Most companies that lose big money fail. Plain and simple. Do not pass go. Do not collect $200. Oh sure, they can come public. They can dazzle. They can even have multiple quarters where it looks like they are going to have it all come together.
But they don't. They end up cutting your heart out as surely as that high priest in Indiana Jones and the Temple of Doom, rips that pumping organ out of a live and-soon-to-be dead subject.
And when that heart comes out, you know who is there waiting to feast on it? The short sellers, those who have made that eloquent case for days, months, quarters, years, that it would all come crashing down and didn't I tell you so?
Every once in a while, though, someone pulls it off, does the astonishing thing, and actually takes an idea through the thicket and past the gauntlet to where there is the promised land of milk and honey, usually because of the brute force of the founder, the unbelievable nature of the product and breathtaking execution.
You typically need all three...
Tesla (TSLA) has all three.
Last night Tesla reported a staggering quarter, the second in a row, and it left no doubt that not only is the company going to make it, but the messianic longs turned out to be right all along, and if I weren't so Chill, I would add, and believe me they will tell you so over and over again.
On the surface, the quarter was very solid, $0.58 EPS, a billion dollars in free cash flow, projection of 500,000 cars to be delivered.
But underneath, it was insanely good. It's pretty obvious after listening to the conference call that if Musk could make a million cars this year, he would come nowhere near meeting the demand. Nowhere. You think if Ford (F) or GM (GM) could make more cars they would make more money?
They would probably lose more money, another reason to dismiss the Tesla market cap is more than the market caps of Ford and GM together. I have said that you should wake me when it exceeds TWICE the market cap. I may have been conservative. Who knows? Given the execution and how quickly and flawlessly he can build plants, like the one that he's putting up next to Berlin, he may be able to get output somewhere close to where the demand might be.
But most likely, as he says, Teslas on the road beget demand for more Teslas. So maybe he will, again, fail to even come near sating demand. Think of that while you sit through all of the car advertisements for the big game this weekend. Think of that when these companies spend billions of dollars trying to stimulate demand that Tesla doesn't even have to mull over.
So what did happen here? Why did it turn so voraciously?
When Jeff Bezos started out with Amazon, he was making an online book store, or so it seemed. I remember going out to see the good people at Borders Books in Ann Arbor Michigan, fifteen years ago, and they were just dealing the possibility that maybe Amazon was for real -- even as Amazon was, at that very moment ,putting them out of business. I had the same experience with the CEO of a major national retailer now in bankruptcy at about the same time, where, again, I "found out" that his Seattle opponent was losing fortunes on every object besides books that he sold.
The two words you heard the most about Amazon when you talked to the smartest guys on Wall Street were Ponzi and Scheme. It was always the most-shorted stock, as one short sellers after another argued that it couldn't last, that he just had to run out of money before it could ever amount to anything.
But there were true believers. These were people who loved the product. Who found the whole alternative -- going to the mall, looking for a parking spot, walking around in a dreary house of consumption, simply repulsive -- an exercise in inconvenience of the worst order, where you end up paying top-dollar prices while being hustled by bottom-dollar people.
Mind you, I actually like to shop and my family was steeped in retail, but I know I was smitten by Amazon early and couldn't figure out what there was to short. Its bizarrely charismatic founder was beyond rigorous, the model obvious, the ambitions palpable and the execution mind-blowing. As long as he stayed on that path, Wall Street would always give him money. It would grow on trees for the guy. And that's exactly what happened. Amazon became the A in FANG, the great consumer growth stock of our time.
They are gone.
Netflix? Who would believe that a company that mails you a diskette of some movie and then you mail it back in some red envelope would become such a huge success?
Not Reed Hastings, the chairman, president, CEO and co-founder of Netflix. Which is why he changed his model to one where he delivers product you want online to any device for a ridiculously low price, one that comes PER MONTH at a cost below that of a seat in a stinky movie theatre where people are coughing all over you while they text and chew on popcorn or whatever.
Again, the shorts looked at the plan and found it wanting. How long can this clown keep losing money?
The answer? As long as it takes to get things rolling, because Wall Street will raise the money for someone who has a dream of disrupting an entire industry, one built on avoiding ads we all hate, while offering astounding convenience on a device that others make better every iteration.
Again, like Amazon, the customer in the world of Reed Hastings, is not only always right, but is the master of the entertainment domain.
Do you know how many shorts were crushed in the wake of this marvel? Countless numbers of people who are much smarter than you and i.
And now along comes Tesla. Elon Musk fought everyone, including himself, to create a technology marvel on wheels, a sometimes deliciously whimsical, always superior vehicle that fits the zeitgeist of the first "do no harm to the planet" generation. That's a globally insatiable calling -- and it's only getting more, not less, rabid.
I know I wasn't early to this. I wanted to wait to see a breakout quarter that told me that Tesla would make it. I didn't want to be too early, because my job is not to bury you into too-early situations. We got that quarter, the one before this, and at the same time my family got to drive the Model x and the Model 3. What can I say? I had test driven the original and loved it, but that wasn't enough for me, as I cared about the financials, maybe, too long? I don't know, I caught you more than 300 points.
What did the shorts miss, the shorts who are now, for all intents and purposes, done? I think they misjudged the man, once he got serious and stopped fooling around in his twitter phase. They misjudged the car, which isn't a car, but is more a digitized bat-mobile of an operation. And, most importantly, they misjudged Wall Street. I had always been on the one hand and on the other about it -- until that quarter, that drive and, most of all, that brilliant CFO who told me, when I mentioned the tattered balance sheet, that Musk could raise $2 billion with one phone call.
In the end, that's what doomed the shorts: Wall Street never runs out of money for a company that has the best product, the flawless execution and most of all, the demand.