If you follow TSLA, you will surely know who Mark Spiegel is. If you don’t know, he is one of Tesla’s most vocal short sellers. A few days ago he released a letter to investors on the performance of the fund for December 2019.
December wasn’t good for Mark Spiegel’s fund as it lost 11.4% net of all fees and expenses. This is in contrast to the S&P 500 which rose 3 percent.
Since the fund’s inception in 2011, it is up 53.7 percent, yet the S&P; is up 187.5% percent. This is some serious under performance, obviously it is much harder to make money in a market that is rising and he will likely catch up during the periods of any downside in the future, but 2019 is his third year losing money in a row.
This has prompted him to do a little thinking and return to his successful roots this time around instead, looking to focus on deep value micro cap and nano cap long positions and holding more cash if necessary. Doing this actually yielded him out performance of 4% against the S&P 500 in the period between 2011 and 2016.
Now on to the juicy stuff, he has cut the Tesla short position down to approximately 10% of the fund. This was 20% recently and was often higher in the past. He said unlike their other equity shorts which were just bubbles, there’s major league fraud involved here and all the Fed printing money in the world won’t ameliorate that.
He says that he want to have some meaningful equity participation in addition to the short call position which they’re also maintaining. He’s actually also gone ahead and eliminated their other equity shorts for as long as the Fed continues to print that money.
He says when the money printing stops, he’ll start shorting again, but until then, it’s like playing poker against a guy with a chip-making machine on his lap. He can call every bet against a short seller and he’s tired of playing against the house. He’s actually done this with some regret, as collectively, all of their non Tesla shorts were profitable and were down since they shorted them. The only one that wasn’t was CNVA .
He considers Tesla to be the biggest single stock market bubble in this whole market. He pretty much spends his entire article whinging about his Tesla short positions.
So with that said, what are some core points that are underlying his short call for Tesla.
1. There is nothing meaningfully proprietary in terms of electric car technology while existing automakers unlike Tesla have a decade’s long experience of knowing how to mass-produce, distribute and service high quality cars consistently and profitably, as well as the ability to subsidize losses on electric cars with profits from their conventional cars.
2. By mid to late 2020, Tesla and its balance sheet will return to losing money.
3. Tesla is now a busted growth story, revenue was roughly flat sequentially and declined year over year, while unit demand for its cars is only being maintained via continual price reductions, and expiring tax incentives.
4. Elon Musk is a securities fraud committing pathological liar. In terms of the quarterly report, he was expecting a 300 million dollar loss for Tesla, but was instead greeted by 153 million dollar profit. This leads him to think that we’ll see a similar low level of temporary Tesla profitability in fourth quarter of 2019 or first quarter of 2020. However, he predicts that Tesla’s losses will resume once the deferred revenue from full self-driving system has run through their balance sheet.
He then goes on to talk about the other automakers coming for Tesla, from Audi, to BMW, Mercedes, Volvo, Kia and the list goes on. But if some of these guys are actually competition, then why are they delaying their launches in the US? Or pulling out altogether? It is possible they don’t want the embarrassment from the lack of demand and fearing that it might hurt their reputation.
Some other points were that he doesn’t see the pickup truck as growth engine that everyone thinks it’s going to be, and actually called it the joke of a pickup truck. Also that Tesla has seen the most executive departures compared to all automotive companies. He also mentioned that Tesla has over 800 lawsuits against them now.
He says that Tesla is about to face a huge competition with debt that’s larger than Ford’s and GM’s combined, despite selling fewer than 400,000 cars a year, while Ford and GM make billions of dollars selling 6 million and 8 million vehicles respectively.