Short-selling Tesla (TSLA) stock has been the “widowmaker” trade for years.
Many have tried, including some of Wall Street’s biggest traders and investors.
Few have succeeded.
As recently as September last year, famed short-seller Jim Chanos told Bloomberg News he was still short the stock (meaning he was betting the price would fall).
At that point, the price was just coming off a peak. It would close to that number again about three months later – in mid-December.
That, as it happens, was soon after Chanos announced he was closing his hedge fund.
We have no idea if his fund was still short Tesla stock at the time… nor whether Chanos is still short Tesla today.
We can only hope for his sake that he is. Because the “Magnificent Seven” stocks that helped boost the market in 2023 are at risk of losing one of its most well-known members.
Because after hitting a $930 billion market capitalization in July last year, Tesla is now worth “just” $579 billion.
Just how much lower can it go?
We’ll share some thoughts on that today…
Market Data
The S&P 500 closed up 0.5% to end the day at 4,894.16… the NASDAQ gained 0.2% to close at 15,510.50.
In commodities, West Texas Intermediate crude oil trades at $77.29, up $1.94…
Gold is $2,019 per troy ounce, up $6…
And bitcoin is $39,786, up $132 since yesterday.
Now, back to our story…
Tesla’s Long-Term Problem
The long-term problem with Tesla as an investment is that you’ve had fundamentals facing off against a hardcore and fanatical investor base.
Fundamentals didn’t have a chance of winning as long as that was so.
The fundamentals were quite straightforward.
Tesla is a car company. Sure, it’s an electric vehicle (EV) company… but it still produces cars in a market with stiff competition.
Arguably, the car market is just about the most competitive there is.
That means outside the true luxury carmakers, profit margins aren’t much better than your average retailer.
To explain simply, Tesla’s net income margin (in simple terms, how much it makes in profit, as a percent of revenue) is 15%.
One of the biggest, most popular, and most well-run car companies in the world, Toyota Motor Corp (TM), has a net income margin of just 6.6%. Volkswagen AG (VOW GR) – the German company that owns Volkswagen (VW), Audi, Skoda, Porche, and Bentley – has a net income margin of 5.5%.
And these are long-term averages. Why should anyone think Tesla has found the magic solution to suddenly create high margins from a mass-market segment?
After all, that’s Tesla’s competition – Toyota and VW. Its competition isn’t the luxury car market.
Of course, folks have argued this for years… have short-sold Tesla stock for years… and have had their you-know-whats handed to them on a plate for years too.
It’s not just the margins, it’s the valuation too. On a price-to-sales basis, Tesla trades around six times sales. That means its market cap is approximately six times the value of its annual sales.
It’s not a perfect way to measure the value of a company, but it’s a useful comparison between similar businesses.
By comparison, VW trades at 0.2 times sales. Toyota trades around one times sales.
Anyway, we’re not making a new argument here. We’re pointing out what others have said many times before.
Naturally, Tesla could still make a comeback. But to do so, we would think something has to change. And that mostly means the company returning to high-growth sales to justify the high valuation.
Right now, it doesn’t seem likely. Jim Chanos’ patience may be just about to pay off.
Isn’t Bitcoin for Fanatics Too?
The words “fundamentals” and “fanaticism” are words often used around Bitcoin and Bitcoin investors – and as you can imagine, not in a positive way.
So, what – if anything – makes the Bitcoin story different from the Tesla story?
Considering your editor is not a Bitcoin fanatic and truthfully understands very little about the technology behind it…
We found this a reasonably easy question to answer.
The answer (to us anyway) is competition.
Tesla’s problem is that it has formidable competition. Toyota and Volkswagen are probably the biggest. Then BMW AG (BMW GR) and Mercedes-Benz Group AG (BMG GR). Not to mention America’s homegrown carmakers, Ford Motor Co (F) and General Motors Co (GM).
And we haven’t even mentioned what’s coming out of China, where, as the Wall Street Journal reported earlier this month:
Chinese automaker BYD for the first time topped Tesla as the world’s largest seller of electric vehicles on a quarterly basis, a sign of China’s emerging strength in the global market for battery-powered cars.
BYD reported selling more than 526,000 fully electric vehicles in the fourth quarter of 2023, compared with Tesla’s sales of nearly 485,000 for the same period.
The same report noted Tesla still outsold BYD Co Ltd (1211 HK) for the whole year. But clearly, Tesla’s dominance in the market is over.
Now look at Bitcoin. Where’s the competition? And we can further ask, what is the competition?
Is the competition from other cryptocurrencies? The crypto experts will tell you it’s not. Other cryptos compete among themselves. And your editor’s understanding is that even Ethereum has competition.
But Bitcoin… no. No competition.
What about gold? Is gold a competitor to Bitcoin? No. If anything, it’s the other way around. Bitcoin is a competitor to gold.
We would safely bet that while many gold enthusiasts have embraced Bitcoin, maybe even “switched allegiance” from gold to Bitcoin… there would be far fewer converts going the other way.
Then there are Central Bank Digital Currencies (CBDCs). Do these present a competitive threat to Bitcoin?
Again, the answer is likely no. Arguably, any worldwide rollout of CBDCs by central banks would only make a stronger case for Bitcoin.
The aim of CBDCs is for governments and central banks to exert more control over people. The aim of Bitcoin is for the people to exert more control over their own lives and financial well-being.
Finally, what about alternative payment systems? The idea of using Bitcoin for everyday transactions still isn’t mainstream. It can be done, and people do it. But it’s not to the extent where it is widespread.
Will that come? Possibly. But even so, the development of alternative payment systems doesn’t necessarily pose a threat to Bitcoin’s position.
Again, arguably, the development of payment systems will surely only make it more likely that it will become easier for people to transact with Bitcoin.
If someone can solve the issue of Bitcoin’s volatility (Remember Teeka’s phrase, “Volatility is the admission price we pay to make life-changing gains”), merchants would be more likely to accept it.
That means a mechanism enabling them to convert “volatile” Bitcoin into “stable” fiat currency. Once that happens, or becomes more widespread, that can only be a positive for Bitcoin.
In short, your editor isn’t a Bitcoin fanatic. But we still understand what makes it tick and what makes it different from true fundamentally unsound investments.
Larry’s Bitcoin Skimming
Speaking of Bitcoin, if you didn’t tune in to Larry Benedict’s “Bitcoin Skimming” special event last night, you can catch the replay here.
Report Card 5 p.m. ET Tomorrow
It’s almost here.
Tomorrow, around 5 p.m. ET, the inaugural Legacy Research Annual Report Card will hit your inbox.
We’re just wrapping up a few things, but it’s pretty much done.
There is a surprise or two. But we won’t reveal anything further. You’ll have to wait.
Just be warned, it will be a long issue. So, before you settle down to read it, grab a cup of tea or a coffee. You’ll need it!
Look out for it then. We’re confident you’ll like it.
During a Break in Our Zoom Call
Yesterday, we explained we’ll soon be able to introduce you to a new trading expert. We can’t reveal too much yet.
Below is a screenshot of the scene as we took a short break on our Zoom call Tuesday afternoon:
We’ve had to redact a couple of things from the image on the left, in order to not give the game away.
But I can give you a little more color on his trading background.
Some of his biggest wins investing in and trading crypto are:
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1,000% from OmiseGo in 312 days
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300% from NuCypher in 24 days
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687% from ChainLink in 350 days
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541% from Agrello-Delta in 891 days
Oh, and by the way, he was in on Bitcoin mining relatively early, setting up a rig from home back in 2013.
More details coming up soon.
More Markets
Today’s top gaining ETFs…
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Global X MSCI China Energy ETF (CHIE) +2.6%
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S. Global GO GOLD and Precious Metal Miners ETF (GOAU) +2.3%
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Energy Select Sector SPDR Fund (XLE) +2.3%
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iShares U.S. Home Construction ETF (ITB) +2.2%
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iShares U.S. Energy ETF (IYE) +2.1%
Today’s biggest losing ETFs…
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KraneShares MSCI China Clean Technology ETF (KGRN) -2.6%
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KraneShares Electric Vehicles and Future Mobility Index ETF (KARS) -1.9%
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Global X Lithium & Battery Tech ETF (LIT) -1.9%
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Siren Nasdaq NexGen Economy ETF (BLCN) -1.6%
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iShares U.S. Healthcare Providers ETF (IHF) -1.4%
Mailbag
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut