In February 2021, I known as MicroStrategy (Nasdaq: MSTR) the largest quick out there. That day, the inventory closed at $876. As I write, it sits at $206 – a decline of greater than 75%. And at its low of this yr, in Might, it had fallen to $134. That’s a shocking drop of 85%.
I used to be bearish due to MicroStrategy’s management – specifically, its CEO. Now it seems he’s being charged with tax fraud in Washington, D.C.
I consider Tesla (Nasdaq: TSLA) is one other nice quick for some comparable, in addition to completely different, causes.
Tesla makes nice vehicles. I drive a Mannequin 3. I’ve by no means been a automobile man, however I LOVE my automobile. It appears nice and runs nice, and the one purpose I do know what gasoline prices is as a result of it’s my job to maintain monitor of these issues.
Nonetheless, I can’t say I’m as thrilled with Tesla’s enterprise as I’m with its shiny vehicles.
After years of losses, the corporate lastly turned worthwhile in 2020. However right here’s one thing you received’t hear the Tesla bulls discussing…
Tesla’s money cow isn’t its vehicles. It’s carbon credit.
Corporations are granted carbon credit for decreasing their carbon output. Electrical automobile (EV) makers like Tesla earn numerous carbon credit as a result of EVs don’t pollute like gas-powered vehicles do. These credit could be traded and bought to different firms which can be up in opposition to their carbon output limits, permitting mentioned firms to pump out extra carbon.
So Tesla sells carbon credit to firms like Normal Motors (NYSE: GM) which can be placing out extra carbon into the surroundings. And it makes a revenue doing so.
Final yr, Tesla made $1.5 billion promoting carbon credit, one thing the corporate disclosed solely when pressured to by the Securities and Alternate Fee (SEC).
That quantity is declining. Within the second quarter of 2022, income from carbon offsets was reduce in half.
Tesla’s $68 million revenue from promoting a few of its Bitcoin holdings additionally added to the second quarter’s bottom-line numbers.
So a significant quantity of Tesla’s income comes from non-car-related actions, the biggest of which being carbon offsets, that are declining.
However probably the most important facet of my bearish thesis on Tesla is the corporate’s founder and CEO, Elon Musk.
The person is good and created a unbelievable product. He modified the sport. However he’s develop into distracted, and, frankly, he doesn’t run enterprise.
And operating a profitable worldwide enterprise is difficult. It’s even more durable while you’re spending time blasting off into house, making bids for unrelated companies (Twitter) and getting embroiled in lawsuits with them. One may say you’re not targeted in your automobile firm.
Musk’s outspoken, abrasive and impulsive character has gotten him in hassle with the SEC earlier than, like when he tweeted that he was contemplating taking Tesla personal at $420 and that funding was secured. He was joking. By some means, the often jovial of us on the SEC didn’t see the humor.
And Musk’s habits, reminiscent of lashing out on the Federal Aviation Administration for delaying the launch of considered one of his rocket ships resulting from questions of safety, has turned him right into a James Bond villain to some folks. And a few of these individuals are his clients, who could cease supporting him.
For years, Tesla was actually the one recreation on the town when it got here to EVs. At present, consumers have extra selections, and among the new EVs, like these made by Lucid, are attractive, quick and enjoyable to drive. Tesla has extra competitors than it did up to now, and it has a CEO who could also be alienating a portion of its clients and whose eye might not be on the ball.
Tesla has additionally made headlines for mistreating workers. Prices of harassment, discrimination and forcing folks to work with out being paid for additional time have caught the eye of not solely the media but additionally institutional buyers.
That brings me to the final level in my bearish thesis on Tesla: The inventory is priced for perfection.
Tesla trades at 66 occasions earnings, with round 85% earnings progress anticipated in 2022 and 36% forecast in 2023. These are excessive bars to clear. Any shortfall might ship the inventory plummeting.
Tesla’s vehicles are unbelievable. The CEO is good. However Tesla doesn’t make as a lot cash from its precise merchandise as it will such as you to consider. Moreover, Elon Musk is turning into increasingly of a wild card because the weeks go by.
I consider Tesla might fall to $150 within the subsequent 12 to 24 months.
Good investing,
Marc