Investors Beware: Musk’s Latest Online Antics Hint at Desperate Times
I admit to being a huge Elon Musk fan.
Not only do I think he’s is one of the single most creative executives in history, but Musk shows remarkably prescient insight and determination at a time when the world needs his kind of thinking.
It’s his online antics that I have trouble with.
I wouldn’t care if he wanted to destroy his own company, but Musk risks cratering the hopes and dreams of millions of retirees… people who cannot afford to get burned.
My job is to make sure you’re not among ’em.
Here’s the latest.
There’s an old saying that I think applies to Tesla Inc. (NasdaqGS:TSLA) today.
Investors who blindly assume Musk will triumph…
…”can’t see the forest for the trees.”
The meaning being that they’re so involved in the details that they cannot see the bigger picture.
I get that.
Musk is compelling, engaging, and brilliant. He’s created SpaceX, Neuralink, the Boring Company, and, of course, Tesla. What’s more, he leads from the front, setting a frenetic pace for employees and investors alike.
Musk’s intellectual capacity is staggering. One minute he’s talking knowledgably about Mars, then artificial intelligence, then sustainable energy. Even limited-edition surfboards and flame throwers!
He’s as unorthodox as they come.
Ironically, that’s what concerns me from an investment perspective.
The big picture isn’t pretty, and, when viewed as a “big picture,” it makes me think there’s something very troubling happening deep inside Tesla:
- Musk continues to tweet, apparently without supervision:Just Wednesday, for example, Musk tweeted about Tesla’s 2019 manufacturing numbers, then immediately revised his statement. That raises huge red flags about the company’s settlement with the SEC over fraud charges.The company is supposed to be taking actions to rein in Musk when it comes to public statements and material information that could influence Tesla’s stock price, in accordance with the regulations surrounding public companies, information disclosure and specifically the settlement. Instead, they seem to have forgotten the $40 million leveraged against them in the SEC settlement because they couldn’t keep Musk under control.
- More than 41 senior executives have now left the company:The latest, Tesla’s general counsel, Dane Butswinkas, left after only two short months on the job. He was an experienced litigator who reported directly to Musk, and who was hired after being retained as outside counsel to help settle Musk’s now-infamous “420” tweet (that said he was taking Tesla private at $420 a share). That brings the tally to something on the order of forty-one or more senior executives who have now departed Tesla from the upper levels of almost every department, including sales, accounting, finance, supply management, human resources, communications, and legal.
- Competitors have now met or surpassed Tesla technology on several fronts:As I noted last Friday, they’re charging hard – pun absolutely intended – which means Tesla not only has to address internal gremlins but fend off alternative products, too. Porsche, Audi, Aston Martin, Fiat, Ford, Nissan, Mercedes, Jaguar, and GM… they’re all investing billions and it’s only a matter of time before they deliver.The other thing to think about is that every one of Tesla’s competitors knows Tesla is the hurdle so they’re designing vehicles that will “beat” Tesla. For example, many have the potential to charge faster and go further in between charges. Not to mention the competition is building hybrid and electric pickup trucks and SUVs. And, significantly, the price points may be far lower.
- The Chinese are coming:Chinese electric car maker Kandi Technologies Group Inc. (NasdaqGS:KNDI) just received National Highway Traffic Safety Administration (NHTSA) approval to import two all-electric models – the EX3 and K22 – to the United States. Prices aren’t posted yet, but Kandi is a joint venture between Kandi and Geely Group, one of China’s biggest and most competitive car makers. Making a smaller initial entry (through a JV/subsidiary in this case) is a classic Chinese strategy, employed for nearly a millennium.Scoff if you want, but do so at your own risk; I’ve ridden in a number of Chinese vehicles over the years, and the quality is terrific. What’s more, China may be able to field competitive offerings here at levels below Detroit’s production cost.
- Big shareholders are increasingly “talking their own book”:ARK Invest’s CEO Cathie Wood told CNBC’s Squawk Box that Tesla is a lot like Amazon.com Inc. (NasdaqGS:AMZN) in its early days because of the skepticism the company faces. Unbelievably, she’s sticking by her projection of $4,000 a share. To put that in perspective, that implies a valuation of $700 billion up from its currently level of roughly $52 billion) and a 1,200% increase in stock price from where Tesla’s trading today. Amazon, mind you has a market cap of $794.65 billion… and shares trade for $1,618, as I type this.Other proponents like Emile Bouret have made similar claims over the years, usually as part of a very nasty Wall Street practice known as “talking your own book” – meaning they do interviews or otherwise create headlines that benefit positions they’ve already got in place. Usually, I might add, to the detriment of individual investors who fall for the con. George Soros, for example, condemned gold… while he padded his portfolio with the precious commodity. Warren Buffett did the same thing with the U.S. dollar. Noted short-seller Jim Chanos frequently talks about what a disaster specific companies are while at the same time disclosing he’s holding short-positions that profit as prices decline.
Thing is, that’s not even close to the entire list.
Tesla still faces a monster $920 million debt problem come March 1, when the convertible notes trigger an all-cash payout if shares aren’t trading at the required $359.87 per share conversion price.
Then there are logistical concerns, increasingly skeptical consumer reviews, and delivery challenges. All of which assume Tesla can actually hit production targets.
And, don’t forget about lawsuits reportedly in the works – related to everything from defamation to sexual harassment. Those don’t tend to go away quickly.
Like Musk or not, the big picture is scary.
Tesla has gone from being an investable company, capable of great things, to the kind of flyer you take with your fun money on a trip to Vegas.
You might get lucky but, usually, the house wins.
“Invest” accordingly if you dare.
Or, if you really to want to make a Vegas-style bet, buy LEAPS put options like TSLA January 17, 2020 $305 Put (TSLA200117P00305000). That limits risk to the capital you’ve used to buy the puts while dramatically increasing your profit potential at a fraction of the money required to “short” Tesla stock.
Until next time,