{"id":816,"date":"2018-05-09T10:00:53","date_gmt":"2018-05-09T10:00:53","guid":{"rendered":"https:\/\/www.antya.ca\/research\/an-opinion-on-musks-vilification-by-shooting-stars-of-hedge-funds-and-an-acquiescent-business-media\/"},"modified":"2026-02-17T06:27:32","modified_gmt":"2026-02-17T06:27:32","slug":"an-opinion-on-musks-vilification-by-shooting-stars-of-hedge-funds-and-an-acquiescent-business-media","status":"publish","type":"post","link":"https:\/\/www.antya.ca\/research\/an-opinion-on-musks-vilification-by-shooting-stars-of-hedge-funds-and-an-acquiescent-business-media\/","title":{"rendered":"An Opinion on Musk\u2019s Vilification by Shooting Stars of Hedge Funds and an Acquiescent Business Media"},"content":{"rendered":"
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The noise surrounding Tesla Motors Inc (TSLA US) and its prospects has reached a crescendo and will die down with the successful execution of its business plan. It reminds us of the \u201cFake News\u201d term coined by President Trump. Investors need to turn-off the business news channels, ignore the clamour and devote time to more fruitful pursuits.<\/p>\n<\/div><\/div>\n<\/div>\n

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What\u2019s Up with the Media?<\/strong><\/p>\n

Once upon a time in the Fair republic, there was a national news organization run by Mr. Integrity. Every weekday morning, and especially on weekends, millions of readers picked up the newspaper to read informative opinion pieces or real stories written by individuals that believed both in their profession and in their cause, whatever it might be. Scoops from the newspaper made it to the radio and subsequently to the TV. Papers brought down governments and presidents, think Washington Post, and were the chief weapon in the hands of an informed population. From India to the United States, and from Japan to Germany, media served the public good.<\/p>\n

In that golden age of journalism, our media organizations were quick to accuse Pravda and Xinhua of pandering to bureaucrats and spreading misinformation amongst their citizenry. In due course came the Internet, the smartphone, the blogger, the website, and the online trading platforms. Then came the 24-hour business news network with names such as CNBC, Bloomberg, Fox- Business, BNN-Bloomberg, and others.<\/p>\n

Individuals that could not spell \u201cstraddle\u201d were listening to experts highlighting \u201cstraddle trading\u201d. If you do not know what that is, consider yourself fortunate, because those that do know and have learned it on TV, are wasting precious resources chasing a chimera. You are \u201con-air\u201d begins a gladiatorial contest to gain eyeballs and fill air-time. It also means that to stay on-air, anchors and producers imperiously create today\u2019s heroes and tomorrow\u2019s villains, because the show must go on. More importantly, in the business media, the subterfuge shifted from spotlighting political villains in the East, to highlighting opportunistic trading strategies driven by public relations firms for hire.<\/p>\n

In a Facebook-driven world, where individuals are foisting every conceivable piece of information including pictures of their sock-drawer on unsuspecting friends and family, a desire to get-rich-quick in the stock market appears to be an easy way out for the self-inflicted misery of millions. For these individuals keeping up with the Joneses of cyberspace is task number 1. Therefore, while Warren Buffet and John Bogle both believe that in the stock market \u201cTime is your friend\u201d, that does not make for good TV. Hence the stalwarts are sidelined to annual ritualistic appearances, while the man who looks at a chart and preaches gibberish called buy-sell signals and does \u201crapid-fire\u201d Q&A is a superstar. Jim Crammer famously said to Jon Stewart at the height of the financial crisis \u201cI\u2019m a guy trying to do an entertaining show about business for people to watch,\u201d.<\/p>\n

Why do Tesla shorts need vindication in the media?<\/strong><\/p>\n

Then we have the shorts looking to generate alpha. For some reason, these shorts feel the urge to advertise their positions to the entire marketplace, create a frenzy of negative publicity surrounding stocks that they are short in their portfolios, and prove to the world their short-lived smartness if they are correct. Nonetheless, if the shorts were collectively smarter than the equity market, then the hedge funds would not have lost their wager of $1 million, over a period of 10 years, to Warren Buffet. As usual \u201cTime is your friend\u201d proved more valuable than pseudo alpha greatness. The irony is \u201cthe shorts\u201d came up short when and where it mattered.<\/p>\n

Details on Buffet\u2019s bet can be seen at http:\/\/www.businessinsider.com\/<\/a> warren-buffett-wins-million-dollar-bet-against-hedge-funds-2018-1<\/a><\/p>\n

That brings us to Elon Musk and the predicament of Tesla Inc. Public relation consultants, equity analysts, media commentators are tied up in knots over Musk\u2019s refusal to tolerate boredom and inanity. The premise being, that because Musk is the CEO of a public company, it compels him to tolerate insouciance. While on the one hand, the world wants to reward competence and innovation, on the other it wants the same innovators to tolerate ineptitude and irrelevance. It appears that the financial media would rather see Musk fail than succeed and is willing to go to great lengths to make that happen.<\/p>\n

Recently, an email from Musk\u2019s desk sent to Tesla employees became available in cyberspace. We quote Musk from that email, \u201cWalk out of a<\/em> meeting or drop off a call as soon as it is obvious you aren\u2019t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.\u201d More details in <\/em>Tesla Inc. \u2013 Elon Musk Email to Employees \u2013 Progress, Precision, and<\/em> Profit \u2013 Must Read<\/em><\/p>\n

Evidently, Musk is encouraging Tesla employees to focus and get rid of activities that are not value-added. If that email illustrates urgency and candor, within Tesla, why does the world outside expect to be treated differently? If shareholders, debtholders, and brokers of capital are happy with that email, why are they unhappy at being cut-off? Is it because the brokers have engineered media access through public relations firms, whereas Tesla employees have nowhere to run! Before moving on it is essential to reproduce a few headlines to provide context, and as we write this, headlines have also changed course over time.<\/p>\n

Attention deficit disorder on the Internet needs the next catchy headline to keep those eyeballs engaged.<\/p>\n

Tesla Plunges After a Bizarre Conference Call \u2013 Bloomberg<\/p>\n

As Musk Berates Analysts, VW unleashed a Massive Counterpunch \u2013 Bloomberg<\/p>\n

Jim Chanos and other Tesla Short-Sellers are smelling blood in Water \u2013 CNBC<\/p>\n

Short-seller Mark Spiegel says Tesla stock is worth zero \u2013 CNBC<\/p>\n

The list goes ad-infinitum.<\/p>\n

Let\u2019s start with Mark Spiegel first. Whatever his pedigree, in his March 2018 letter to investors, Mr. Spiegel outlined the performance of his fund thus: \u201cSince inception on June 1, 2011, the fund is up approximately 102.7% net while the S&P 500 is up approximately 126.9% and the Russell 2000 is up approximately 98.4%. Since inception, the fund has compounded at approximately 10.9% net annually vs 12.7% for the S&P 500 and 10.5% for the Russell 2000. (The S&P and Russell performances are based on their \u201cTotal Returns\u201d indices which include reinvested dividends.)\u201d. The full letter is at https:\/\/www.valuewalk.com\/2018\/03\/tesla-inc-tsla-stock-bubble-<\/a>stanphyl-capital\/<\/a><\/p>\n

That reminds us once-again of the wager that Warren Buffett placed. After fees, Spiegel underperformed the S&P500 by a cumulative 24.2% or approximately 2.7% annualized. If all CNBC wanted was a sensational headline, the least that the network should have done, is find someone who can keep up with the S&P500, if not beat it. Journalistic integrity and fairness to readers would demand it.<\/p>\n

Not to be outdone in its crass commercialism, the ode to Volkswagen (\u201cVW\u201d) published by Bloomberg, fails to mention that VW mistakenly sits atop the good corporate governance pedestal after falsifying and cheating on its diesel emissions. VW agreed to pay fines to the Department of Justice, and multiple other agencies of the Federal government, which cost its shareholders $30B. The Ex-CEO of VW is being indicted by the justice department, while the Germans ponder over his fate.<\/p>\n

Details available at https:\/\/www.nytimes.com\/2018\/05\/03\/business\/<\/a> volkswagen-ceo-diesel-fraud.html<\/a><\/p>\n

In our view, good luck to all those believing anything VW says concerning its technology, battery range, and commitment to the environment, if that is important to you.<\/p>\n

What transpired on Tesla\u2019s Call?<\/strong><\/p>\n

On the other hand, on Tesla\u2019s Q1-18 call Musk said that most pertinent details are in the shareholder letter. Please read that. Musk then went on to explain the issues surrounding Model 3 in as much detail as required, with a particular emphasis on the gross margins of model 3, the expected trajectory of those gross margins over time, and other relevant data. Details discussed by us in Tesla Inc. \u2013 The Bull-Bear Battle Continues: Tied at 1-1 After Q1-18 However, in our opinion, Musk was rightly flustered by needless nit-picking and repetitive questions asked by analysts to appear relevant. In our view, analysts, including us, are not entitled to get an answer to every question.<\/p>\n

Moreover, we believe, some of those analysts on the call, while well-meaning do not know what they are talking about. We wrote to one, from a respectable global investment bank, seeking clarification on some of their data, valuation assumptions, and conclusions. Instead of responding to us, they published an update correcting the errors we highlighted. Atrociously enough, the modified version was incorrect too! We never bothered to follow-up nor did they. Last we saw a quote from their research on the CNBC website.<\/p>\n

In our view, they are wasting time and paper publishing on Tesla, and the bank that is supporting the said analyst is undermining its reputation and wasting its resources supporting him. Furthermore, for some reason, these same analysts feel slighted and entitled to come on TV, sit next to the short-sellers who have a mere fraction of their fund\u2019s capital allotted to the short side of the trade, and pontificate, while the anchor or the host of the show does the cheerleading.<\/p>\n

Musk has a lifetime of hard work, dedication, and his entire fortune tied to Tesla. If we are correct in our interpretation of Musk, he is less interested in his wealth, and more in a vision of the future that is radically different from the past and the present. As Spiegel and his ilk, worry about protecting their jobs and the 2\/20 model at hedge fund conferences while regurgitating ill-conceived facts that are known to all investors, Musk and his team are trying to create a new paradigm.<\/p>\n

Should Tesla get More Capital from Investors?<\/strong><\/p>\n

The man and his company may or may not deserve more capital from the markets, but they do deserve the benefit of the doubt, an acknowledgment of success beyond anyone\u2019s imagination, kudos for a track-record of delivering what others can barely conjure let alone provide, and finally, civility. While we understand America is the land of free speech and believes in a free for all capitalism, the way Musk and his company are portrayed currently with similarities to Enron; it is undoubtedly also becoming the land of \u201cFake News\u201d. Mainstream electronic and paper-based business media and its journalists that are easily swayed by public relation firms for hire need to move on from #BTV 1234 Go, to something more substantive and constructive. That the last bastion of the tempered suffered a breach, was evident when even the Economist fell for melodrama.<\/p>\n

In our humble opinion, fewer on-air hours would do citizen investors much good. Tesla is not going anywhere. The company will be around, the stock price will be volatile \u2013 if you cannot stomach volatility do not buy it \u2013 and the stock price will be much higher in a few years. If it is not higher but lower, we can still thank the pioneer who led the way towards a radically different future. Some believe that the future envisioned by Tesla is better, whereas others do not. Time will tell.<\/p>\n

In the end, either those that are short would have made a little bit of return (by definition a short cannot make more than 100% whereas a long can make an infinite return ) and the right to say, \u201cI told you so\u201d, or Tesla would be wildly successful. The media, on the other hand, would find it hard to escape from a narrative set in motion by President Trump called, \u201cFake News\u201d. We are a long Tesla and hope to make money for our clients by holding it for 3-4 years. We could be wrong too in being too optimistic regarding Tesla\u2019s valuation. But we are in Tesla with our eyes and mind open and our ears to the ground. As expected by us and discussed by us in Tesla Inc. \u2013 For Whom the Accounting Bell Tolls we expected better results at Tesla than the market anticipated. We were correct as most Tesla watchers and subsequent headlines provide credence to our hypothesis.<\/p>\n

We also believe that there is a lot more underlying financial strength in the company than the shorts are willing to admit. That may not make for a winning stock given an equity valuation approaching $50 billion, but it does make for a tussle that should be fact-driven, and not one based on innuendo. Rating agencies, just like The Fed are data-dependent and backward-looking. So we don\u2019t pay much attention to rating changes.<\/p>\n

We have been in many trades where we were the lone bearish voice with an army of bulls on the other side. That did not deter us. Our bearish take on a company has always been grounded in a lot more than what is readily obvious some of which is highlighted in Tesla\u2013Q1 Results Not So Bad; Future Outlook Is Worrisome. Convertible debt payments, ZEV credit sales, low GM, delayed product launches are all investing 101 topics. Growth investors giving Tesla a current $50 billion valuation know all these concerns too. We are not sleepy at the wheel. But as our accounting work shows, we also know a lot more than the bears are willing to admit. Concerns raised by Henry Kwon on raw material and battery costs are real, and combined with tariffs proposed by President Trump are a newly created headwind that bulls like us need to incorporate in our view. These need to be balanced against the new battery form factors, higher efficiency, new EV related developments in China, and the overall market opportunity.<\/p>\n

While the financial media zeroed in on Musk\u2019s comments on Physics, we heard a message on the trucking business that resonated with us and suggests a thorough understanding of the opportunity and the needs of that marketplace. It should not be discounted.<\/p>\n

The bears should also be really worried now because Q1-18 with a delayed model 3, trumped-up media rhetoric, an acknowledgment by the management of lower model 3 gross margins, etc. did not deter the bulls, and after a decline, the stock recovered to $300. That is interesting indeed.<\/p>\n<\/div>\n

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Neeraj Monga<\/div>\n<\/div>\n<\/div>\n
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