Telsa & Twitter… Musk is playing us…

Blain’s Morning Porridge – 19^th April 2022: Telsa & Twitter… Musk is playing us…

“I don’t care what the newspapers say about me, as long as they spell my name right..”

This morning: What nefarious plan does Musk have in mind for Twitter? How does it relate to his empire of cars, tunnels, satellites, rockets and neural-links? How real is it and how much is hype. What is Musk playing at? Your guess is as good as mine.

After the Long Weekend of religious holidays, the level of global uncertainty has ratcheted steadily higher. Oil prices look set to rise, gold is on the up, doubts about the dollar and treasury yields are rising, and who knows what happens next… Recession or Stagflation? Take your pick. Business as usual, then? I will get on to all these issues, what they might mean in terms of opportunity later this week.

But, first up … the latest Elon Musk wizard-wheeze to distract us all… Twitter.

I’ve spent the last couple of days trying to figure out Musk’s game – his threatened acquisition of Twitter. Whatever it is – it can’t be good. There’s got to be angle… and it can’t possibly be a good one… (I admit I am a bit oversensitive about Musk… Underestimating him has proved an expensive game….)

• Is he just trying to outdo Jeff Bezos’ Washington Post by owning a bigger, more modern media platform?
• Does he want Twitter to complete his nefarious global domination play? (You know; the one about the millions of killer robots he’s hiding in underground (boring) tunnels, controlled by his embedded neuralink linked to his Starlink satellite constellation put in place by SpaceX…)
• Or is he just playing games, like the pot-linked price to take Tesla private a few years back..?
• Is he simply trying to wind up the SEC?
• Does he have the money?
• Is he trying to distract us from something else – like the China plant or lithium costs?
• Or is it just another Musk-dance to keep up the enthusiasm levels….

My biggest investment catastrophe has been my lack of faith in the “glamour” of Elon Musk. (Glamour is old Scot’s expression originally meaning a magic spell creating an enticing but distorted vision of reality. In Scottish mythology an ancient old hag would typically cast a “glammer” to lure a handsome young lad into her lair by disguising herself as beautiful young maid.)

My disbelief in Musk’s glamour has cost me a painful 1400% upside in the Tesla stock I sold back in 2018. Ouch.

The pain has taught me some valuable lessons: When trading, trade what the crowd believes. When investing, invest on fundamentals and what the facts tell you. The two approaches are very different. It’s not what I know about Tesla that matters.. it’s what the voting machine called the market thinks it knows. Musk has proved himself better at convincing the market than I have.

On the other hand… as the author of the Morning Porridge all I do is offer my opinions of the market. When the market is wrong, I shall tell it so.. (And get slapped back in the face by a monster halibut of a loss. Such is the thankless life of a market scribbler…)

This morning Cathie Wood of ARK is on the wires telling us her Tesla bear case is $2900 by 2026 – near tripling its current value. Her BS price is $5800. 10% of her book is Tesla, but there is a large swathe of the investment community who will buy her arguments – reinforcing their belief Musk is an investment messiah. They believe Tesla is worth a multiple of any other car company because that’s what they believe.. (Yep. It’s that daft.)

I like a short comment in the FT’s Lex – basically challenging Musk to show us the money and make a proper bid for Twitter…

Initially I was a big Tesla fan.

I was enthused. Then I started learning for myself about autonomous driving systems, lithium batteries, power grids, range issues, the realities of energy transition, decarbonisation and rollout. It soon became clear to me EVs (Electric Vehicles) are fine vehicles, but a highly imperfect game changer – more mundane than a paradigm shift. They certainly were not a solution to energy transition – creating as many difficulties as they solve.

I concluded the reason Tesla was so successful was Musk’s extravagant showmanship coinciding perfectly with an investment industry desperate to invest in anything with a slather of Greenwash and Disruptive Tech hype all over it. Tesla had the advantage of being real, so everyone bought it. More to the point they kept buying it – to the extent belief in the firm trumped common sense. Take a look at the latest news on Full Self Drive if you still think that happens tomorrow.

I perceived something fundamentally wrong with Tesla’s improbable numbers. My conventional city mind told me it was an unsustainable bubble, facing a liquidity crisis, bankruptcy, and inevitable collapse on the back of failed delivery of just about everything Musk promised from completed cars to autonomous driving. It not only survived, but thrived – using its inflated stock valuation to underpin the firm with new equity allowing it to raise debt. Classic.

There was another factor I distrusted about the stock. It was all about Musk. Maybe it takes a bullsh*tter to spot another – but I didn’t see Musk as the engineering and financial genius his media portray him to be. The bubble burst for me after Musk’s brutal attempt to destroy a British cave-rescuer for the temerity of rubbishing his implausible grandstanding plan to rescue kids trapped in a cave system in a submarine – Musk branded the cave-diver a paedophile.

I sold. I was pilloried by Musk’s fan-boys for my heresy – ridiculed on Youtube and the pages of ZeroHedge. Bothered… Since then the stock – as I previously noted – is up 1400%.

Aside from the madness of crowds, the price makes no sense to me. I sincerely expect Tesla will dominate the EV market. EVs have become the mainstream – crowding out alternative solutions. When Tesla is a mature dominant firm, having fought off the hundreds of firms entering the market – will it still command such a premium? Will it still trade at 130x rather than 10x earnings when it sells as many cars as Toyota?

And how will Tesla cope with the rising price of lithium? And how will lithium batteries be disposed or recycled when they die? Might new battery tech or a better power source yet replace Lithium. (In the early 20^th Century EVs were consigned to an evolutionary dead end by the Internal Combustion Engine. It could happen again if better batteries and alternative tech emerges.)

As I’ve carried before in the Morning Porridge, if you were planning to replace the Worlds’ entire hydro-carbon vehicle fleet, you would not choose lithium batteries. They are socially unacceptable in terms of mining and recycling damage and uncertainty, and they fail in terms of carbon neutrality because they take years to pay down their carbon construction debt. Unless they are powered 100% by clean renewable energy EV Batteries are just storing carbon energy in another, less efficient, form.

Musk’s brilliance was in spotting an opportunity and addressing EVs as the zeitgeist solution – let’s save the planet by replacing nasty internal combustion engine cars with clean new Electric Vehicles. He took a mundane market – autos, and made it exciting – EVs. Let’s not worry about the consequences – like the minimal decarbonisation savings, or recycling lithium.

He’s spotted a similar opportunity with Space X and his Starbright System – refining satellite tech and reusable launchers to present a new way to access the internet. Again taking something now mundane – the internet – and making it terribly exciting and valuable. Some analysts think SpaceX will become the most valuable company in history, and Musk won’t have to make it public.

The bottom line is Musk is a genius – of a kind. He understands PT Barnum perfectly. That’s his skill – a modern showman. Worshiped and hated by the markets in equal measure, he’s an effective ideas and marketing man, a fairground barker, with a gift for spotting the likely opportunities. He’s muscled his way to the top off the shoulders of others at PayPal and Tesla… and now… he’s unassailable. Despite a familiarity with the truth ranking alongside Boris Johnson’s, he says he is buying Twitter to defend honesty and transparency.

Twitter is described as a sounding board for left-wing views. Yet Musk has probably been its most significant and influential user – successfully running his narrative from it. Twitter has reach alternative platforms do not. New ones, including Trump’s, are going nowhere.

What will Twitter be worth if/when Musk decides to buy it? He says he won’t pay more than $54.20, and the Twitter-sphere is full of comments about how the Board’s poison pill shows the market is rigged. OR maybe, just maybe, Musk wants to ramp the price to make a bit of money to throw at SpaceX to get it over its current heavy lifter issues..

The bottom line… I don’t have a clue what Musk is up to.. I would welcome insights from readers..

Time has proved me absolutely wrong about trading Tesla. It is now delivering cars through multiple functioning manufacturing centres. It dominates the new Electric Vehicle sector and everyone is playing catch-up. Musk has effectively created a new market. He is delivering cars and Tesla is profitable. But I still think its massively overvalued. $100 is closer to FV than $1000. It’s a stock you need to approach as a trading game and an investment game. Don’t confuse the two.

Five things to read about Tesla this morning:

BBerg – Tesla Autopilot Stirs US Alarm as “Disaster Waiting to Happen”

BBerg – Cathie Wood’s ARK Now Sees Tesla Shares More Than Quadrupling

FT – Lex – Twitter: Musk should focus on knockout bid, not fighting poison pill

WSJ – Free-Tweeting Elon Musk Has Flipped Us All the Bird

The Atlantic – Will Elon Musk Go Full Future-of-Civilization on Twitter?

Out of time – back to the day job…

Bill Blain

Strategist – Shard Capital