Tesla and other "momo" stocks squeeze higher after last week's yen shock; It's all eerily similar to the August 2007 "stat-arb" sell-off which preceded the 2008 Great Financial Crisis
Great "cover the waterfront" summary, Brad, thank you.
Personally, I just avoid TSLA altogether. That said, I think the market has not yet absorbed the reality that Musk is likely to lose in Tornetta, and that Plaintiff will be awarded a record size legal fee. (But that's just one of many realities the market is ignoring.)
Thanks so much! I think the stock gets hit hard if the Plaintiff is awarded a big legal fee. And I wouldn't be surprised if Musk moves more AI assets from Tesla to xAI in revenge, which could also spur more lawsuits.
BUT...with an appeal to the Delaware Supreme Court, can Mr. Musk delay the paying of that record size legal fee? It's pretty much his strategy...litigate & delay.
great stuff as always brad. couple thoughts here in case anyone is interested:
* TSLA up 4+% vs SPY up 3+% is underperforming given tsla's beta of 2.3x.
* on this week's move: jump in volume w/ a burst of call buying smells like a) short covering (thurs right after retail sales beat) and some aggressive call option activity as brad noted. that said, cannot ignore that correlations and volatility crashed & market makers went right back into volatility dispersion trades in options market (selling vol on SPY, buying it on TSLA and other basket stocks---this trade requires low correlations). --doesn't mean musk family wasn't in on the call buying, but this week has massive OI on DTEs (1.2MM+) due to 3rd friday phenomenon and that, along with falling correlations, might be reason enough for the call buying bonanza (in contrast, next week's 0dte expiry has current OI of 240k--and i doubt it'll beat 0.6M as it rises through the week). ---IMO the oct high call volume activity was again the 3rd fri phenomenon, guessing in support of dispersion trade as 3rd fri is when monthly index options expire; the total OI on SPY went up from 19MM to 20+MM on fri alone (im likely not capturing all exchange option OI, just reporting on SPY total agg OI).
* that said, i can get behind the notion that musk is in on call buying, despite it being a lousy week for him to try (high OI). ---he's acting like a cornered rat, and i'm not going to be the slightest bit surprised if he gets hit by a regulator (CA or SEC/DOJ) against FSD / autopilot in the immediate future. (there's only a handful on earth who know the timing: a couple DOJ / state attorneys, a bunch of tesla attorneys, and the tesla ceo). further handicapping why:
a) moving all businesses out of CA stinks of pre-positioning against any legal action against tsla, so he can cry foul on politicization of justice dept
b) endorsement of trump. ---he endorsed trump 7/13 IIRC and went all in on him before biden dropped out (7/21 or so), which is an incredibly reckless move for a CEO (normally send checks quietly). trump is transactional and would go w/ a quid pro quo w/ elon, so elon went public knowing that cozying up to trump before any regulatory action would further advance his 'politicization of justice' argument to the masses in light of any regulatory action against tsla, and that trump would call off the dogs if he wins (which it sure looked like when elon went all in on trump). (side note: his angling for a cabinet job in the X interview, in light of the collapse in the car business, sure seems like elon is thinking of the exits---his ego wont allow him to stay and watch tsla collapse on his watch)
c) lashing out at EU and b) above---tsla as a brand is dead to huge segments of the car buying population in CA, DE and UK and other EU countries b/c of musk's politics (all the analysts covering this stock have been eerily quiet on this point). elon has turned his back on the well-educated blue state libs who brought him to the dance, and while he may sell a few more cars in red states as a result, tsla's are in outright decline in CA, DE etc and that volume isn't getting made up by sales in the dakotas.
d) needs cash for twitter interest pmt. --just like w/ apr and early july, run it up before or immediately around bad news as liquidity & timing permits. and if regulators are coming, best come at it from a higher perch or let elon sell into strength before the 2x whammy
all that said, near term everything is on the table: have to agree w/ brad that it can go higher (ugh) as market might continue higher and drag tsla up with it. (those god damn CTAs and momentum funds love liquidity and only name beating TSLA on liquidity is NVDA---and it was up ~ 25% in 2 weeks IIRC)
or we can see a reversal lower in the market (as volatility typically clusters) and take tsla down---which could be a long ways.
or we can see the market go up and tsla down like we did in Q1, vs Q4 last year when market pulled tsla up, key diff b/w the two scenarios is the outlook for tsla:
12/31/23 at its peak $260: NTM earnings ~ 3.80 or 68 NTM fwd pe. while cal 25 eps ~ 5.35 yielded fwd p/e of 49 for cal 25
now: $216 w/ NTM ~ 2.85 or 77 NTM fwd pe while cal 25 eps 3.16 yields fwd pe 68 for cal 25 (and these earnings are due to get revised down hard for reasons brad articulates well).---so its already way more expensive than it was at the end of an epic run in Q4 23. can it get even more expensive ? sure, but only by hot money IMO (liquidity attraction)
tough freaking stock to short. i sincerely believe were it not for option liquidity this thing would already be < 80. i sure hope i make it there, these rallies are a mother******.
we have the same interest...good to write out the thinking on the matter, stress test it. and if it doesn't work out, this blog is going to chronicle our descent to madness.
Great commentary as always. I was intrigued by your comments on Honda. Didn't realize it might be a value play (assuming we avoid a recession). But value is a dirty word these days.
Honda is the ultimate value play and should see upside if value makes a comeback (which I think will happen) and/or activists start demanding Honda pays more dividends or conducts more share buybacks.
Using the multiples of the main Indian motorbike rivals (Bajaj, TVS, and Hero Corp) gives you a $146 billion valuation for Honda's 2-wheel business. That's 2.7x higher than Honda's current market cap of $55 billion.
Excellent analysis. Especially the last few sections on the call buying and the comps. I was saying the same thing about Thur and Fri that quick jump was manipulation to entice the retail sheep stampede. Tesla is the most manipulated stock in wall Street history.
It's obvious that musk realizes the writing on the wall and is polishing Trump's chrome. I hope Trump as I would expect , will not succumb to Free Speech Jesus' hypnosis as have all right leaning and conservative pundits like Tucker and Alex Jones to name two biggies. The same people that will openly agree C02 emissions. Is a complete lie wo t say a word about the centerpiece of the green goo scam, Tesla , because Elon has been annointed Free Speech Jesus.
What I find fascinating is not one person has picked up on the glaring admission of the scam by musk himself in the Trump interview when the only throw away comment musk made on why CO2 is bad wasn't as I was expecting global warming but because too much of it makes it hard to breathe LOL. So the guy who is the greatest beneficiary of the largest racketeering scam of theft of public monies in recorded history when asked for a justification for the scam this is the best he can do? He didn't even stick to the lie that has been used for 20 years ! To me that was a watershed moment of disclosure what bullshit this entire house of cards is built on.
Twitter is the single greatest stock promotion boiler room of all times. It as a whole violates securities laws about stock manipulation. What's interesting is musk never comments (or rarely ) about tesla! If you look at his posts they are either social or political commentary or about space x and the energy business yet there is an army of x accounts with collectively millions of followers that promote , one the edge of or violating manipulation and fraud rules about security promotion , that make Tesla promotional posts 1000s of times a day.
Thanks so much for your kind words. And, yes, Musk has stopped tweeting much about Tesla because he knows it's a sinking ship. I also think he's got some type of mental disease that's slowly progressing as he ages. Did you hear Trump say to Musk, "I know you haven't been feeling well recently" on their Twitter Space? Musk quickly changed the subject.
Great work as always! I'm having a hard time squaring July's 20% YoY sales rise with Elon's completely absurd antics, US July light vehicle sales (which I know is not factored in to the 20% number yet), and the fact that Tesla inventory just keeps going up, see https://tesla-info.com/blog/inventory-stats-regional.php. It looks like last year's Model Line 3 shutdown could account for 6-10% of this change. What's driving the rest of the YoY increase? How do we make sense of this?
Here's my wild take: super aggressive pricing + financing options in China are leading to sales increases internationally, but sales have declined significantly in the US, Tesla's largest market. These offset, leading to a meh-at-best quarter of deliveries and worsening margins.
Thanks so much for your kind words. The July 20% growth in regions outside of North America was mainly due to China & Korea. Here are the main regions & their results:
China: 46,227 deliveries (+34% YoY)
EU: 14,528 (-16%)
Australia/New Zealand: 2,699 (-34%)
Hong Kong: 642 (-1%)
Taiwan: 645 (+70%)
Singapore: 174 (+241%)
Korea: 2,680 (+2,171%)
Also, keep in mind that Q3 2023 saw a low hurdle due to the shutdown of the Model 3 line in Shanghai in order to retool for the Model 3 "refresh".
I know its been mentioned before, but what are the margins in EU vs China vs NA? I know EU is high, China is low, and NA is somewhere in between. Does that much strength in China even carry much value to the bottom line?
The highest margins were likely exports from China to the EU last year, which not only had strong volumes, but also higher prices and a lower corporate tax rate in China (was 15% up through 2023-end, but China taxes at Tesla are now 25%).
China likely made up 70% of global pretax profits because of its profitable exports to Europe, which are now falling as Tesla needs to utilize its German factory once and for all.
Domestic sales in China are said to barely break even due to low prices and the 0% for 5-year low-interest rate plan. So, even if domestic China deliveries grow in Q3 versus Q2, the contribution to profits will be minimal.
Meanwhile, profitability in the EU will likely deteriorate given the fact that volumes are not only falling, but also because nearly 100% of Model Ys are being sourced from Germany rather than (lower-cost) China.
This means that Tesla's sales in the US are now the biggest profit driver, but even there, the low-interest rate loans and higher Cybertruck production should be weighing on profits.
Excellent as always, thanks! I believe the call buying thesis. Over and over again in recent months, the stock pops at the open for no particular reason. Hard to believe that Morgan Stanley doesn't know all about it...
Thank you, interesting to see how you are trading around your short position. I understand that it's not easy. I bought only a small position in Toyota on the carry trade drop, because I was not sure how much a stronger Yen might affect the company. Anyway good to hear that you are positive on the stock.
Great "cover the waterfront" summary, Brad, thank you.
Personally, I just avoid TSLA altogether. That said, I think the market has not yet absorbed the reality that Musk is likely to lose in Tornetta, and that Plaintiff will be awarded a record size legal fee. (But that's just one of many realities the market is ignoring.)
Thanks so much! I think the stock gets hit hard if the Plaintiff is awarded a big legal fee. And I wouldn't be surprised if Musk moves more AI assets from Tesla to xAI in revenge, which could also spur more lawsuits.
BUT...with an appeal to the Delaware Supreme Court, can Mr. Musk delay the paying of that record size legal fee? It's pretty much his strategy...litigate & delay.
great stuff as always brad. couple thoughts here in case anyone is interested:
* TSLA up 4+% vs SPY up 3+% is underperforming given tsla's beta of 2.3x.
* on this week's move: jump in volume w/ a burst of call buying smells like a) short covering (thurs right after retail sales beat) and some aggressive call option activity as brad noted. that said, cannot ignore that correlations and volatility crashed & market makers went right back into volatility dispersion trades in options market (selling vol on SPY, buying it on TSLA and other basket stocks---this trade requires low correlations). --doesn't mean musk family wasn't in on the call buying, but this week has massive OI on DTEs (1.2MM+) due to 3rd friday phenomenon and that, along with falling correlations, might be reason enough for the call buying bonanza (in contrast, next week's 0dte expiry has current OI of 240k--and i doubt it'll beat 0.6M as it rises through the week). ---IMO the oct high call volume activity was again the 3rd fri phenomenon, guessing in support of dispersion trade as 3rd fri is when monthly index options expire; the total OI on SPY went up from 19MM to 20+MM on fri alone (im likely not capturing all exchange option OI, just reporting on SPY total agg OI).
* that said, i can get behind the notion that musk is in on call buying, despite it being a lousy week for him to try (high OI). ---he's acting like a cornered rat, and i'm not going to be the slightest bit surprised if he gets hit by a regulator (CA or SEC/DOJ) against FSD / autopilot in the immediate future. (there's only a handful on earth who know the timing: a couple DOJ / state attorneys, a bunch of tesla attorneys, and the tesla ceo). further handicapping why:
a) moving all businesses out of CA stinks of pre-positioning against any legal action against tsla, so he can cry foul on politicization of justice dept
b) endorsement of trump. ---he endorsed trump 7/13 IIRC and went all in on him before biden dropped out (7/21 or so), which is an incredibly reckless move for a CEO (normally send checks quietly). trump is transactional and would go w/ a quid pro quo w/ elon, so elon went public knowing that cozying up to trump before any regulatory action would further advance his 'politicization of justice' argument to the masses in light of any regulatory action against tsla, and that trump would call off the dogs if he wins (which it sure looked like when elon went all in on trump). (side note: his angling for a cabinet job in the X interview, in light of the collapse in the car business, sure seems like elon is thinking of the exits---his ego wont allow him to stay and watch tsla collapse on his watch)
c) lashing out at EU and b) above---tsla as a brand is dead to huge segments of the car buying population in CA, DE and UK and other EU countries b/c of musk's politics (all the analysts covering this stock have been eerily quiet on this point). elon has turned his back on the well-educated blue state libs who brought him to the dance, and while he may sell a few more cars in red states as a result, tsla's are in outright decline in CA, DE etc and that volume isn't getting made up by sales in the dakotas.
d) needs cash for twitter interest pmt. --just like w/ apr and early july, run it up before or immediately around bad news as liquidity & timing permits. and if regulators are coming, best come at it from a higher perch or let elon sell into strength before the 2x whammy
all that said, near term everything is on the table: have to agree w/ brad that it can go higher (ugh) as market might continue higher and drag tsla up with it. (those god damn CTAs and momentum funds love liquidity and only name beating TSLA on liquidity is NVDA---and it was up ~ 25% in 2 weeks IIRC)
or we can see a reversal lower in the market (as volatility typically clusters) and take tsla down---which could be a long ways.
or we can see the market go up and tsla down like we did in Q1, vs Q4 last year when market pulled tsla up, key diff b/w the two scenarios is the outlook for tsla:
12/31/23 at its peak $260: NTM earnings ~ 3.80 or 68 NTM fwd pe. while cal 25 eps ~ 5.35 yielded fwd p/e of 49 for cal 25
now: $216 w/ NTM ~ 2.85 or 77 NTM fwd pe while cal 25 eps 3.16 yields fwd pe 68 for cal 25 (and these earnings are due to get revised down hard for reasons brad articulates well).---so its already way more expensive than it was at the end of an epic run in Q4 23. can it get even more expensive ? sure, but only by hot money IMO (liquidity attraction)
tough freaking stock to short. i sincerely believe were it not for option liquidity this thing would already be < 80. i sure hope i make it there, these rallies are a mother******.
Wow, Ryan. You're upstaging me on my own Substack :-)
Just kidding. Thanks so much for your great insights, as usual.
we have the same interest...good to write out the thinking on the matter, stress test it. and if it doesn't work out, this blog is going to chronicle our descent to madness.
stupid market.
Amazing newsletter please keep going
Thanks so much, Eduardo!
Great commentary as always. I was intrigued by your comments on Honda. Didn't realize it might be a value play (assuming we avoid a recession). But value is a dirty word these days.
Honda is the ultimate value play and should see upside if value makes a comeback (which I think will happen) and/or activists start demanding Honda pays more dividends or conducts more share buybacks.
Using the multiples of the main Indian motorbike rivals (Bajaj, TVS, and Hero Corp) gives you a $146 billion valuation for Honda's 2-wheel business. That's 2.7x higher than Honda's current market cap of $55 billion.
Excellent analysis. Especially the last few sections on the call buying and the comps. I was saying the same thing about Thur and Fri that quick jump was manipulation to entice the retail sheep stampede. Tesla is the most manipulated stock in wall Street history.
It's obvious that musk realizes the writing on the wall and is polishing Trump's chrome. I hope Trump as I would expect , will not succumb to Free Speech Jesus' hypnosis as have all right leaning and conservative pundits like Tucker and Alex Jones to name two biggies. The same people that will openly agree C02 emissions. Is a complete lie wo t say a word about the centerpiece of the green goo scam, Tesla , because Elon has been annointed Free Speech Jesus.
What I find fascinating is not one person has picked up on the glaring admission of the scam by musk himself in the Trump interview when the only throw away comment musk made on why CO2 is bad wasn't as I was expecting global warming but because too much of it makes it hard to breathe LOL. So the guy who is the greatest beneficiary of the largest racketeering scam of theft of public monies in recorded history when asked for a justification for the scam this is the best he can do? He didn't even stick to the lie that has been used for 20 years ! To me that was a watershed moment of disclosure what bullshit this entire house of cards is built on.
Twitter is the single greatest stock promotion boiler room of all times. It as a whole violates securities laws about stock manipulation. What's interesting is musk never comments (or rarely ) about tesla! If you look at his posts they are either social or political commentary or about space x and the energy business yet there is an army of x accounts with collectively millions of followers that promote , one the edge of or violating manipulation and fraud rules about security promotion , that make Tesla promotional posts 1000s of times a day.
Thanks so much for your kind words. And, yes, Musk has stopped tweeting much about Tesla because he knows it's a sinking ship. I also think he's got some type of mental disease that's slowly progressing as he ages. Did you hear Trump say to Musk, "I know you haven't been feeling well recently" on their Twitter Space? Musk quickly changed the subject.
Great work as always! I'm having a hard time squaring July's 20% YoY sales rise with Elon's completely absurd antics, US July light vehicle sales (which I know is not factored in to the 20% number yet), and the fact that Tesla inventory just keeps going up, see https://tesla-info.com/blog/inventory-stats-regional.php. It looks like last year's Model Line 3 shutdown could account for 6-10% of this change. What's driving the rest of the YoY increase? How do we make sense of this?
Here's my wild take: super aggressive pricing + financing options in China are leading to sales increases internationally, but sales have declined significantly in the US, Tesla's largest market. These offset, leading to a meh-at-best quarter of deliveries and worsening margins.
Thanks so much for your kind words. The July 20% growth in regions outside of North America was mainly due to China & Korea. Here are the main regions & their results:
China: 46,227 deliveries (+34% YoY)
EU: 14,528 (-16%)
Australia/New Zealand: 2,699 (-34%)
Hong Kong: 642 (-1%)
Taiwan: 645 (+70%)
Singapore: 174 (+241%)
Korea: 2,680 (+2,171%)
Also, keep in mind that Q3 2023 saw a low hurdle due to the shutdown of the Model 3 line in Shanghai in order to retool for the Model 3 "refresh".
I know its been mentioned before, but what are the margins in EU vs China vs NA? I know EU is high, China is low, and NA is somewhere in between. Does that much strength in China even carry much value to the bottom line?
The highest margins were likely exports from China to the EU last year, which not only had strong volumes, but also higher prices and a lower corporate tax rate in China (was 15% up through 2023-end, but China taxes at Tesla are now 25%).
China likely made up 70% of global pretax profits because of its profitable exports to Europe, which are now falling as Tesla needs to utilize its German factory once and for all.
Domestic sales in China are said to barely break even due to low prices and the 0% for 5-year low-interest rate plan. So, even if domestic China deliveries grow in Q3 versus Q2, the contribution to profits will be minimal.
Meanwhile, profitability in the EU will likely deteriorate given the fact that volumes are not only falling, but also because nearly 100% of Model Ys are being sourced from Germany rather than (lower-cost) China.
This means that Tesla's sales in the US are now the biggest profit driver, but even there, the low-interest rate loans and higher Cybertruck production should be weighing on profits.
Excellent as always, thanks! I believe the call buying thesis. Over and over again in recent months, the stock pops at the open for no particular reason. Hard to believe that Morgan Stanley doesn't know all about it...
Perish the thought. The choir boys at Morgan Stanley?
Thanks so much for reading it and your kind words!
Great article on business/market aspects of Tesla. Here is a good podcast on the failings of full EV cars to help the environment by a Harvard professor. https://podcasts.apple.com/us/podcast/decouple/id1516526694?i=1000665685863
Thanks so much for reading it and your kind words!
Aloe Vera to the face lmao
Thank you, interesting to see how you are trading around your short position. I understand that it's not easy. I bought only a small position in Toyota on the carry trade drop, because I was not sure how much a stronger Yen might affect the company. Anyway good to hear that you are positive on the stock.
Super substack, fascinating even to me, someone who has very little interest in motor cars.
Thanks so much for reading it. Much obliged!