The Simple Reason We Don’t Think Tesla Will Get Bought Out

Peter Sayles |

Elon Musk is one of the most beloved CEOs in our modern era.

But he just made a critical mistake. He guaranteed he had outside buyers to help take Tesla private at $420/share on August 7th, 2018 – an 11% premium over the $379/share it was trading at (See our most recent writeup here).

We won’t get into the legality issues this brings up (there are many). But we’re here to tell you we cast almost a 0% chance anyone would buy Tesla at a valuation of $72 billion (bn).

And we’re here to say that if the Saudi’s or Softbank or anyone else would move forward with this deal… it will 100% be the defining moment of today’s bull market peak.

We’ll look back at that moment and say it was the canary in the coal mine. (But again, we don’t think they’d be so foolish).

For starters, the $72bn is a lot of money. It would be the 7th largest acquisition this decade. It’d be bigger than Actavis buying Allergan and CVS buying Aetna – both for $70bn.

There’s so much to get to, but let’s take a step back. And let me give you a proposition if you were Jeff Bezos wealthy.

Bezos’ net worth is over $150 billion. And so are you.

You have a choice to make. You need to invest half of your net worth to ensure the next 2,000 generations of your family are taken care of.

Would you rather buy a company for $72 billion that makes $2 billion per year in net income. Has reduced its share count by 24% over the past 12 years. And has increased its dividends for 46+ consecutive years?

Or would you rather buy a company for $72 billion that loses $2 billion per year. Has diluted its shareholders by 83% since 2010. Has never paid a dividend. And its bonds are rated as junk by Moody’s?

The answer is simple.

The first company is Kimberly Clark. The second company is Tesla.

Any one in their right mind wouldn’t risk so much money with those stats.

Kevin O’Leary – Mr. Wonderful – emphasizes it almost every single episode of Shark Tank.

He asks the only question that matters when investing: “How do I get my money back?”

This question alone should provide you enough clarity that this deal is almost a near certainty to not happen.

Five Tesla Charts That Will Make You Want To Avoid Its Stock

The finances are ugly.

We don’t want to impart too much of our opinion. The fight between those bullish on Tesla and those bearish on Tesla are uglier. We want zero part of that.

We just stick to the facts at MightyTrades. So we’re just going to lay out some graphs thanks to @TeslaCharts.

First up, Tesla’s net debt quarter/quarter (qtr/qtr):


Next, is Tesla’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Generally you want EBITDA to increase and be positive qtr/qtr:

 

 

Next is Tesla’s accounts payable. Increasing accounts payables are not a good thing:

 

 

Next is Tesla’s net working capital (net assets – net liabilities):

 

 

Last is Tesla’s share dilution as we discussed above. Share dilution means your stock is worth less:

 

 

These five charts should give any investor pause if they’re looking for a way to make their money back in any reasonable time frame.

Let alone $72 billion.

Yes, Tesla is an innovative company with a visionary CEO. But that 100% does not mean its stock is a good buy at these levels.

We continue to reiterate our Sell recommendation on Tesla – which means avoid.

Tesla is the most shorted stock in the S&P. Any good news forces short sellers to cover their positions and run for cover.

Bears have been waiting years for Tesla’s day of reckoning. It hasn’t come.

We want no part of that. Tesla’s stock is too volatile to take a position. Continue to avoid. Speculators can short or buy put options.