There is something to be said about skin in the game! I have been a Tesla bear for quite some time, for example see my comments on blog posts here, here, here and here. However, thus far I have been reluctant to put my money where my mouth is. And, buoy has it been fortuitous! Below is the Tesla (ticker: TSLA) stock chart since March of this year.

There is no argument on TSLA fundamentals. Everyone agrees TSLA valuation is and has always been significantly above what valuations would justify.  Bears can win the fundamentals argument hands down. However, as is evident from the chart above, bears have been pretty much priced out of TSLA stock.

A few reasons why, in my mind, TSLA is trading at  a market valuation of >$450 B are (a) the Musk brand, folks that truly believe that Musk can do no wrong (b) the view that EV revolution is just beginning and there is a massive runway ahead (c) Fear of missing out (FOMO) (d) a growth story, TSLA is not a car company, it is an energy company, its a SAS company and (e) Have you driven a TSLA, the competition is no where near.

While, TSLA growth story has persisted far longer than any one would have anticipated, two events in particular stand out in the past six months, as highlighted above: (1) tail wind induced by the stock split news and (2) tail wind induced by the inclusion in S&P 500 news.

Stock split does not in any fundamental way change the prospects of any business. The fire under the stock on stock split news was purely story play based on the idea that cheaper price per share should induce more retail investors to participate in the trade. However, in the world of  fractional shares, even this story seems to have no merit. Regardless, I passed on the the opportunity to the pull trigger on short trade. I just did not see what conditions would trigger this mania to stop.

In the past few days, however, we again saw TSLA stock flirting with $500 threshold. This time round, the macro conditions as I see them, led me to finally pull the trigger on shorting the stock. So what changed? Below, I list two major trends that I feel may finally lead retail and some institutional investors to rethink their TSLA investments.

1. The vaccine induced market reversal into value stocks has finally begun! The size of rotation into cheap value stocks from growth/momentum and stock stocks was the most violent on record, eclipsing even the market reversal out of the tech bubble stocks of early 2000s.

2. Blank check companies, also known as special purpose acquisition companies or SPACs are popping up left and right with hot money ready to deploy into several of high flying EV stocks. Case in point, NKLA, which recently went public through SPAC merger. Another recent company going public is Hyliion Holdings (HYLN). And just yesterday yet another EV company, Arrival, will also go public via a SPAC merger.

That said, let us scruitinize the bull arguments for TSLA with some recent developments.  Europe has been a fast growing market for EVs. Until recently Tesla held 30 % market share of EV in Europe, but with a stream of new EV vehicles coming out from the big-wigs of European car manufacturers, Tesla share of the the European EV market has not fallen below 10 % (see here).

Tesla Battery day was hyped to be the big Tesla event for the year. However, it came and went! Lot of talk, no batteries to show and a lot of unanswered questions (see here).

With regards to the question, have you ridden Model S, the competition is really heating up, especially at the high end of the spectrum i.e., for Model S. See here for a detailed comparison of Model S to Porshe Taycan and Audi E-Tron getting into some of the reasons why there is an apparent huge difference in the driving range for Model S relative to its German peers.  Here’s what TopGear has to say about Model S and the competition,  If you’re intent on buying a premium electric car now, it has to be the Tesla. Is it the best car? No.

Musk brand is huge and there are always going to be a subset of folks who will never stop bowing to the altar of Musk temple and there is no fundamental or macro reality that can change minds here! I just hope the subset of investor pool in this category is relatively small.

Ok, so here’s my trade: Short TSLA stock at $500 and it represents about 0.5 % of Avi Family FI number.

Video/Book/Article/Audio for the Week

• Video: John Malone interview at the Paley International Council Summit 2020.
• Article: Morgan Stanley global macro outlook for 2021.
• Article: Morgan Housel penned an interesting article on big lessons from history to learn
• Podcast: Luke Gromen interview on We Study Billionaires podcast
• Podcast: Howard Marks on Value Investing with Legends Podcast