Mark B Spiegel: No Rational Reason to Be Long Tesla Motors Stock
Overall Thesis
2017 WallStForMainSt interview with Mark Spiegel (Stanphyl Capital): Tesla equity worth zero, global currency 'competitive devaluation' theme with the Japanese yen as his signature short, overall market as the second-biggest bubble in history behind only 1999.
Narratives
The Bank of Japan has been printing ~20% of the monetary base per year for ~5 years. Japan's national debt is over 250% of GDP and interest on the debt is already over 9% of the budget at a 1% average rate. At 3% rates, debt service would consume ~28% of the budget — unsustainable. The BOJ will keep printing to cap rates and crash the yen in doing so. This is Mark's 'desert island' set-it-and-forget-it trade, on since late 2012 from ~79.
Key Arguments
- BOJ printing ~20% of monetary base per year (non-compounding) — structurally destroys the currency
- Japan debt/GDP over 250%; interest at 1% is already 9% of national budget
- A 3% normalized rate would push debt service to ~28% of the budget — unsustainable, forces continued monetization
- Historical context: USD/JPY was 250 in the 1980s and 300 in the 1970s — no technical reason it can't return there
- Competitive devaluation framework — Japan printing harder than the US even during QE3, now the Fed is tightening while BOJ is not
Predictions (1)
Three-part short thesis: Tesla is losing more money than ever even before luxury EV competition arrives (Jaguar I-Pace, Audi e-tron rolling out 2018); there is no technological moat (Panasonic cells are commodity, prismatic cells from Samsung/LG are leapfrogging Tesla's cylindrical format); Musk is untrustworthy with a long record of deceptive public statements and a reckless personal style. The ~\$60B enterprise value is underwritten by ~\$8B debt that will exceed remaining asset value by the end. Model 3 breakeven is ~\$41K per UBS teardown — the promised \$35K model is fiction, and every Model 3 sold will cannibalize higher-margin S/X sales.
Key Arguments
- Zero sequential growth in Model S/X sales for four straight quarters — already stalling before luxury EV competitors arrive
- Jaguar I-Pace, Audi e-tron in showrooms within 12 months — better-looking, nicer interiors, at or below Tesla pricing
- Panasonic cells sold to any automaker — Tesla has no proprietary battery; competitors moving to prismatic cells that are cheaper to assemble and easier to cool
- BMW plant: 9,000 employees, 400K cars/year. Tesla: 6,000 employees, 77K cars/year — Tesla is a horribly inefficient manufacturer
- Tesla Energy battery-storage gross margins were double-digit negative last quarter
- Model 3 breakeven ~\$41K (UBS teardown); even at \$50K ASP the 10% gross margin is offset by S/X cannibalization
- SolarCity acquisition was a bailout of Musk's cousins using Tesla shareholder capital — shareholders will 'get what they deserve'