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The Tesla And ARK Saga Just Keeps Getting Weirder

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by Tyler Durden
Wednesday, Dec 08, 2021 - 10:45 AM

Submitted by QTR's Fringe Finance

There was a day when I was obsessed with Tesla as a short idea. That day has come and gone, as I have partially surrendered to the hysteria of public markets and also whatever the hell is going on in the options market that is helping drive Tesla’s price higher.

So, far be it for me to start reading tea leaves about the company all over again at such a random time.

The truth is I wouldn’t normally spend so much time talking about Tesla, but for the fact that I recently wrote about how it is the linchpin that I believe is holding together ARK Management’s “Innovation” ETF (ARKK).

In a recent article I wrote, I showed the delta widening between Tesla’s recent performance and the less-than-stellar performance of ARKK. From this, I drew the obvious conclusion that Tesla was the only string Cathie Wood’s flagship fund was holding on by.

Here is an updated chart of that YTD delta, which currently sits at massive difference of almost 67% between ARKK’s dismal -23.7% YTD performance and Tesla’s 43% YTD gain.

Charts: YCharts

Here is ARKK’s YTD performance versus the major indexes, where it has lagged by between 38% and 46%:

And a closer look at the collapse versus the S&P 500 over the last 3 months:

I am mystified by Wood, who people that I speak with, interview (and basically any asset manager that isn’t routinely on CNBC) seem to unanimously agree is the poster child for the market euphoria we are currently in.

For example, I just interviewed Bill Fleckenstein hours ago and asked him “What asset manager or stock is most indicative of the euphoria the market is in right now?”

He quickly responded with one line: “ARKK, Cathie Wood”.

And, despite the fact that I like being a contrarian, I happen to think the same thing: Wood will be one of the first to take a dizzying fall if, and when, this market finally pulls back seriously.

With that being said, let’s just examine why I’m writing this article: what has happened over the last 72 hours as it relates to Tesla and ARKK.

First, Cathie Wood’s ARKK ETF continues to underperform significantly. My initial article on Wood was on November 24, 2021, when ARKK was well over $100. Over the last 5 days, ARKK has fallen -11% compared to just a -1.3% pullback in the S&P 500.

Other holdings of Wood’s have driven her fund lower and arguably have put it in a more precarious position than it was in when I wrote my first article.

This is worth noting.

Second, while ARKK was getting this complimentary haircut, Elon Musk completed selling an astronomical $10 billion worth of stock over the span of just barely a month. It marks the first pointed individual stock sales in large numbers for Elon Musk since he was awarded his absolutely ridiculous compensation plan, which I was highly critical of, years ago. 

This is also worth noting.

Third, Tesla shares were volatile yesterday after it was reported that the Securities and Exchange Commission had opened a new investigation into solar panel defects at the company, after a whistleblower came forward. Zero Hedge wrote:

The SEC disclosed the probe after "a Freedom of Information Act request by Steven Henkes, a former Tesla field quality manager, who filed a whistleblower complaint on the solar systems in 2019 and asked the agency for information about the report," Bloomberg wrote early Monday morning.

"We have confirmed with Division of Enforcement staff that the investigation from which you seek records is still active and ongoing," the SEC reportedly said in their response to Henkes.

The presence of (more) SEC scrutiny on this company at any time should worry its investors, especially given Elon Musk’s colorful track record of dead wrong “prognostications”.

Interestingly enough, the news about this whistleblower comes just hours after Elon Musk launched a Tesla ‘Cyberwhistle’ for sale which Musk claimed on Twitter people could use to “blow the whistle” on the company. I never once thought that the company was engaging in tactics to manipulate SEO about it – as my frequent podcast guest @TeslaCharts has suggested in the past - but now I’m starting to think it’s a possibility.

This is all worth noting.

Fourth, and maybe most interesting, Neil Boudette & Co. over at the New York Times yesterday published a recap of Tesla’s history of Autonomous driving claims that, among the trough full of pig shit, included one big unknown revelation: promo videos for full-self driving, made years ago to pitch the “feature” which still isn’t complete today, were heavily edited.

The New York Times wrote on Monday:

As Tesla approached the introduction of Autopilot 2.0, most of the Autopilot team dropped their normal duties to work on a video meant to show just how autonomous the system could be. But the final video did not provide a full picture of how the car operated during the filming.

The route taken by the car had been charted ahead of time by software that created a three-dimensional digital map, a feature unavailable to drivers using the commercial version of Autopilot, according to two former members of the Autopilot team. At one point during the filming of the video, the car hit a roadside barrier on Tesla property while using Autopilot and had to be repaired, three people who worked on the video said.

This is all worth noting.

Fifth, and finally, Elon Musk has continued to openly praise both China and the Chinese government, adding to speculation that Musk may be more “under the wing” of the CCP than anyone previously thought.

Musk came out in comments on Monday and stated that China would soon be the global superpower economy, eclipsing the U.S.:

While I don’t necessarily disagree with him, it’s worth noting especially because Tesla’s success as a company is predicated directly on the company’s output from its Shanghai plant.

This is definitely worth noting.

Why Does This All Matter?

As it relates to regulators, these five things may be of interest.

As it relates to those invested in ARKK and those potentially readying an investment into ARKK - given the massive weighting Tesla is given in ARKK - these four things should be at the top of the list of squares to circle before deploying capital, in my opinion.

Look, the reality is that there is a serious case for Tesla being too big to fail at this point and Elon Musk being the bad guy who simply wins. At a $1 trillion market cap, which I in no way think Tesla deserves, the company has reached escape velocity when it comes to potential regulatory fines.

I don’t know if there’s a regulator that has the stones to shut this company down or take the drastic action that it deserves at this point. But what I can say is that all five of these items, in the presence of an ongoing NHTSA investigation that is currently looking at the autonomous driving capabilities of several of Tesla models – are all worth watching.

Collectively, these items may represent a threat that individually they may not.

When you couple this with the fact that I believe the market is set up for more volatility heading into 2022 as a result of the taper - and the fact that Tesla is one of the most well-known bubble stocks in the market - it starts to look as though risk is skewed significantly against Cathie Wood’s ARKK fund, of which Tesla is a 10% weighting of.

I swear: it’s not like me to obsessively write about Tesla anymore, but I felt the confluence of these several of events all taking place around the same time marked a good spot to stop and “smell the roses” for both TSLA and ARKK investors alike.

And now, back to your regularly scheduled programming…

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DISCLAIMER: 

I own ARKK puts. I may add any name mentioned in this article and sell any name mentioned in this piece at any time. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. 

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