TDS2 – Free Tesla Model 3 Performance Model

On the morning of Tesla’s earnings announcement I believe the stock was trading about $293 and the September 21 $400 call option was about $1.90. Today, it closed a little over $380 and the option was about $11.50. With the help of experts from trade wise you can be assured to have a secure trade.

A bet of 100 contracts would have cost you about $19500 at risk. And this afternoon, not two weeks later, have traded at about $115,000. So say $95k profit in two weeks. That’s enough for a free Tesla Model 3 Performance model. Basically my claim on June 20 and again on July 26. Free Teslas. Coming soon to a driveway near you. While trading securities or as one would call it akciju tirdzniecība, going through an authentic source is important.

You see, everyone has a freaking theory about the future and a lot of yadda yadda about why they think that will happen. And a very few actually can see it coming, over and over and over. The reason is because its the same thing, over and over and over. But there are only a very few in the second group. And they are always there because of their book on sex education. That’s the little green book where you make a noted entry every time you get screwed. At this stage in life, I have a very thick little green book, kind of dog-eared and frayed about the cover.

So what happened? Tesla announced a HUGE per share loss. And the stock went up. Today, Saudi Wealth Fund took a 5% position in a stock with a 30% short overhang. And Elon followed up by announcing he’d like to take the company private at $420, and had the financing in place to do it.

That’s a $5 billion haircut for the shorts. The only question is when are they going to climb into the chair and put the cloth around their neck. And of course subsequently I guess they jump out of the barber’s chair and hang themselves on it.

Of course, the ride ain’t over till the fat lady flings. Hang on to your hat. The volatility ride isn’t over and it will still go BOTH directions. Maybe not at the same time. But pretty close.

So is this real or just FAKE NEWS. Is Musk simply twizzle tweeting the shorts, or seriously thinking about going private?

I would nominate that it is real. Really bright guys don’t really make empty gestures. With Musk, a tweet about a hole borer or a flame thrower may look like a flight of whimsey. Or it might mean a tunnel and a flame thrower.

So why would he take it private? Several reasons.

1. Reduce the management overhead and cranial damage of dealing with the press and quarterly announcements.
2. Reduce the emotional impact of a volatile stock price on Tesla employees.
3. Decouple stragic initiatives from short term quarterly results.
4. Terminate ATTACKS from short sellers.

Under number one, understand that Elon Musk must personally preside over a shitshow every three months where every word is scrutized and every stammer potentially costly. He can say he doesn’t care about day traders and the stock price all he likes. He still has to manage expectations with every Tesla vehicle wreck and news byte, and he kind of has to participate by law and convention in quarterly earnings releases and a discussion of results that goes several hours and involves substantial prep time. It is hard to drain the swamp when you pretty much HAVE to explain the breeding cycle and romancing rituals of alligators to an interested set of stock analysts who have little comprehension of what you are really trying to do with the company.

So the personal cranial damage he takes on every three months is a very real energy drain and distraction from his more favored activities. Don’t underestimate this. He’s running the equivalent of five companies at once, SpaceX, Seattle Satellite, Solar City, Solar Energy, and Tesla. And he’s running them like an entrepreneur scrambling for oxygen in organizations of billions of dollars and tens of thousands of individuals. He has been operating way PAST the limits of what one savage can do on one buffalo hunt for a couple of years now.

Number two is also very real. A serious percentage of the compensation of a large percentage of employees at Tesla involve stock options. That’s part of their pay package. It’s hard to focus on production issues on Monday when you suddenly realize that you are suddenly a multimillionaire on paper – albeit not yet vested. But it’s no better on Wednesday when the stock price has tanked and you are staring into a black gaping hole in the future where you net minimum wage. And on Friday you are right back where you were when you hired on – and thankful for it.

And so you have pocket phone alerts going on all over the factory with every stock move. The entire work force becomes preoccupied with the ticker. How do you run a railroad this way?

Number three is a common complaint from all CEO’s of publicly traded companies. To win, you have to plan strategically over a five and ten year horizon. But the pressures you face daily are all about very short term quarterly results. And you find yourself doing goofy things moving deliveries up the time line or delaying them down the timeline based on truly unimportant movements of cash on paper back and forth across an imaginary line based on quarterly earnings dates. You might as well pitch a tent in the parking lot and hire clowns to make balloon animals for the kids. It has nothing to do with your performance over time or success in the future. It’s just gaming the system to please moronic stock analysts. But its like dust, it creeps into everything. You find it in your coffee cup, in the men’s room, and on top of your desk.

Number four is probably the deal here. Tesla is absolutely THE MOST SHORTED STOCK IN THE HISTORY OF INVESTING and has been for YEARS. They had 39 MILLION shares sold short out of a TOTAL of 169 million shares and about 129 million “float” or tradable shares. This is like 30%. And this isn’t really a peak. It’s been waffling back and forth between 25% and 30% for years now. All those guys preening and stroking themselves on Seeking Alpha have grown very very frustrated – and shrill. It is not easy to maintain your image as a brilliant financial trader when you are living in your ICE car under a highway overpass and buying cell phone minutes in bulk ahead of time.

Now you put that in a context of somebody making $40,000 a year in the Tesla factory and whose dreams of immediately rising to become one of Musks trusted closest advisors may not have worked out. Suddenly here is a charming guy buying him $14 drinks and offering a years salary for just a bit of information. And he explains he is just interested in protecting the poor grandmother investor from being mislead by Musk the tyrant egomaniac.

Or worse. There has been evidence of actual sabotage in some mysterious incidents in the plant. Could someone really do this? I like to think not. And I’m going to say not. But my little green book threatens to put a kink in my back as I sit on my stool with it stuffed in my back hip pocket. It kind of causes me to lean in the other direction if you know what I mean.

I am actually really naive and it is hard for me to picture an investor actually stooping to such an evil act. And anyway, how could any employee take a paycheck from the company and then do something like that for mere money? It just can’t be. I don’t want to live in a world like that.

Except I do friends. Except I do.

It’s hard to short a stock in a private company.

And it has to be hard for Musk to work a couple days a week at SpaceX. Huge responsibility and huge investors. I think Google has $1.5 billion in there. I don’t recall who else but there are a couple of funds and others with lesser amounts.

And then work three or four days at Tesla which is publicly traded. There is a huge contrast in personal freedom to make decisions and have them implemented. At Tesla, he has an SEC advisor and several lawyers at his elbow explaining some long winded tortured line of reasoning why he CANNOT do this and CANNOT do that. He says “I’m talking about changing the quality of paper in the mens’ rooms.” YES BUT that could be interpreted by the street to mean this and such and that could be interpreted by the courts to be an attack on LGBTQ something or others.

And at SpaceX he has a desk in a corner and anything he utters everyone just takes off all asses and elbows flying in all directions to make it happen. “No paper. Get blowers.”

Could he do it? Tesla would have a valuation of $82 billion at $420. But he owns a lot of it. It would take about $65 billion cash to pull it off. Where would it come from?

First, Musk has had no difficulties raising money in the debt market. An LBO or Leveraged Buy Out is based on using future earnings to pay back debt used to purchase the outstanding shares. While that normally DOES require some earnings, the Tesla story only gets better every day. And every debt offering they’ve had so far has been OVERsubscribed and at times at embarrassing levels.

But he indicated in the tweet that funding was in place.

Saudi Arabia Crown Prince Mohammed bin Salman is set on diversifying the country away from it’s dependence on oil but still toward energy. They’ve been a huge player in solar for example in recent years. They have a written plan titled “Vision 2030” and it is all about being in alternative energy resources. They have a Saudi Public Investment Fund known as PIF and they plan to eventually control more than $2 trillion in assets.

Saudi Sovereign Wealth Fund announced earlier TODAY that they had taken a bit less than 5% of Tesla’s stock out already. Writing a check for $65 billion would by significant for them, but very much in line with their strategic objectives.

The logistics of an LBO are always a freaking adventure. IF a majority of shareholders tender their shares at $420, its a done deal. I’m thinking this isn’t quite done. I’m thinking $1500 in five years. So while I don’t mind playing footsy with the futures contracts, a few thousand shares stuffed into the mattress really don’t get traded at all. Privately held companies DO have shareholders. And they can sell stock to a now unlimited number of accredited investors. But they are not very liquid. You are in for a VERY long term. You can only sell them in a private sale. And no market can be made in them.

But it is unclear as to what happens to the “holdouts” in a case like this. I would want to roll into the private shares myself even knowing the liquidity issues. And you never really know a daily value of your shares. But I can understand why Elon would want to get the volatility out of the game. I’m just unclear as to how I personally continue to participate.

But while they bicker folly on TV, I would take this concept very very seriously. Elon correctly demurs to the ultimate decision of the shareholders, but as he owns about 29% (or 27% I forget which) of the company personally (just bought $10 million worth a few months ago) he only needs about 21% to vote yea with him, and he has sufficient institutional ownership who might want to get with that.

The game goes on for those really lost on this. You see once private, there is always the concept of a FUTURE INITIAL PUBLIC OFFERING then. So the company gets stabilized, does all the capital expense of two more gigafactories and a big rollout of energy storage and solar tile roofs, and gets some solid performance numbers and cash flow going, and they simply come out five years from now at $10 per share, but on a brazillion shares representing 30% of the company or whatever.

All of this is a little problematic for the small investor. Elon has referred to some sort of Mutual Fund we could be in to continue to participate. I would prefer some means of converting my publicly held shares into shares in the private company. And I would deeply resent being a shareholder for these many years and then be shunted aside after all this time with no option to continue.

We have a saying here in Missouri. You should at least dance with the one what brung ya.

In any event, Musk has kind of closed out the short position for them. He promised the burn of the century but in a way he has been most gracious about it. Theoretically he has capped their losses at the $420 level with this maneuver. They should take the haircut and toss a quarter on the counter as a tip. Kind of a stock tip. Their panic will be limited between the $380 and $420 level for the moment. But they DO have to cover the borrowed shares at some price some way. It’s not really optional unless their bet is he can’t pull off the LBO. I don’t think he would threaten it without “funding in place”.

Bottom line if you are wondering and watching fake cable news – it’s real. And his twitter announcement was not a leak. It was a move to forestall a leak and forced by the public announcement of the Saudi investment. Once funding even appeared to be “in place” the temptation for insider trading within his own organization would just be IRRESISTIBLE. His own brother could not be trusted. And the legal ramifications of ANY of that would be potentially disastrous. The “tweet” to just 20 million of his closest friends, followed by the immediate and inevitable coverage by financial TV, brilliantly closed the door on all that. Speculation that his tweet could itself be an SEC violation is just moronic uninformed sea lawyering of the most ignorant sort. It was a brilliant play to ELIMINATE any possibility of insider information or trading. You can’t DO any insider trading if it’s all already public knowledge.

The squalling in the financial press will be the real entertainment here. I expect this to reach a howling rage tomorrow. This is a personal swipe by Musk aimed specifically AT the press. You mattered not. But if you thought you mattered, you matter not now. And they get it. If he takes it private, it says Haines when Musk SAYS it says Haines. Their position of defending that already well defended grandmother investor just went out the window.

And so Musk in just a few tweeted characters entirely TOOK OUT the stock analysts, the shorts, and the press in one smooth move. And he chided his employees in the process. They can still own stock. They just can’t know its price or trade in it except for defined trading periods.

$420. Tonight, Elon Musk is tokin on a number and diggin on the radio. That’s my generations’ version of “chillin and Netflix.” The guy has a beautiful mind.