We recommend that investors holding Tesla (TSLA) shares close their long positions in TSLA and reallocate capital into a long position in Clean Energy Fuels (CLNE) . We recommended CLNE in our August 1 note on the back of their recent strategy revamp and the minority investment by Total (TOT) , one of the largest and most sophisticated energy companies. CLNE is up 20% for the year, significantly outperforming TSLA, -15%, and the S&P 500, +8%, for the same period.
Our thesis is predicated on three factors: 1) CLNE is overseen and managed by decades-long successful business executives who know their market inside and out and have led successful companies navigating uncertainty. 2) CLNE's business model is designed to grow steadily as the market monetizes the benefits of the shale revolution and cheap natural gas prices, and its market share is only poised to grow with few competitors in hand. 3) CLNE has higher chances to be taken private given its unique, scalable and undervalued business model and the fact that is backed by Total, who could easily buy out the rest of the company if it deems that more appropriate.
In regards to corporate governance, CLNE just added two board members who are senior executives from Total, the French oil giant. Omar Nger is the President of Total Marketing & Services and Philippe Montantême, is a Senior Vice President, responsible for Strategy Marketing Research of Total Marketing & Services. What we like about Total's Marketing & Services business is that it is a group that is dedicated to the transportation markets and consumers of energy. We remind investors that TOT purchased a 25% interest in CLNE in May 2018 though its Marketing & Services subsidiary.
In regards to Tesla we cannot blame CEO Elon Musk's poor judgement and irrational behavior, which has been evident to investors for a long time, but rather Tesla's board, which has known all along about Musk's erratic decisions and did not anticipate, nor took the necessary actions, early enough, to prevent potential liabilities or possible mismanagement.
An SEC investigation makes Tesla as a takeout target extremely difficult to justify given the potential unmeasured liabilities. Unfortunately, at this point, TLSA will be left alone to clean its self-inflicting wounds at the mercy of short-term traders and out-spoken investment managers before any foreign investor steps in to buy the company.
We think that CLNE has in TOT a solid partner and investor which will take the company to a successful growth strategy while keeping diligence on costs and performance metrics. In a world of increasing technological competition, excess of available capital, and low barriers of entry, we give high value to directors who are industry insiders and can watch management's back and anticipate risks ahead.
TOT stock has outperformed its U.S. oil major peers, ExxonMobil (XOM) and Chevron (CVX) , consistently, over 1-year, 3-year and 5-year periods and that reflects management's ability to create value for shareholders and their performance navigating market uncertainty. We think CLNE could not have a better partner than Total.
Do yourself a favor -- end your TLSA pain, buy some CLNE shares and have a nice weekend!