What A Shock! Tesla Just Bled $293 Million

I don’t usually write to you on Fridays, but I just wanted to send out a quick update on our TSLA play.

Tesla’s second quarter earnings release – which like all of its financial reports is not an earnings release but a loss report – demonstrates that the PT Barnum of American capitalism, Elon Musk, is heading for a serious fall. Not only did the company’s losses increase significantly (a $293.2 million loss for Q2, after bleeding $283 million in Q1), the company is now talking about the need to sell more stock to fund its unrealistic production goals. The company is not going to manufacture even 100,000 vehicles this year yet claims it will double that production next year and quintuple it by 2020. This is patent nonsense.

The company is bleeding cash and is now trying to bail out another failing Musk venture, SolarCity, which is a mundane solar energy company to which Mr. Musk is applying lipstick (and Tesla’s shareholders’ money) in order to try to save it. The so-called synergies between Tesla and SolarCity are also nonsense – the only synergy they have is their common control by Mr. Musk.

In a world where most mergers don’t work for anyone but management and end up producing lost jobs, capex and other expense cuts and eventual write-offs, the Tesla/SolarCity deal ranks among the dumbest from the get-go. Simply put, Tesla shareholders are suspending disbelief and allowing themselves to be bullied by Mr. Musk.

If it wants to succeed (and survive), Tesla needs to sell at least $5 billion worth of stock to fund itself to sustainability. Unfortunately for shareholders, that will cause serious dilution but it is better than bankruptcy which is what will happen if it keeps living on borrowed money and bull to move forward.

As I said earlier in the week, I recommend that you hang on to your TSLA January 2017 $100 puts (TSLA170120P00100000) and add to your position with TSLA January 2018 $100 puts (TSLA180119P00100000). As I so frequently observe, it’s all downhill from here.

Have a great weekend. I’m sure yours will be better than Elon Musk’s.



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