Tesla Bubble ?

TSLA
Praveen Chawla GuruFocus PremiumPlus Icon Jan 4, 2022

David Einhorn a hedge fund manager who was betting against Tesla got a box of shorts in 2018 from Elon Musk as a consolation prize. Tesla stock has since kept of climbing.

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The following chart comparing Tesla with selected auto manufacturers show how ridiculously over valued Tesla is as compared to other auto makers. Tesla is of course the EV pioneer and king, but now everyone is rushing towards EV's.

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Praveen Chawla GuruFocus PremiumPlus Icon Jan 4, 2022

Sorry, I did not label the chart above. The site does not let me edit the post.

The first chart shows Price to sales ratios.

The second an area chart showing Tesla's market capitalization vs. seven largest auto manufacturers. Tesla's market cap is greater than all the 7 combined.

The third chart comparing revenues of the same seven, vs. Tesla. Tesla does not look so dominant.

bpr7053 Apr 26, 2022

My thesis is simple:

I shorted Tesla at $1,020 couple days ago. I did this because it is a CAR company traded at 178 times earnings. In order to justify valuation of a car company like Tesla, it would have to do about 1.8 Trillion in YOY sales. Therefore, it is obvious to look at a CAR business like Tesla and see that if there is any corrections in the business or economy in 10 years (which there will be) the company is to speculative to support a valuation as rich as it is now. I would still short the stock at this price.

Praveen Chawla GuruFocus PremiumPlus Icon Apr 27, 2022

Agree. But remember what John Maynard Keynes said, "Markets can remain irrational, longer than one can remain solvent". Its common sense vs. the madness of the crowd.

bpr7053 Apr 27, 2022

Overtime the market is a weighing machine, for now people can act irrational about growth, value, and innovation, but for the long-term, I see Tesla having a big correction.

jake75604 Apr 27, 2022

Just from my humble observance. When ever a big investor says they are short usually it moves the other way. I am thinking its because lot of short term investors jump in. And when everyone is thinking the same thing it usually tip the other way. Good example is people who followed Munger into BABA. Also people who followed Burry back when tesla was 500 range . Now Bill gates have revealed a 500 million short position. Not a good sign. Although Musk will have to sell crap load of tsla shares to partially fund twitter purchase?? If I were to short tsla I will do it at 1357. Or if you see clear signs of recession coming. We have lot of signs pointing towards recession. But fundamentally we are somewhat ok. Once you see home prices coming down and GDP down. And fred (RECPROUSM156N) smoothed recession probability graph above 10 then TSLA will be a down in sales. Most people wont be kind to the idea of buying a 60 thousand + electric car and still have to have a normal car scenario.

bpr7053 Apr 29, 2022

Jake75604,

With respect to your ideas, I believe the opposite actually. I was in my short previous to Gates announcement of his position. I do not follow other investors, I do my own analysis which, to me, it is clear Tesla is a good business, but has a drastic disconnect from a value that would be even considerable to investors. If there is any sort of headwinds to Tesla's growth in the next 5 years, then the market will realize how overvalued it is. I simply believe my position will pay. I would like to discuss this further though.

bpr7053 Apr 29, 2022

Plus, Cathie Wood owns it so Im short. LOL.