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Thursday, March 28, 2024

Tesla: Sell the Sizzle, Then Buy the Steak

Courtesy of madhedgefundtrader

So far, the most successful thing Tesla Motors (TSLA) has done is sell stock. The IPO was an absolute blowout success, far and away the best this year, with book building at $14-$16, the size increased by 20%, pricing at $17, and then trading up to $32 on the third day, giving it an impressive market capitalization of $3.3 billion. It has since fallen back to $16. It pulled this off with virtually the entire auto industry and its pet analysts pissing all over the deal from the greatest height possible, as the entire concept of a Silicon Valley based car industry is the greatest affront possible to the Detroit establishment. As if they’ve been doing so well lately.

I love this company, and I think Elon Musk is incredibly brave. Hell, if I had a billion dollars to throw away, I would probably do the same thing. But much about the new issue reminds me of the Apple IPO some 30 years ago, when it ran up to $21 before its nosedive to $4 (click here for the story at http://www.madhedgefundtrader.com/june_3__2010.html ). The ill fated DeLorean Motor Company also comes to mind. All the focus was on the products, which consumers loved, not the business model.

By its own admission, TSLA will not make any money for two years or longer, and won’t even commit to hard production dates for its crucial S-1 model. I think the way to play this stock is to skip all the hype associated with the stock floatation, as most of the buyers aren’t looking for a profitable investment, but bragging rights at the country club.

Just wait for the next meltdown in the stock market to call out the weak holders. The time to buy will be in the PR ramp up to S-1 mass production, which will be just as intensive as the IPO.

There is also a political risk associated with the stock. If the Republicans retake the presidency in 2012 they may trash all alternative energy subsidies as unaffordable luxuries, which Tesla is hugely dependent on for making its S-1’s $50,000 price competitive. Always be careful when making investments totally dependent on government subsidies for profitability. Here today, gone tomorrow. If that happens, the Tesla will be joining the Tucker, the DeLorean, and the Pontiac in the dustbin of history.

Oh, and Elon, a little fatherly advice. Don’t tell a divorce court that you’re broke a week before the market values your holdings in TSLA at $2 billion. You’re supposed to be impressing your new shareholders with the depth of your judgment. Not good, not good.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

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