After the debacle that was Solyndra, we hoped that “public” venture capital would die a much deserved death. Alas, we once again underestimated the arrogance and self-professed intellectual superiority of the bureaucrats!
Well we, cynics of “public” venture capital (aka government sponsored business), should hide in shame. We obviously didn’t give enough credit to the great and powerful “Obama!” and his exceptional business knowledge (not to mention staying power), garnered of course from his vast experience in private industry.
Case in point – Tesla Motors
Call me old fashioned but I’m finding it hard to get enamoured with a car I can only run for about 200 miles before I have to “reset it”…yeah, plug it into a coal-fired power station. This is what “they” call “green” today. Way to go boys!
Yet, Tesla is the darling of Wall Street!
“But Chris, you don’t get it! Elon Musk is a genius, and this is the future.” Hmmmm, OK, go on… “Remember, you have to pay for growth, and Tesla is a growth company.”
Gee, thanks for explaining that, I feel much better now. And here I was, thinking that I’d seen this before…somewhere. Nope, it’s definitely different this time! You’re right Mr. Tesla cheerleader, there’s nothing eerily familiar, or scary, about what’s happening with this company. It is different.
“Well, for starters we’re in a ‘new’ economy stupid.” Really? You mean an economy dependent on the FED’s insane QE continuing into eternity? An economy dependent on carbon credits, ZIRP, government bailouts, banking bail-ins, government loan guarantees, money flows, and hubris…lots of hubris.
Anyone trading the markets today must realise that valuations don’t matter. Revenues don’t matter. Pfft, get with the program already! Housewives and hair dressers of the world rejoice, fire up your E*Trade accounts and retake your seat at the day-trading merry-go-round. Buy some Tesla!
You see, the ingredients for success are much different today. Tesla has certainly nailed it in that regard. Between their US Department of Energy loans, which have reportedly been paid back, money Musk “borrowed” from the US tax payer ($465 Million), they then went BACK to the trough for another “undisclosed” amount. WTF?
The lesson here: Marketing works, especially when you have the right friends! Tesla obviously has phenomenal marketing prowess. I commend them for this…well done.
The reason for their success, outside of cheap loans from the public, has been their targeting of the high-end luxury market. This has worked because rich guys can and will pay for “cool”. Throw in a little bit of “it’s good for the planet” and you have a winning model, especially amongst Hollywood types!
Let’s face it, if you’re rolling in dough the price tag matters not. The trendier the better. After all, a new Tesla sports car for a guy like Charlie Sheen amounts to a week’s worth of his cocaine habit. And, after all, celebs need something to cart their adopted, ethnically-contrasting babies around just like the rest of us.
So, for you home bakers, here’s the recipe: A heaping teaspoon of government welfare checks, one good looking and well-spoken CEO, a few carbon credits, a gallon of QE-led credit boom, a couple of cute CNBC hostesses stirring the mixture and voila…success!
But let’s talk reality for those of us who still care.
Consider that Tesla sports a market cap of only US $13.6 Billion. Yes, that’s billion with a “B”. But don’t worry, it’s only trading at a forward P/E of 100. It’s still cheap as chips!
For comparisons sake, GM’s trailing P/E is 11.9, and Ford’s is 10.7. Mind you these are merely Johnny-come-lately wannabes, unlike Tesla, which by the way boasts an enviable EBITDA of NEGATIVE US $269 million!
“Come on Chris, you buzz kill! Lighten up, they’ll grow into that PE. Look at their revenues!”
Yeah, try again. US $945 million in revenues amounts to a rounding error on the balance sheet of GM. Unbelievably, Tesla’s market cap is fully 25% of GM’s market cap! Insanity reigns supreme.
Now, I can hear the Tesla cheerleaders…it’s deafening. “What about their first quarter profits of US $11 million? Well, as I read it there is roughly US $100 million in unsustainable line items in there, including US $68 million in carbon credits. Wipe out the Obama-mandated “loan” from the taxpayer and we’re staring at a giant, smoking hole in the balance sheet.
Tesla shareholders can also be comforted by the following: The Company guarantees that the residual value of their cars will be higher than any other luxury car on the market after 3 years. How do they know this? Well they don’t of course, but therein lies the difference between marketing and implementation. Mr. Musk will just go back to the taxpayer-funded trough, and his good pal Obama for more dosh if things don’t pan out…at least that’s been the precedent.
I haven’t even mentioned the obvious yet… Every other car maker in the world, to date, has been unsuccessful with their electric car initiatives. From the Chevy Volt to the Nissan Leaf…not to mention the Fisker, which was actually a pretty cool ride. They’ve all flopped.
Bottom line. Musk is a genius, he’s good looking, has a reassuring demeanor and in the end the economics don’t matter (nor do sales). After all, the money is free when you move in the right circles.
Just look at this beautiful chart. What could possibly go wrong? Next stop the moon Alice!
I am however reminded that things can remain insane for longer than you can stay in the game. If you’re short that is. That’s likely the case here. I don’t see anything on the horizon…yet… that indicates a tipping point for Tesla. It’s one to keep a close eye on because it bleeds cash, has “unique” accounting, is led by a man with a questionable history of telling the truth, and though I’m not a car guy, from what I can tell has nothing of proprietary value. It is therefore a marketing company that just so happens to make cars funded by the tax payer. And that will go on until…well….until it doesn’t.
The electric car, a “new” idea… “Yes, my grandfather worked with Thomas Edison on the electric car, and he sold electric cars at the 1900 World’s Fair in Paris.” – Al Jardine