musk has an incredible drive and has started, and successfully run multiple companies in a diverse number of industries.

    In conclusion, if you are looking to value Tesla on any traditional metrics I would say don't bother. If you are looking for a value stock, don't buy Tesla. If you are looking for a safe investment, don't buy Tesla. If on the other hand, you are looking for a company to take a speculative position in based on potential then Tesla, in my opinion, is one to consider. As I stated before Tesla is not a company to invest half your net worth into but if you consider it like a venture capitalist might you would make a small investment with the potential to pay off many-fold in the future (as long as you can afford to lose that capital too). Tesla is bet on innovative convexity, one that has a linear potential for loss and exponential opportunity for growth and innovation.

    I apologize for the essay! I would be interested to hear your comments.


  • edited August 2017
    I understand the bull thesis, and I've read varying interpretations but they're all similar to what you lay out. The common answer seems to be the iPhone comparison. Which is predicated on the fact that Tesla is creating a market and lifestyle changing product that will ultimately end up in every Americans garage. As the EV trend has momentum and will likely be the next transportation solution.

    In theory it makes sense, and if not for my familiarity with the industry, I might be inclined to agree with their vision of the futures. I however, do not. Or at least not with Tesla's interpretation of the future.

    The biggest red flag for me, is it doesn't pass the smell test. Tesla has continually preached unlimited demand, so much so, that it's the primary reason for their continued success in tapping the equity markets for cash. But do they really have it? I'd argue they're going to be demand constrained.

    Why? First, M3 price point. Tesla preached a volume car for the masses, and regardless of what anyone tells you, a $48k compact sedan is anything but. To give you a relevant comparison, the Mercedes C-class sedan, which is their volume vehicle, sold 380k in the US in 2016 and the starting price is $35k (meaning you can actually get one for that). Additionally, there are 3 models within the C-class descrition so, best case, 126k.

    I understand the appeal for the M3 transcends those in search of just a compact luxury sedan, so one could double that number if they wanted to be optimistic. However, none of this accounts for the fact that less than 2% of new vehicles sold in the US in 2016 were EVs. So we've got a company that wants to produce 500k M3s a year, who's going to buy all these?

    I understand they have 455k reservations right now, but that's going to keep them busy until late 2019, assuming everything goes perfect manufacturing wise. Further, this is pent up demand and it's also impossible to know how many are multiple reservations by the same person. And the reason I'm so hesitant to blindly believe their reservation optimism is because I've looked at their CPO numbers. And as of now, a used MS is basically the same price as an M3, so why don't people just buy a used MS? Better deal than an M3 if you ask me.

    People aren't buying used MSs though, all it takes is a quick trip to EV-CPO.com to see that the inventory is a ballooning. They've got MSs that have been listed for over a year and a half and there's nothing wrong with them. My other concern is, if a company is truely in need of cash as bad as Tesla, would it not stand to reason that they would do everything they can to push CPO sales to increase revenue from every place possible? From a dealership standpoint used vehicle sales are a major income source, much more so than new cars will ever be.

    Truthfully I have no idea why they've chosen to basically ignore their CPO market, if I had to speculate however. I'd argue it has something to do with all those buy backs they guaranteed. Every car is a loss and once they sell the car, they actually have to realize that loss on the books. As opposed to leaving it as inventory.

    Another point of concern is the major discounting I've been seeing on the S&X, a company with more demand than production doesn't discount their product. End of story. They can't sell their new cars with steep discounts, they can't sell their used cars that's are a similar price point to the up and coming and the market they're appealing too isn't even big enough yet to support the sales numbers they're projecting. Am I missing something?

    Sorry that got long, I would like to address the autopilot comment as well quick. When AP1 came out it was a game changer. No other car company could come close to what they had and it was obvious. But just like Quizno subs, first to market does not constitute a sustainable comparative advantage. Fast forward to today. AP2.0 has just caught up to AP1 in regards to consistency of functionality but now most of the major brands have an equivalent (Audi, BMW, Mercedes, Cadillac) self driving option.

    Long story short, by the time Tesla has the production capacity, EVs are popular enough, the charging infrastructure is set up and battery prices have come down (and/or a better battery arrives) they'll simply be one of many EV options and they'll have burnt through their subsidies already.

    I hear people argue all the time that the other brands are way behind because they're dragging their feet. Personally, I think they're dragging their feet on purpose. Tesla is their guinea pig, the research and tech is within their grasp, they simply need to pull the trigger and they're waiting for the time to be right. It is not economical to make EVs right now with ICE vehicles being as popular as they still are.

    This goes for the data Tesla is gathering with their cars as well. Tesla has sold what, just shy of 200k cars. If GM or BMW wanted to gather some data about roads how long do u think it would take for hem to catch up? They literally sell more Chevy cruises in a month than Tesla has sold vehicles ever. It's not terribly hard to throw a sensor on a car when it's in for a routine oil change. Not to mention they already mapped the entire US freeway system for supercruise, which is coming out in the CT6 this winter.

    Bottom line, I don't see a competitive advantage that facilitates the projected demand. And by the time EVs are mainstream, Tesla will simply be another choice and their first to market advantage will have long since faded.

    *Their energy business is even worse numbers wise. They are a car company.

  • How much money has been lost shorting this stock? At some point it may pay off but it seems like a crazy investment strategy looking at past returns.
  • In the current US equity climate, it is only a matter of time before tesla will see a major correction in its share price.
  • When investors are unwilling to carry on funding this guy's unprofitable ventures this will go to zero in my opinion.
    Will "tesla" as a brand survive? more than likely but as a subsidiary of a larger manufacturer.

    Gazprom has a smaller market cap than this company but has an almost insurmountable moat, billions in earnings and a P/E under 3 and trades less than 20% of book.
  • edited October 2017

    I’ve heard of Gazprom, thinking about opening a position. Would love to hear your insights.
  • edited October 2017

    Hi there,

    I recently wrote a piece on Gazprom for TIP which is available to view here on the Forbes website;


    It's listed under Preston's name since he is registered with the Forbes team but was crafted by me. Gazprom looks significantly under-priced to me, even when one factors in the associated risks. I am going to be taking a position in the company shortly and I am actively looking at other Russian companies to invest it. I consider the most prudent approach is to buy a basket of Russian stocks to mitigate non-market risks associated with the country. The Russian stock market is by far the cheapest on the planet right now and there are a number of factors which I think will provide catalysts going forward.

    1. A lot of Russia's economy is tied to commodities, hence it has been depressed due to the recent downturn in commodities prices. As with all things in life commodities move in cycles so when this current slump turns into the upward arc of the cycle the Russian economy will greatly benefit.
    2. Russia has some of the lowest levels of both public and private debt relative to GDP. In credit based ecnomies growth in private credit is one of the fundemental driving forces behind economic growth, this means there is a lot of pent-up capital which can be released to drive future growth.
    3. Pessimism and discontent surrounds the country at present with a large flight of international capital having occured in recent years. At some point this sentiment will shift as some other crisis or debarcle captures the investment community's perception. Global capital is like water sloshing about in a bowl, at some point this capital will leave another country and run into Russia.

    Another company to look at is Lukoil(This is the only wholly privately/shareholder owned, Oil&Gas major unlike the others which are Public Joint Stock Companies PJSC, the PJSC's have state ownership), not as cheap as Gazprom but still very cheap.

    When a particular country's economy is depressed I check lists of their ADR's/GDR's to see which companies are selling cheap. Some of the companies have a lot of hair on them, i.e. heavy debt loads and weak liquidity positions etc so check for that. See here for Russia;


    Here is a chart depicting current global market valuations, as one can see Russia is by far the cheapest on all metrics;



  • @David ,

    Read the article a couple of days ago and didn't know it was your work! Great job on the article and I am also going to open up a position. What are you waiting for of have you already opened a position? Price seems good to me...

    Lokuil is also good but still a lot more expensive then Gazprom if you compare the valuation metrics, so I think I will only open a position on Gazprom for now.

    Kind regards,
  • @istrong My thoughts on Gazprom.. I lived in Russia for three years so I have a bit of insight.
    probably massive corruption but I have heard the money is taken before it get counted. The other way money is creamed off is through their massive development projects. That said if any of that continued siphoning stopped it would be on an even cheaper multiple. Gazprom is a massive state controlled monopoly but now has a few competitors (novatek etc)but it is unlikely they will catch up soon. big earnings, decent dividend. I'm expecting to make money from a multiples expansion, if earnings go up that is a bonus.

    The company also has diworsified a lot, owns banks, tv stations, power stations, things to do with space rockets.. whole load of stuff.

    When you live in Russia it's just everywhere, like a national institution, it's not going anywhere..

    Something you also don't appreciate about Gazprom is that people have to buy it's gas. We are not just talking about Germany and china etc. Most of Asia where it gets cold needs gas, or you will literally freeze to death. Everyone in Russia needs the gas and so does eastern europe. If they cut you off, your country will die..

    Also Moscow can't afford anymore big financial shocks, if they somehow tried to screw the western shareholders of Gazprom they would face a massive problem with investment and the rouble would go down again. They are desperate for investment money. The young people in Russia are great also, well educated, mostly honest, positive and hard working.

  • @David I've been buying Nigeria, I think it's even cheaper than Russia. Just as corrupt and has been suffering from high inflation like Russia, its economy grows like a weed. The ETF is mostly Nigerian subsidiaries of global companies, nestle etc, breweries and banks. had a bit of a pop recently but over the long term it should pay off well at these ratios.
  • edited October 2017

    Thanks for the tip on Nigeria, it hadn't even occured to me to look at something like that so I will definitely check it out.

    Also thanks for your insight on Gazprom and Russia. I totally agree with your sentiment, Gazprom has the gas and lots of countries have to buy it. It's offering a great dividend yield at this price and is significantly undervalued relative to TBV. As you say capital appreciation from an expansion in multiples and earnings growth will see this stock go up substantially, potentially a 3-4 bagger in my opinion.

    I'm also looking at Novatek and Acron



    On first sight Novatek doesn't look cheap but paying 3.7 x sales for a 30% net profit margin is actually pretty good. ROIC and FCF/Sales is very strong, stock count has been stable with no dilution, strong BV growth. Strong growth in dividends with low payout ratio

    Acron is also worth a look, 1.5 x revenues for a 16% profit margin, buying back shares for the last few years, paying a decent dividend, looks like lots of growth potential after perusing some of their documents on the company website. Revenue growth has been pretty good though it looks like historical earnings have been lumpy, exposed to cyclical pressures etc.

    Obviously neither are absurdly cheap like Gazprom and that's what I'm really trying to find, patently absurd mispricings for companies even after accounting for risk.


  • edited October 2017
    @David thanks for the heads up on Akron (spelling?) had a look and I'm actually quite excited about agricultural minerals at the moment. Im up a bit on some potash corp I bought some time ago.. Akron may be good but I would check it out in depth, farming in Russia has really boomed over the last couple of years due to the government banning european and American fresh imports.. the companies have basically been gauging the russian public. If this reversed then perhaps the russian farmers would have less need for fertiliser etc.. Also the pricing etc of these types of products in Russia can be quite weird with huge corrupt overpaying etc.. having said that it could be really great.. probably need to dig..
  • @Thomas

    Thanks for the background information.

    I think AKRN is worth a closer look, whilst reading their latest presentation I noticed that they are a low cost operator thanks to vertical integration, they also seem to have a decent amount of future projects already commisioned and look pretty cheap on nmerous metrics. Take a read of this;



  • I don't know, I want a huge margin of safety when investing in Russia. It's been going up for a few years now.
    I was buying Russian stocks at the beginning of 2016 and they have really outperformed since then. You have safe commodity producers like cameco and potash which seem to be at the bottom of their cyclical downturns trading below book. their's also drillers like ensco trading like warrants at under 30% of book..

    this chap seems to be trading way above book and in an industry which is fairly crazy. remember uralkali et al??
    very political...

    saying this it could still make someone a lot of money!

  • @Thomas

    You're probably right to err on the side of caution here, there are clearly risks which need to be accounted for.

    On a side note, do you look at special situations such as spin-offs?, I've begun taking a closer look at this area of late as there tends to be some good value opportunities in this niche. These two sites are worth checking out for ideas;




  • these look really interesting, thanks for sharing David. I only did one and that was sibanye gold when it span off from harmony. did really well for a bit then tanked with the rest of the gold space. still got it.

    I'll have a look but not really my forte so far, I have preferred finding the most hated undervalued stocks possible up until now..

  • actually also made out like a bandit from the coal spinoff from parent consol in 2016. still dream about it. structured by Einhorn so the minority shareholders need to get the dividend first before the parent receives anything.. pulled the trigger at a dividend of 32% it rallied massively and a sold out.. quickest money I ever made. still look at cnxc every few weeks hoping that the price will collapse again.. quite sad..
  • what are you looking at in regards to spinoffs?
  • @Thomas

    Apologies for the slow reply. Initially I was looking at Aptevo Theraputics (APVO) but ended up sucking my thumb and missing out on a quick and simple gain there.

    At the moment I'm looking at DXC Technology which is planning a spin-merger, the press release can be seen here;


    The idea of a company whose client bas is the public sector could be quite appealing. My line of reasoning is as follows

    Goverments, both federal, state, county are by their nature inefficient and poor capital allocators. This commonly leads to them over-paying for services, making poor negotions and tender offers with clients etc. I've noticed private companies can do very well when serving the public sector, particularly if some types of barrier to entry exist, i.e., regulatory etc.

    Over here in the UK, the private companies which sell to or are contracted by our public health service make an absolute killing, you would not believe the margins that these companies are making and the Goverment is essentially providing them with cartel status for free through regulatory requirements etc creating barriers to new entrants.

    I'm also looking at Aptiv Electronics which will be spun off from Delphi Automotive (DLPH). Press release here;


    More blurb here;


    I'm currently reading through all this but after a quick look it seems a bunch of debt will be transferred to the new company which may result in DLPH shareholders over-selling their alloted shares in the new company after the spin-off, depending on the new companies market cap there may be further forced selling if corporate charters of institutional investors prohibit them from holding smaller market cap companies.


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