Elon Musk Vs. Dark Forces

Submitted by QTR’s Fringe Finance

Both Elon Musk and Tesla are entering an era that I think is going to define their respective legacies. Today I wanted to explain what I support about Mr. Musk, what I don’t support, where my questions about him and Tesla lie and why I think 2024 will be the year that determines his life story.

By now, everybody has seen Musk’s appearance at the New York Times DealBook conference yesterday, where he proudly told advertisers who were boycotting X to go f*ck themselves.

It’s obvious to me that Musk is making a carefully placed bet that the support he will get from figures on the right, and the anti-censorship crowd, will offset the scrutiny and boycotts from his critical crowd on the left — advertisers, social justice warriors and regulators working for the Biden administration.

In other words, Musk has likely seen the pushback on brands like Bud Light and Target and believes that the environment is ripe to take a stand against woke culture.

The real question is whether or not this ideological war that Musk is fighting against censorship and the left is something he’s coming by honestly.

To the best of my recollection, this inverse version of Musk was born sometime during the COVID pandemic, when Musk became upset that his Fremont factory was going to have to shut down for pandemic restrictions at a critical time for Tesla’s public performance metrics.

Remember, Musk said on an early 2020 conference call that the lockdown was an “outrage” and that it was “forcibly imprisoning people in their homes against all of their constitutional rights,” which is “not why people came to America and built this country.”

While it turns out he was right, the question is why he was freaking out to begin with: real ideological difference of opinion, or because it was “put up or shut up” time for Tesla stock publicly, and it would be hard to hit the numbers with Fremont shut down.

It was after this incident – and as government scrutiny of Musk and Autopilot increased – that Musk appeared to start down the path of supporting conservative causes. In the months that followed, he moved Tesla’s headquarters from California to Texas and in the years that followed, he has become one of the most prominent anti-censorship voices in American culture.

It’s funny because this conservative-leaning attitude seems to stand at stark odds with Musk’s initial reasons for starting Tesla, namely, to create affordable mass market electric vehicles that would help fight climate change. At the beginning of the company’s history, Tesla was buoyed by the support of the same global warming obsessed lunatics and woke ideologues that Musk is now spending his days fighting against.

While there’s an argument that Musk may have simply just had enough of government regulation, there’s also an argument that Musk is making a strategic power grab for support from the right wing when he might need it most.

As of now, Musk, X, and Tesla are under investigation by no less than three government agencies, including the Department of Justice. The question is whether or not those agencies are targeting Musk as retaliation for his anti-left-wing government stances, or if Musk has strengthened his anti-left-wing stances to try to prepare for whatever the fallout will be from these investigations, led by a left-wing administration.

Regardless of whether or not his intentions are pure, I will give him credit for being a largely followed figurehead that is (perhaps for the wrong reasons) furthering discourse about stopping the woke mind virus and protecting our First Amendment rights. Whether his actual intentions are ever to be revealed is another story. I take his actions at face value for the time being even though, to use the parlance of Edward R. Rooney, Dean of Students, I don’t “trust this kid any further than I can throw him.”

And so, it’s up to investors to decide whether or not Musk’s outburst at the DealBook conference yesterday was the chicken – pandering to the right because he’s going to need their support as X’s advertising revenue collapses, or the egg – a true disdain for the “woke” and a genuine “GFY” attitude.

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What I do know is that time is running out before Musk personally, and possibly both X and Tesla, hit inflection points.

Musk has already come out and admitted that the launch of the Cybertruck is going to be extremely difficult and so it’s my guess that this week’s launch of the new vehicle is mostly going to be an exercise in hot air, marketing and gimmicks instead of actual production (see also: roof tiles, solar).

I don’t believe that Tesla is going to get a meaningful amount of Cybertrucks produced or delivered anytime soon, and I also don’t believe that the build quality or the appeal of the vehicle is going entice people to buy it or create demand that lasts for any prolonged amount of time. In other words, I don’t believe the Cybertruck is going to be the success that Tesla needs to keep its raging growth narrative going. And of course, we all know this growth narrative is the only thing that keeps Tesla’s valuation as robust as it is compared to peers.

With rates at 5%, it becomes increasingly difficult to justify Tesla’s absurd valuation compared to other automakers.

Tesla sits at a PE of 77x and a price to sales of 8.8x. Ford and GM have PEs of 6x and 4.4x, and price to sales of 0.25x and 0.26x, respectively.

Why the gap so big you could land a jumbo f***ing jet in it? What is the only difference between the three names? They all make cars.

The difference is the idea that Tesla is somehow more than a car company and has some type of growth trajectory that these other companies don’t have.

And if the Cybertruck becomes an abject failure, it’s going to be extremely difficult for anyone to continue to justify Tesla’s valuation. Tesla’s other projects, like its AI and robotics, are both worlds behind industry leaders like OpenAI and Boston Dynamics. Full self driving is worlds behind GM’s Cruise — and Cruise just severely cut back on much of its testing due to safety concerns. The company’s touted future services, pick one from the hat — insurance, energy, solar roof tiles, “Tesla Mobility”, Dojo, robotaxis, etc. — have all not come to meaningful fruition. They’ve all been Potemkin Villages of sorts.

With no other “outs”, it means that if demand continues to slow for Tesla vehicles, as we have seen over the last year, and growth prospects don’t pan out but the company’s valuation somehow “magically” stays where it is, it’ll be time to ask further critical questions about trading in the name that I don’t want to even broach right now. Let’s just say that for now, I don’t think the “fundamentals” are going to carry the story.

Chart: Zero Hedge

For those of you looking for my comprehensive thoughts on why I think Tesla has peaked, you can read this article I wrote a little more than a year ago.

But the long and short of it now is that time has passed, and with rates at 5%, the market’s penchant for bullshit shrinks more and more on a daily basis. Every day, with rates where they are, the market demands a little bit more substance and a little less fluff. And I’m not sure that the Cybertruck launch is going to meet that requirement.

Sure, the starting price tag looks good, and sure, the video of the Cybertruck winning a race against a Porsche 911 looked good — and the models rolling off the assembly line this week probably look fantastic. But photos of the build quality online have been terrible, and there have been many points in Tesla’s history where they have not kept their promises when it comes to pricing and production targets. I think now, more than ever, the market is not going to be in the mood for taking Tesla’s word for things and missed targets — and Tesla’s valuation hangs in the balance.

Moving from Tesla back to Musk, the CEO’s transformation reminds me of Ryan from The Office. Musk has officially gone to the dark side: from the geeky intern, just scraping and looking for a little bit of recognition, to the egotistical and potentially unhinged CEO that has been showered with adoration for his accomplishments, yet may not know exactly how he is going to replicate his previous successes.

The one thing about having a valuation like Tesla’s is that there always has to be a carrot on a string if you’re not going to deliver the explosive growth and cash flow that the market has priced you for. And so far, Tesla still only remains a car company. And Cybertruck production targets and compressing margins due to price cuts on legacy models isn’t what the company needs to sustain a valuation of 77x sales.

Only time will tell what role Musk’s comments this week will play in the longer canon of his and Tesla’s history, but you can’t say they don’t come at an interesting time.

I know many people on the right would swear right now that Musk is in the midst of battling dark forces – the forces of government, the forces of regulation, and the forces of censorship, to name a few – but it feels to me like Musk is becoming somewhat of a dark force of his own.

Photo: Getty Images/Bloomberg

This makes me wonder if (1) Musk already has an indication that ugly things are ahead for him and Tesla, or if (2) Musk’s actions will wind up being the bricks laid to ground on a darker path going forward.

Either way, Tesla is a name that I in no way would want financial exposure to right now on the long side.

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