A Can't Lose Deal... "Public" Venture Capital

Capitalist Exploits's picture

originally posted at http://capitalistexploits.at/

By: Chris Tell

After the debacle that was Solyndra, we hoped that "public" venture capital would die a much deserved death. Alas, we once again underestimated the arrogance and self-professed intellectual superiority of the bureaucrats!

Well we, cynics of "public" venture capital (aka government sponsored business), should hide in shame. We obviously didn't give enough credit to the great and powerful "Obama!" and his exceptional business knowledge (not to mention staying power), garnered of course from his vast experience in private industry.

Case in point - Tesla Motors

Call me old fashioned but I'm finding it hard to get enamoured with a car I can only run for about 200 miles before I have to "reset it"...yeah, plug it into a coal-fired power station. This is what "they" call "green" today. Way to go boys!

Yet, Tesla is the darling of Wall Street!

"But Chris, you don't get it! Elon Musk is a genius, and this is the future." Hmmmm, OK, go on... "Remember, you have to pay for growth, and Tesla is a growth company."

Gee, thanks for explaining that, I feel much better now. And here I was, thinking that I'd seen this before...somewhere. Nope, it's definitely different this time! You're right Mr. Tesla cheerleader, there's nothing eerily familiar, or scary, about what's happening with this company. It is different.

Different how?

"Well, for starters we're in a 'new' economy stupid." Really? You mean an economy dependent on the FED's insane QE continuing into eternity? An economy dependent on carbon credits, ZIRP, government bailouts, banking bail-ins, government loan guarantees, money flows, and hubris...lots of hubris.

Anyone trading the markets today must realise that valuations don't matter. Revenues don't matter. Pfft, get with the program already! Housewives and hair dressers of the world rejoice, fire up your E*Trade accounts and retake your seat at the day-trading merry-go-round. Buy some Tesla!

You see, the ingredients for success are much different today. Tesla has certainly nailed it in that regard. Between their US Department of Energy loans, which have reportedly been paid back, money Musk "borrowed" from the US tax payer ($465 Million), they then went BACK to the trough for another “undisclosed” amount. WTF?

The lesson here: Marketing works, especially when you have the right friends! Tesla obviously has phenomenal marketing prowess. I commend them for this...well done.

The reason for their success, outside of cheap loans from the public, has been their targeting of the high-end luxury market. This has worked because rich guys can and will pay for "cool". Throw in a little bit of "it's good for the planet" and you have a winning model, especially amongst Hollywood types!

Let's face it, if you're rolling in dough the price tag matters not. The trendier the better. After all, a new Tesla sports car for a guy like Charlie Sheen amounts to a week's worth of his cocaine habit. And, after all, celebs need something to cart their adopted, ethnically-contrasting babies around just like the rest of us.

So, for you home bakers, here's the recipe: A heaping teaspoon of government welfare checks, one good looking and well-spoken CEO, a few carbon credits, a gallon of QE-led credit boom, a couple of cute CNBC hostesses stirring the mixture and voila...success!

But let's talk reality for those of us who still care.

Consider that Tesla sports a market cap of only US $13.6 Billion. Yes, that's billion with a "B". But don't worry, it's only trading at a forward P/E of 100. It's still cheap as chips!

For comparisons sake, GM's trailing P/E is 11.9, and Ford's is 10.7. Mind you these are merely Johnny-come-lately wannabes, unlike Tesla, which by the way boasts an enviable EBITDA of NEGATIVE US $269 million!

"Come on Chris, you buzz kill! Lighten up, they'll grow into that PE. Look at their revenues!"

Sure, lets. US$945 million in revenues amounts to a rounding error on the balance sheet of GM. Unbelievably, Tesla's market cap is fully 25% of GM's market cap! Insanity reigns supreme.

Now, I can hear the Tesla cheerleaders...it's deafening. "What about their first quarter profits of US $11 million? Well, as I read it there is roughly US $100 million in unsustainable line items in there, including US $68 million in carbon credits. Wipe out the Obama-mandated "loan" from the taxpayer and we're staring at a giant, smoking hole in the balance sheet.

Tesla shareholders can also be comforted by the following: The Company guarantees that the residual value of their cars will be higher than any other luxury car on the market after 3 years. How do they know this? Well they don't of course, but therein lies the difference between marketing and implementation. Mr. Musk will just go back to the taxpayer-funded trough, and his good pal Obama for more dosh if things don't pan out...at least that's been the precedent.

I haven't even mentioned the obvious yet... Every other car maker in the world, to date, has been unsuccessful with their electric car initiatives. From the Chevy Volt to the Nissan Leaf...not to mention the Fisker, which was actually a pretty cool ride. They've all flopped.

Bottom line. Musk is a genius, he's good looking, has a reassuring demeanor and in the end the economics don't matter (nor do sales). After all, the money is free when you move in the right circles. 

Tesla_Chart Parabolic? We know how this story usually ends...

Just look at this beautiful chart. What could possibly go wrong? Next stop the moon Alice!

TESLA is clearly a BUY!!! Don't say I didn't tell you so when the stock triples from here. (sarcasm intentional!)

- Chris

The electric car, a "new" idea... "Yes, my grandfather worked with Thomas Edison on the electric car, and he sold electric cars at the 1900 World's Fair in Paris." - Al Jardine

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Umh's picture

I really cannot imagine anything more ridiculous than politicians and bureaucrats determing where to invest money. On top of being ridiculous it is sad, because it is not their money.

YHC-FTSE's picture

Overvalued?  Yes. Public venture capital and subsidised income despicable?  Yes.

Product stupid, unusable, and a failure?  Well, no. 

At the risk of getting a torrent of abuse, the S2 is a pretty decent motor and by the end of the year, Tesla will have solved both the range of the car and the rapid charging with charging station infrastructure.  They are hoping to license the idea so other car makers can jump on the bandwagon and either use their infrastructure or add to it. Automated battery swap will enable the user to get a fresh charge in 90 seconds, so the whole range and charge time issues will be a thing of the past. 


californiagirl's picture

LOL!!! They are going to build and staff battery swap stations all over the U.S.? LOL!

Skateboarder's picture

An incredible embarrasment to the name of the great inventor.

YHC-FTSE's picture

Tesla was one of the greats.

Downtoolong's picture

I’m in Boca Raton, FL this week visiting my wife’s relatives, which is the one thing capable of coaxing me into a mall (to escape). There in Towne Center, one of the most upscale malls in the city, next to the Bolivar watch and Pierre Cardin accessory stores is a Tesla sales room opening up soon. Of course, I’m thinking, but where and how is anyone going to test drive it? Silly me;, no one gives a shit about that. The important thing is for everyone there to see you writing out a check for $70k+ to buy one and having the sales rep with big tits deliver it to the rotunda of your high rise apartment building or golf community clubhouse. Either that, or they're going to have to put it in the biggest chic deco shopping bag on the planet so your 40 butlers carry it out the front door for you.


TradingTroll's picture

Tesla should be sued over deceptive marketing on its zero emissions vehicle. They should have to state the amount of emissions necessary to power a Teslafor 12,000 miles in each state of the union based on the emissions of the power industry supplying that state.


The other missing statistic is comparing how much power the electric grid loses vs the gasoline distribution system. From wellhead to gas tank gasoline's distribution system requires far less of the energy than electricity. You're lucky if 5% of the originally generated electricity makes it our your plug.


So the real insanity is using natural gas to generate electricity and then losing 95% of the contained energy in the natural gas in order to distribute the electricity.


A natural gas vehicle would make so much more sense in so many more states, they are also 'zero emissions', and with the amount if subsidies Tesla has received you could convert or produce many more NG vehicles than Teslas.


Thats the problem with the current economic arguments for Tesla, they dont add up. Just don't tell thin-skinned Musk, he might just start crying and hang up.



bonin006's picture

Do you feel a need to lie about electrical energy distribution efficiency which averages about 90% in the USA, just because Musk pisses you off, or are you really that ignorant?



Umh's picture

That's a great link. I think More people should read it to see exactly how silly some of the "green" energy schemes really are; start with the bar chart. And while we may not lose 90% of the electrical energy produced due to distribution line resistance we do lose about 60% of the fuel energy we started with before it is available as electricity to charge a vehicles batteries. There is additional loss in charging battery.....