Tesla and the Cult of Elon Musk. Are We Seeing a Bursting Bubble in Tech? | Mark Spiegel
Overall Thesis
Hidden Forces podcast interview (April 2018) with Mark Spiegel: reiterates the Tesla-equity-worth-zero thesis with fresh Q1 2018 data, and adds a macro call that he thinks the peak of the current economic/market cycle was made in January 2018.
Narratives
Three-part short thesis restated with Q1 2018 numbers: no moat (battery packs trailing prismatic leapfrog, autonomy ranked 18th/18), no runway (S/X unit sales already down double-digits both sequentially and YoY before luxury-EV competitors arrive), no trustworthy leadership. Q4 2017 GAAP loss was ~\$28K per car excluding ZEV credits, ~\$24K with. Service + used-car gross margins gone deeply negative because they under-reserve warranties and overpay on trade-ins, burying the mechanical cross-subsidy.
Key Arguments
- Panasonic installed Gigafactory equipment as a capital lease, not a partnership — Tesla is locked into paying take-or-pay while competitors move to prismatic cells from Samsung/LG
- S/X unit sales down double-digit percentages sequentially and YoY in Q1 2018 — the higher-margin backbone is shrinking
- Jaguar I-Pace (summer 2018), Audi e-tron (late 2018/winter), Mercedes EQC (2019), Porsche Mission E (2020) will destroy Tesla's remaining moat
- Model 3 loses money even now at ~\$43K ASP; will never reach the promised \$35K; every Model 3 sold cannibalizes 3x higher-margin S/X
- \$7,500 US tax credit expires for Tesla late 2018 while competitors' tax credits are just beginning
- Service & used-car gross margin is deeply negative; they bury warranty under-reserves there to inflate gross margin on new-car sales
- Engineering costs excluded from COGS (unlike every other automaker) — apples-to-apples Tesla automotive gross margin was negative in Q4 2017
- Float is dominated by Musk (~20%), Baillie Gifford, Fidelity, T. Rowe Price — none of the PMs have answers for basic mechanical questions about the battery format
Macro top call: Mark thinks the January 2018 high was the peak for the broader economy and equity markets. Central-bank liquidity withdrawal is the driver — Fed already taking tens of billions/month off the balance sheet, ECB wind-down ending September 2018. Without the money-printing tailwind, current valuations (highest in history by several multi-decade measures, Shiller P/E in low 30s, second-biggest bubble after 1999) can't be sustained. Position-backed short.
Key Arguments
- Peak in the economy/market was made in January 2018
- Fed withdrawing tens of billions of dollars a month; ECB printing ends September 2018
- Shiller P/E ~30 — third-highest ever, behind only 1929 and 1999-2000
- Earnings inflated by buybacks funded with cheap debt; back out buyback-financed EPS and real top-line growth is missing across most large caps
- Negative real interest rates worldwide is an unnatural state — remove that and multiples collapse