Short $TSLA?

I’ve always been a big fan of Elon Musk. He seems like one of those once in a generation type people. His brilliance has been a large component in $TSLA’s more than doubling in share price over the last five years.

But as I’ve begun to take a closer look at this company, it becomes more apparent that $TSLA is ripe for a short play. The shares have been down about 10.4% over the last six months, but the downside potential is much greater.

When you really take a hard look at the earnings power of this business, the economic moat that it has against its competitors, and the current share price, it becomes clear that $TSLA is wildly overvalued.

The Model 3, for starters, despite claims of robust demand from Musk, have seen 23% refund rate on original deposits (SeekingAlpha) and just 8% configuration rate in April, meaning nearly a quarter of original deposits put down on the car are asking for refunds while less than a tenth of original depositors are putting down the additional money to configure their orders. Combine this with the fact that Tesla is taking months to process refunds and it becomes clear that these orders aren’t turning into actual cars on the street.

Now Tesla makes a sleek car, and they are certainly technological marvels, but the fact of the matter is that the economic moat that Warren Buffett often looks for in his investments is quickly shrinking here. This is because major car manufacturers both in the US and abroad are investing heavily into electric car technology and Toyota, Volkswagen, GM, and Ford are making a nearly $100 bn investment into EVs through 2030. Batteries are getting cheaper and electronics and motors are becoming more efficiently produced, but Tesla simply cannot ramp up its production capacity fast enough. Let’s also consider that the rare earth materials used in Tesla’s batteries (which, I’ll admit, are by far the most technologically advanced of the industry) are often originated in Africa (an extremely risky market) and, of course, China. Trade war anyone?

Tesla has lofty gross profit margin goals for the future but its hard to imagine the company reaching them, especially as the government begins to phase out its subsidies on buying EVs over the next few years. With all of that being said, investors still want to believe in the magic of Musk and have mostly sustained this $313 valuation. Fundamental analysis would show that these shares can’t be worth even close to that. Only ask the dozens of high level executives who have left the company over the last few years and cashed out their options on the ride up. You would be hard pressed to find a successful company that has seen so much turnover.

I’m a seller of this business at the current price. I think Tesla is a cool ass company and have really sick cars. But real analysis would support a short. Stack that paper boys!!

SHORT $TSLA Last Close: $313.58

AF

Submitted July 21, 2018 at 12:01PM by alexfialfilet https://ift.tt/2LrClZg