Decoder Model Portfolio Update: The Wizard of Optimus
In this week's model portfolio update:
Tesla's latest quarterly earnings report was a disaster because EV sales are falling off a demand cliff, and Wall Street analysts are beginning to panic. But this is strange in part because 90% of Tesla's implied valuation was always the blue-sky stuff — the humanoid robots, the self-driving robotaxi business, and so on. Given that reality, why focus on the EV side instead of the robots? Where is the good news on Optimus? Where is the good news on full self-driving? Surely now would be the time to roll it out?
There isn't any good news on the humanoid robot front, in our view, because Optimus was never a real thing — more of a marketing stunt than anything else. Just as the Wizard of Oz was a man behind a curtain, Elon Musk is the Wizard of Optimus. The lack of news on the breakthrough technology front, when Tesla could use it most, is telling at this juncture as analysts hit the panic button.
Dan Ives of Wedbush, one of the biggest Tesla bulls on Wall Street, called the latest quarterly earnings report an "unmitigated disaster," and urged Elon Musk to turn the story around lest "darker days" lie in wait. This also makes us wonder why Musk, in his multi-CEO management role, seems to spend far more time on X (the company formerly known as Twitter) than on Tesla itself, even though Tesla is still a $500 billion asset while X likely is less than 10% of that (perhaps far less). We suspect it is because Musk has no idea how to turn around Tesla, and the hype projects have run out of road.
Meanwhile Per Lekander, a hedge fund manager who has been short Tesla shares for years, is an even bigger bear than we are: He thinks Tesla could actually go bust. Lekander sees Tesla's stock falling to $14 per share if the EV business is properly valued (with the other vaporware projects taking a write down to zero)... but Lekander then further argues that, if Tesla's shares fall that far, the impact of scale economics going into reverse could be so destructive they actually bankrupt the company (due to cost-per-vehicle rising dramatically, and profit margins going negative, as financing dries up and sales volume falls).
The picture for Tesla, and for the EV space generally, is made worse by rising interest rates at the long end of the curve, with the U.S. Treasury 10-year yield hitting new highs on the year above 4.4% as we write. Higher yields are bad news in particular for expensive cars, thanks to the impact on car loans; Americans are flocking to cheaper vehicles as monthly car payments go up. If the U.S. economy stays robust, as it shows increasing signs of doing, interest rates at the long end of the curve should rise further, putting an even tighter squeeze on EV sales — and if the bottom falls out for Treasury demand (via fiscal crisis) or the U.S. economy generally (via the labor market or the housing market) that will also be a negative for overvalued tech stocks.
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