The Perils of Shorting: A Real Life Example

Colm Fagan said:
There are low barriers to entry in the EV market and a host of new entrants joined in the last few years.
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While I agree with most of what you said can you tell how you come to this conclusion? Dyson spent half a billion dollars working on an EV before pulling the plug. Most traditional car manufacturers have to move away from their areas of expertise into more software and tech.
 
PGF2016 said:
While I agree with most of what you said can you tell how you come to this conclusion?
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I took the word of people who know far more about the subject than I do. The same article as the one quoted earlier (about dealers being asked to bolt on seats) reads: "the barriers to entry are so much lower on battery vehicles than on their engine-powered forebears". It goes on to say that at least 18 automakers have listed in the past two years through SPACs (Special Purpose Acquisition Vehicles), in addition to a major IPO (Initial Public Offering) by Rivian. That tells me it's a crowded market. And that's not counting established ICE (internal combustion engine) manufacturers going into EVs.
 
Steven Barrett said:
Tesla's showroom is on Bracken Road in Sandyford, opposite the Audi centre.
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Thanks Steven. I've seen the showroom myself when I've been up around there. I don't know if it's owned by Tesla or if it's an independent distributor. Also, if it is an independent distributor, my thesis is that it's getting a much lower margin than would a more traditional dealer, for the simple reason that the Musk brand does nearly all the selling, and there's no need to give someone else a big slice of the action. It would be interesting if someone could clarify the actual position, to confirm if I'm talking sense or talking through my David Drumm.
 
Colm Fagan said:
Your analysis is faulty. A significant proportion of the additional valuation is because Tesla issued additional shares in the intervening period, in order to raise more capital. That's one of the "Musk aura" effects mentioned above. Of course, I'm in total agreement with your core point that I got it very wrong!
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I don't get this, Colm

Let's take it that the original price was $350 and the current price is $1,150
That price would be 5 times higher if it were not for the spilt, i.e. $5,750
So $5,750 divided by $350 is c. 16 times
Fair enuff, there may have been more shares issued to bring the enterprise value to over 18 times its then value but I'm struggling to see where the "significant proportion" comes in?
 
Hi JAS

If a company has 100 shares worth €1 , it's market capitalisation or value is €100.

In a rational market, if they announce a share split, and if they give everyone an additional share, the formula should be
200 shares @ 50 cents = €100.

I remember back in the dot.com bubble trying to explain this to people and they did not get it. They seemed to think that splitting shares without introducing any new cash increased the value of the company. And because of this, the market value did actually increase.

I remember one guy saying to me "One more share split and I will be a millionaire".

It was mad stuff. I imagine this contributes something to the share price of Tesla.

Brendan
 
Hi Brendan,

I was simply commenting on Colm's comment to me which I found a little strange - it is simply not true that a significant proportion of the additional valuation is as a result of new stock being issued - and I merely took the trouble to demonstrate the relative proportions. I was not commenting on investor behaviour in relation to share splits!! [It would be interesting to see what the research shows in this regard.....I might have a gander later]
 
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Colm Fagan said:
Thanks Steven. I've seen the showroom myself when I've been up around there. I don't know if it's owned by Tesla or if it's an independent distributor. Also, if it is an independent distributor, my thesis is that it's getting a much lower margin than would a more traditional dealer, for the simple reason that the Musk brand does nearly all the selling, and there's no need to give someone else a big slice of the action. It would be interesting if someone could clarify the actual position, to confirm if I'm talking sense or talking through my David Drumm.
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That is the registered address for Tesla Motors Ireland Ltd, which is wholly owned by Tesla International. None of the 3 listed directors are living in Ireland. One in the UK, Germany and Texas respectively. But your point is 100% valid. They can run their Irish business out of a non descript warehouse, while their competitor across the road spent millions on their showroom.
 
I'm not necessarily a believer in Tesla as some are and think it is over valued. I think software will eventually be a big driver (sorry about the pun).

One thing though, moving to EVs will require a lot less labour and the VWs of this world are going to have big, expensive fights with unions & workers on their hands regarding layoffs & redundancy payments. Tesla (and other newer EV manufacturers) won't have this problem..
 
Electric Vehicles are definitely the future of driving, government wants it and industry is going that way. Tesla definitely hasn't been valued as a manufacturing company and more like a tech / research company. Maybe this is because it was based in Silicon Valley and was a first mover in EVs on a large scale, plus the Musk effect. They've proved there is a market for EVs and you can't deny that they changed the industry and were a leader in making incumbent car brands switch to eclectic vehicles. Here in lies the challenge to Tesla in my opinion.

Now that incumbents have switched resources to EVs, I don't see a reason why Toyota etc can't overtake Tesla in terms of technology and development. They also have the scale to deliver vehicles and cheaper costs with less issues. If you look at cars available in Ireland, we now have multiple EV options across household brand names.

Observationally on Irish roads I am seeing more and more EVs, but they seem to be VWs, Hyundais, KIAs etc. Tesla is definitely a luxury brand, and maybe its valuation will revert to that of a luxury car manufacturer, or maybe it is just a status symbol.
 
Brendan Burgess said:
I don't understand this.

Elon Musk pays $44 billion for Twitter.

And as a result, the market value of Tesla falls by $126 billion.

www.irishtimes.com

Tesla loses $126bn in value amid Musk Twitter deal funding concern

Investors fear Musk may need to sell shares in carmaker
www.irishtimes.com www.irishtimes.com

OK, I could understand that Tesla should fall a bit because a big shareholder will be selling some shares. But not by three times the value of the bid.

Brendan
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Mood dictates price more than any rigorous rational analysis in the short term, market mood is currently sour re_ growth stocks
 
Brendan Burgess said:
I don't understand this.

Elon Musk pays $44 billion for Twitter.

And as a result, the market value of Tesla falls by $126 billion.
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Brendan
I think the main reason for the fall is concern in the market that Musk will have to sell a portion of his holding to fund the purchase price, with the ancillary risk that he has borrowed on the security of his Tesla shares to pay another slug of the purchase price. If the Tesla share price falls sufficiently, the banks will start looking for extra margin, or cash, to cover the shortfall. That in turn could force him to sell even more shares. That prospect can cause a lot of fear. Hence the sharp price fall.
 
Colm Fagan said:
that Musk will have to sell a portion of his holding to fund the purchase price,
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Agreed. But the extent seems disproportionate. He does not have to sell $126 billion worth of shares.
I don't know what percentage of Tesla he owns, but he should probably have sold them off first before bidding for Twitter.

Brendan
 
when you buy shares in Tesla, by default you are buying shares in Elon Musk's vision. If I was a shareholder and I saw the founder and driver behind the company selling a large chunk of his shareholding to divest his portfolio, I'd be concerned and it is that concern that may have driven the share-price. His time will be less focused on Tesla, his vision turned elsewhere
 
Tesla is Elon Musk. It is almost cult like. A bit like Apple was Steve Jobs for a period. I think investors are worried that Musk is split between Tesla, SpaceX and now twitter. I don't think there is any financial argument to pay $44 billion for Twitter hence no bids coming to Twitters rescue. Remind me of those ad's in the 1980's for Remington Shavers where Kiam says 'I liked the razor so much, I bought the company'. In this case I think Twitter annoyed Musk so much, he just bought the company.

There is also $12.5 billion margin loan backed by Tesla stock as part of the financing for this so the companies are linked. However, it is not going to ruin Musk as he has shown this crazy ability to raise finance if needed.

I just don't know what he plans to do with Twitter..... But then I am not a billionaire 'visionary'...!
 
Brendan Burgess said:
He does not have to sell $126 billion worth of shares.
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Brendan
My comment related to the views of other market participants. It's their worries about whether Musk will have to sell shares to fund the purchase price, or to meet margin calls, that drove the price down. Nothing to do with the value of either Tesla or Twitter, or the value of his shareholding in either.
 
Peanuts20 said:
when you buy shares in Tesla, by default you are buying shares in Elon Musk's vision. If I was a shareholder and I saw the founder and driver behind the company selling a large chunk of his shareholding to divest his portfolio, I'd be concerned and it is that concern that may have driven the share-price. His time will be less focused on Tesla, his vision turned elsewhere
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Absolutely. Also Tesla now face a number of huge challenges, that shareholders would really like to see it's founder, driver & visionary fully focus on e.g.
- competition from awesome car companies like Porsche, Mercedes, Lexus etc in high end electric car production, roll out & marketing.

-Roll out of charging & other support infrastructures

- supply chain issues

- dealer network & consolidating it's place in the market place

As a group of shareholders you don't really want to see your brilliant but attention loving founder buying into an expensive distraction like Twitter, that's just going to get that founder into more spats like trouble with the SEC , etc.

If Tesla &/or Musk had announced a takeover of a car company such as say Jaguar or Aston Martin, or a battery company, or even a wind , solar, or something more complementary shareholders could maybe see a fit.

But twitter, yes it may offer some free advertising, profile building of its founder, and targeting of potential customers but other than that it's still a new media, loss making, cash guzzling, virtual distraction.....

And Musk's businesses are in automotive engineering, innovation and other related areas. A curious & distracting move for founder & shareholders imho.
 
Daithi7 said:
As a group of shareholders you don't really want to see your brilliant but attention loving founder buying into an expensive distraction like Twitter, that's just going to get that founder into more spats like trouble with the SEC , etc.
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A very good article in the FT Weekend about it and how he can manage all his diverse interests.

They do raise the issue that the Chinese authorities will put pressure on him to control criticism of China on Twitter.

Brendan
 
I see Scottish mortgage investment trust is really getting hammered now in this sell off. They were big investors in tesla and the whole technology space . For years they could do no wrong and trounced most other investments due to their concentration on US tech,

ditto for Cathy Wood and ark investment fund.

The intriguing thing that for all the developments in the high tech space there has been little real progress on energy, tesla may have developed a car that consumes electricity but they haven't done anything with regards to large scale production of cheap clean energy
 
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