© 2020 Forbes Media LLC. As I noted in my Long Idea report on General Motors, the firm’s Ultium battery pack is expected to cost as little as $120/kilowatt-hour (kWh), and the firm believes the cost will soon fall below $100/kWh. A new working paper from professors at Ohio State University, Tulane University, and Lancaster University, “Does Joining the S&P 500 Index Hurt Firms?” investigates the impact of firms of joining the S&P 500 index from 1997 to 2017. These sales represent less than 1% of shares outstanding. Where is this confidence coming from? David is CEO of New Constructs (www.newconstructs.com). All the EV makers are focused on increasing range of their vehicles, and they are succeeding. Further, owners, employees, agents or representatives of Financhill are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory. On this topic, NTSB Chairman Robert Sumwalt remarked: “Sadly, one manufacturer has ignored us, and that manufacturer is Tesla. Lastly, Guidehouse Insights ranked Waymo, Ford and General Motors first, second, and third respectively in their Automated Driving Vehicles leaderboard. Tesla will have the GF at max output (at 500k) by 2020 and there are 5 more years to develop more Factories before 2025. This scenario implies Tesla’s NOPAT 10 years from now will be over $17 billion. Tesla (NASDAQ: TSLA) stock price has been performing strongly in the last several days, surging from $480 on January 8th, to nearly $540 right now. Nevertheless, I think the time has come for those with fiduciary responsibilities to consider just how much risk they take by owning TSLA at anywhere close to current levels. Tesla stock was last trading Monday at $272.23, up 1.22% from Friday. Like Valeant’s plan, Tesla’s compensation plan uses adjusted, “Non-GAAP” measures and outrageous valuation targets that incentivize excessive risk-taking with no accountability to the true fundamentals of the business. For comparison, Cairn Energy Research Advisors estimates Tesla batteries cost $158/kWh in 2019. At its current price of ~$1,900, Tesla is priced as if it will not only achieve the scale and production of a mass-market automaker and capture a majority of the electric vehicle market, but do so while maintaining its well-above-average vehicle prices. Nothing here in constitutes a recommendation respecting the particular security illustrated. Please contact your financial advisor for specific financial advice tailored to your personal circumstances. There are currently 11.9 million shares sold short, which equates to 6% of shares outstanding and less than 1 day to cover. As more investors fear a reversal of the huge market gains since mid-March, they should first eliminate extremely risky holdings from their portfolios. For reference, Tesla’s invested capital has grown 56% compounded annually since 2010 and 36% compounded over the past five years, 14.2 million vehicles – ASP of $37k (average car price in U.S. in 2019), 21.9 million vehicles – ASP of ~$24k (equal to Toyota), 32.9 million vehicles – ASP of ~$16k (equal to General Motors, Reported GAAP profits are a mirage driven by non-recurring regulatory credit sales, Competition is projected to ramp up production and surpass Tesla in just a few years, Declining net investment and lack of access to capital undermines Tesla’s growth potential, Valuation implies Tesla can dominate all incumbent automakers and garner over half the projected 2027 EV market revenues, Baron Partners Fund (BPTIX) – 31.3% allocation and unattractive rating, Baron Focused Growth Fund (GFGUX) – 25.3% allocation and unattractive rating, ARK Autonomous Technology & Robotics ETF (ARKQ), VanEck Vectors Low Carbon Energy ETF (SMOG), American Beacon ARK Transformational Innovation Fund (ADNIX) – 9.5% allocation and very unattractive rating. Tesla is ramping down spending as competitors are ramping up. Tesla will report third quarter earnings today after the closing bell.
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