Blain: The House Of Cards Is About To Collapse For Two Reasons…

Wednesday, May 22, 2019
By Paul Martin

by Bill Blain of Shard Capital
Wed, 05/22/2019

Have you ever watched a house of cards collapse? Sometimes a corner or a side comes down, and it can be sort of fixed… Sometimes the whole thing just gets blown away. My Spidey Senses are all a-tingle this morning, triggered by 2 factors:

1.Telsa: The spike in negative commentary on Tesla suggests THE moment is coming: a downgrade by a previous bull to $10 target price, doubts on the trajectory of sales, the realisation the Solar Tiles project is complete tosh (and a bail out of Musk’s cousins), the crash in its debt and recent convertible price, and loads more, has led to the rather obvious conclusion Tesla will struggle to fund ongoing capital burn. Peak-Musk was some time ago. Many now think the orchestra is about to strike up Gotterdammerung. A loss of confidence in Tesla and Musk triggers all kinds of consequences.
2.Europe: If you think UK politicians have embarrassed themselves trying to agree on how to exit Europe, wait till next week and ponder how such a disparate, populist hodge-podge of populist well-intentioned Euro-philes and Euro-phobes are going to agree on how to reform and continue European integration. I see two big market threats: i) The bond market, ii) and especially the bond market. (And Brussels!)

Since anyone can read all the Tesla stories and draw their own conclusions as to what happens next, lets stick to the consequences. The obvious one is what does it do to confidence in the Modern Disruptive Tech (“MDT”) price model: “We don’t have to pay dividends or make profits because we are a disruptive company that’s triggered a paradigm in demand and made ourselves a monopoly – therefore it’s all in our stock price” ?

Tesla’s current stock crash shreds that MDT model. (Down 46% since Dec high, 30% from April.)

Why? a) Because Tesla did not have anything like a monopoly. Its failing to deliver. It’s not selling enough cars in China, and others are selling more in Europe. Competitors are eating its lunch – customers are nervous. Other secondary Tesla wins like capacitance, autonomy etc are irrelevant if the main light goes out. b) The MDT Model requires the stock to retain the confidence of the capital markets to keep it capitalised – Tesla has now lost that confidence. c) It needs to demonstrate continued ability to disrupt, deliver and reap the windfall stock gains – but confidence in Musk’s abilities and focus has crashed: witness the failure in solar tiles, his tweeting, the other businesses from tunnels to rockets.

It’s all so embarrassing.

Tesla doesn’t matter. They are simply the DeLorean’s of the modern age. If you own one, stick in a garage and wait. Plenty of other Electric choices… Tesla was good while it lasted. (For disclosure’s sake I still hold a small Tesla position, but sold out most in June last year.)

The Rest…HERE

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