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Tesla Q2 Results; Stormy Weather in Shortsville & doing UK Oil & Gas due diligence

By Lucian Miers | Saturday 4 August 2018

Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

On Thursday, shares in Tesla (NASDAQ:TSLA) rose to levels not seen since June, as the market reacted favourably to its Q2 numbers and the subsequent earnings call.

The bulls were comforted by a better than expected gross margin number at 20.6%, a larger amount of cash left on the balance sheet than forecast ($2.2 billion) and Musk’s doubling down on his insistence that Tesla would be cashflow positive in H2 with no need to tap the markets. Perhaps most important for bulls and bears alike was his relatively grown up performance on the call (he started by gruffly, and it must be said, somewhat endearingly, apologising to the two analysts whom he had famously been rude and dismissive to three months ago). While he sounded tired, at times to the point of incoherence, he managed to get through the relatively undemanding Q&A without any headline-grabbing howlers.

The take away for us bears, with whom there was perhaps a hint of over-confidence in the latter part of last month, is that Tesla is the biggest fish to catch for years and is not going to be landed without thrashing around a great deal beforehand. If Musk can really start behaving like the CEO of a $50 billion company and lay off his childish twitter rants, the task will be that much harder.

The bear case is nevertheless, in my opinion, very much intact. The gross margin number is easily fudged by parking items in SG&A, which strictly belong in COGS. The cash balance is flattered by trade payables ballooning $700 million in six months and, leaving aside capex required for new products (the model Y and the semi) and the factories to be built in China and Europe, Musk’s claim to fund Tesla from cashflow from now on in seems highly questionable and his track record on such claims is consistently poor (just about the last six raises have been “the last needed”).

Having said that, rational analysis is not much use when fighting a cult and we bears are back in our lairs licking our wounds and waiting patiently as the crucial Q3 plays out. I am still short and looking to add when this rally runs out of steam.

Finally, and talking of patience, I see that shares in UK Oil & Gas (UKOG), of which I am short, were on the slide until yesterday's nonsense Horse Hill release. My visit last weekend to the ‘Gatwick Gusher’ for the start of the Woodlarks walk was good fun but didn’t do anything to alter my views on the company, for which only one factor really matters.

That is that, without exception and however much it is ramped in the interim, any stock in which Australian charlatan David Lenigas is involved ends up as being all but worthless. It’s that simple and the reason why the shares are headed below a penny.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE

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