Tag Archives: The Onion

Piper Jaffray, Tesla and Creative Analysis

Piper Jaffray stock analyst, Alexander Potter, in what may be the most idiotic stock research report I’ve ever read, issued a buy recommendation on Tesla (TSLA) stock that is completely devoid of any rational arguments or coherent thought:  “before investors can follow our advice and buy TSLA shares, they need to employ a ‘creative’ valuation methodology…”  Anyone who suspends disbelief and reads that report is more dumb for having done so.

Creative valuation methodology?  I had to read that 3 times before I could believe that he put that in the conclusion of his report.  That sounds like something used in conducting human investment analysis tests on stock analysts who have taken LSD.  The CIA might be interested in experiments like that.

While issuing his bullish assessment, Potter at the same time reduced his FY 2017 earnings estimate from $0.42/share to a loss of $4.83.  I shocked that this analyst was forecasting positive net income at all.  But a reduction in an earnings forecast of that magnitude would seem just too embarrassing to report.  Maybe Potter was indeed experimenting with LSD when he was thinking about his investment thesis.

As it is, TSLA uses “creative” accounting methodologies in recognizing “revenues” that would make Amazon’s Jeff Bezos blush with embarrassment.  The Company burned over $1.5 billion in cash in 2016 in its business operations.  This was covered by the most permissive credit and equity markets in U.S. history, which handed over a net $2.7 billion to the Company in  2016.

While the Piper “analyst” claims to have gotten to know the Company because he drove a Tesla around for seven months and met with Tesla’s IR team, he apparently eschewed real fundamental analysis in favor of “creative” methodologies.  The fact that TSLA’s actual vehicle deliveries declined in Q4 from Q3 was creatively removed from his hockey-stick earnings projections.

It will get really interesting  for Tesla when the  tax credits for the first 200,000 vehicle buyers expire. TSLA’s sales are being subsidized heavily by the U.S. taxpayer and yet the company has lost $1.5 billion on GAAP net income basis in which the “net income” was derived using a highly “creative” interpretation of GAAP accounting.   TSLA’s buyback guarantee, in which it has guaranteed the resale value on vehicles sold or leased up until August 2016, has already created a $2.3 billion future liability. Given the plunging prices in the used car market, it is likely that the true level of that resale guarantee is closer to $4 billion.

TSLA delivered 79k cars in 2016 while Ford delivered 2.6 million.  Yet the stock market creatively assigns a market value to TSLA that is about $5 billion higher than Ford’s.  It’s debatable whether or not Tesla will be able to start delivering its highly touted Model 3 before mid-2018 given TSLA’s track record of failure at meeting delivery schedules.

Quite frankly, what’s more amazing than Tesla’s ability to bamboozle investors into throwing more money at the Company’s cash inferno is the willingness of stock “analysts” like Piper’s Potter to release “creative” research reports that read more like “The Onion” than a responsibly prepared business model and projected financial analysis.

Tesla’s GAAP “book value” is listed at  $4.7 billion, or $32/share. Of that $4.7 billion, $3.4 billion is cash that will soon be burned away, leaving $1.3 billion in book value or $9/share. If we mark to market the car value guarantee, Tesla’s book value goes negative.  If we mark to market its $5.9 billion in PP&E, the book value becomes catastrophically negative.   The shorts who defy Elon Musk’s childish Twitter taunts and remain short will eventually make a fortune when reality inevitably seizes the stock market and takes “creatively” valued stocks like Tesla down their intrinsic value, which is close to zero.