Mark Spiegel’s Stanphyl Capital had a killer year up close to 31% in 2016 and some small caps are up several hundred percent– see below for an excerpt on Tesla Inc (TSLA) from their June 2017 letter. But first… although he is known as Elon Musk’s number one enemy, Mr. Spiegel makes most of his money from killer small cap picks. His under the radar small caps which could pop just based on this piece (if we discussed it publicly) were profiled in ValueWalk’s 2nd edition of our quarterly premium newsletter. Below is an excerpt on Tesla stock.
Specific to Tesla, the size of our short position has ranged anywhere from approximately 2% of the fund (when I first put it on in the high $90s back in 2013) to as much as 1/3 of the fund more recently, when—in my judgement– the stock’s price went from “crazy” to “insane” and Tesla became “the greatest fundamental individual stock short opportunity I’ve ever seen.” However, despite my strong belief that Tesla is still “the greatest fundamental individual stock short opportunity I’ve ever seen,” in mid-June I drastically reduced the position size to a range of approximately 5% to 15% of AUM (depending upon technicals and news flow) and– despite the company’s ongoing disastrous fundamentals– shall only upsize the position (as a percentage of AUM) upon the appearance of what I judge to be “company killing” news; i.e., a major fraud indictment, a major safety recall accompanied by clear evidence of a company cover-up, a disastrous Elon Musk-related item, etc. Furthermore, if I happen to judge such news as “company killing” and yet the stock shows technical strength in the face of it, I shall again drastically reduce the position size. In other words, as a fundamental investor I’ve always adhered to the old adage to “respect the technicals but not defer to them,” but going forward with Tesla I shall defer to them…
Why haven’t I done this continually? Because Tesla isn’t a typical short position that I expect to decline “linearly”; rather, it’s a land-mine filled story-stock that could literally be cut in half overnight when one of those mines detonate and I’ve wanted to be sure to be there “in large size” when that happens. Well now we’ll be somewhat less likely to be there “in large size,” but if the equity component of Tesla is truly the “zero” that I strongly believe it is, there will still be plenty of money to be made in 100% downside from a stock that’s already been cut in half…
Many people have said to me “You’re 100% right about Tesla but it’s un-shortable.” Well, they’re all “un-shortable” on the way up! And as someone running a fund much larger than this one said recently: “If you wouldn’t short Tesla, what would you short?” This is a long-short fund and unfortunately during the latter stages of a bubble (when we swing from a long bias to a short one, as we’ve done now) we may go through this kind of pain prior to coming out successfully on the other side. I thus hope you’ll stick with me as I work to turn things around. And now onto the fund’s positions.
As noted at the introduction to this letter, we remain short shares of Tesla, Inc. (TSLA), this bubble-market’s largest individual bubble, as well as the operator of what may be the world’s least efficient car factory which—according to new insurance industry data– produces cars that crash 37% more often than those of its competitors with overall losses that are 124% higher!
What else happened lately with Tesla? Well, there was this Tweet from Musk, endlessly repeated in the breathless fanboy media:
Having hinted in December that those same future Superchargers would be at least 350kw, let’s do some basic math: in sunny areas a highly efficient solar array generates an average of around 5 watts per square foot net over eight hours a day (assuming 9 watts peak and considerably less non-peak). This means that to run just one 350kw charger for eight hours a day would require 350,000/5= 70,000 square feet of solar cells, and to store enough power to run that charger the other 16 hours a day you’d need to triple that to 210,000 square feet, then add in 10% more for storage efficiency loss, thereby upping the requirement to 231,000 square feet. Thus, if this mythical Musk Supercharger station had six connections (the Tesla average) at 100% utilization, it would require approximately 1,386,000 square feet = 32 acres (!) of solar cells (plus room for all the batteries). And the cost? Well, existing grid-connected Supercharger stations seem to average around $350,000 each, so let’s start with that. Then add the necessary 6.3mW of solar capacity (350kW chargers x 6 x 3) @ $1.25/watt = $7.9 million, plus 33,600kWh of battery storage (350kw chargers x 6 x 16 hours/day) @ $250/kWh = an additional $8.4 million. So Tesla’s cost of each “disconnected” Supercharging station would soar from $350,000 to almost $17 million! Even if you cut the solar and battery capacity by 1/3 (assuming significantly less utilization), the per-station cost would still be over $11 million! Anyone who can’t see that Tesla’s CEO is full of shit (pardon my French!) is just a sucker at his poker table.
Also in June yet another Tesla “Head of Autopilot” departed (the second in six months). This apparently occurred nearly simultaneously with the departure of three other key people on the team and followed the escape of the “Head of Autopilot Hardware.” But then if you saw this (watch from 11:30) or this (watch from 3:35) video of the latest system, you’d understand why they’d depart before more Tesla drivers become “dearly departed.”
As for June’s “Tesla China factory” rumors (i.e., the search for a local JV partner to share half its losses), here’s a great story that puts it all in perspective.
Then there was this hilarity (headline below), further proving that Elon Musk is simply allergic to businesses that make money:
And finally in June we learned that when you own shares of Tesla you’re investing with a CEO who jokes about Tweeting while mixing red wine and Ambien. It’s unclear whether this was “outright joking” or “confession time”; however, here are some Tweets (read them from the bottom up) from just two days ago– you decide:
Despite all the above-noted craziness, Tesla’s stock was up 6% in June (69% year to date) even though in May it reported a disastrous Q1 2017, with an operating loss of $258 million and a net loss of $330 million, while the
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