The score will take care of itself ~ Bill Walsh

11ish Investing

Are You Investing in TSLA or Are You Really Investing in King Musk

Prelude.

No I”m not doing it for shock value to get views or ranks, this is honestly what I believe. So if you’re looking for the opinion of a private investor who hacked his way to into financial freedom through trial and error and you want to know what I really think about Tesla, this is it.

 

Several of you have been requesting a video on Tesla and I think it’s finally time for me to say a few words on it. We’re going to talk about the pros and cons of investing in Tesla, how it might fit in your portfolio and why I don’t have it in mine. If you’d like to watch the video instead, check it out here

 

 

Prius made eco-friendly hipster, Elon Musk made eco-friendly badass.  

Regardless of whether I think Tesla’s business is investable or not AT THIS TIME, I do want to point out that Elon Musk is one of my heroes. He created a competitive business strategy by leveraging the luxury business model, where you float at the top end of the supply demand curve so that you can focus on lower production, but higher quality, and larger profit margin. Once he’s accumulated brand awareness, trust, and working capital, he created a product that is priced a tier down, then another tier down. Effectively creating a very successful land and expand business roadmap.

 

With a blink of an eye, he crowns himself the king of humanity by tackling the 3 of the largest challenges that is holding the evolution of human-kind back. This of course is clean renewable resource, travel (including space travel), and cybernetics. Of course he’s got the other stuff going on too <show pic of flamethrower> but that’s irrelevant to my monologue. 

 

With Elon’s history of success pre Tesla and his brutally rational thought process in building ideas and evaluating success I can see why his leadership has managed to consistently inspire and execute. 

 

Now that I hope I’ve made my fanboydom apparently, Here are some of my key considerations for deciding whether I want to invest into Tesla or not. 

 

If you donate money anyway….

This may sound stupid to some of you but I actually believe that the number one benefit of investing in Tesla is that you get to be a part of history. You are literally helping him drive tangible change in the world. Change that we all can benefit, whether you can afford or want a Tesla or not. This is because his shrewd decisions is creating industry wide technological changes, getting OTHER industries to sell direct so that consumers get better deals and so much more. And frankly this is the beauty of investing into businesses as oppose to donating outright. You can get behind a cause that you believe in and have a chance of mutually benefiting from your investments.

 

Timing

The second positive is that the timing really doesn’t get more perfect than now if you’re an opportunistic swing trader. Bubble, sporadic inflation, stock split equates to short-term swings that drive stock prices in unpredictable ways. All 3 are temporary and some of these effects will normalize and others will crash the market. But right now, we basically have all 3 going on, working for Tesla. So if you want to squeeze out some coins, the probabilities are higher than before.

 

HOWEVER

Concern #1 Lack of Moat

As you know, I invest heavily based on my business value, differentiation and my perception of how big the castle moat is. I obviously think Tesla has great business value, and it’s differentiation has a lot to do with his business strategy and the amazing products Tesla’s built so far. However, I have a huge problem with what I perceive is a non-existent moat. What I mean by this is that I do NOT believe incumbants like BMW and Mercedes are taking the eco market seriously. Even toyota and bmw ceos are on record saying that <XYZ>. You add that to the fact that BMW alone has 22 Billion dollars cash on hand. Toyota 36 Billion. Tesla has 13 Billion in debt and 7 Billion cash on hand. If the incumbent players starts taking things seriously and starts a price war, I am not so convinced that Tesla will come out on top.

 

I absolutely think there will always be a place for Tesla as a brand, but I mean… even Rolls-Royce was acquired by BMW and I sure as hell didn’t think that would ever happen. 

 

Concern #2 Murky Upside Transparent Downside

My second concern is that I just straight up can’t quantify the upside for Tesla. Unlike Amazon, or Zoom, or Tencent, they have a much more obvious strategy of capturing emerging markets that has clearly demonstrated that there is strong market fit and demand. Tesla is in my opinion trying to capture an emerging market that hasn’t fully emerged yet with battery technology that isn’t fully perfect yet (And by that I mean batteries still has to perform better otherwise there wouldn’t be so many Fuel Cell players still). 

 

What is clear, however, is that more competitors are joining into the eco-auto space, both from startups and incumbents AND If I’m right about an economic downturn, one of the first that gets affected is the automotives industry. You add that on top of the COVID effect, where I can’t rationalize why people would be buying luxury cars when we’re all supposed to be locked in, my recommendation is that if you’re going to play Tesla, I’d recommend you sell before quarter earnings. I’d be VERY curious to see the results. 

 

All in all, I don’t regret not investing in Tesla when it was 200 bucks, because the risk to reward profile just never made sense to me (read: clear risks vs unclear rewards). I am glad that Elon is at the steering wheel and I always enjoy listening to his vision about the future and technology. However, there is a much more transparent downside than upside that looks too scary for me to invest into Tesla at this time. If he makes spaceX public though, 

 

I’d invest on that moonshot in a heart beat. Especially because he said it’s not ready to go public yet. This tells me he’s prudent and when it does go public, I’ll be there to support his cause.

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