The merger shifts attention from Tesla’s weakening car business

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 8:10

   them is they're both rocket ships, but SpaceX is busting into outer orbit and Tesla feels like there's a decent chance one of the O-rings is about to come off. SpaceX revenue is up 161% with net income of $4.4 billion and a 60% EBITDA margin. Tesla's revenue is flat and operating income is down 56% with a 2.6% margin and deliveries are down 2%. So what you have is a company, you have an automobile company, you pointed this out yesterday.

2. 8:43

   that's trading at a PE of 300 versus an industry at 18. And this is effectively what's going on here. Musk has this, he's a genius on several levels, but something he really understands is, so back to Sex and the City. Carrie is dating Michelle Beristikoff. I don't forget the character's name. And she meets with, and he's constantly kind of putting her off and never asked time for it. And he's like, as soon as my art show's over, we'll do this.

3. 9:12

   and he meets with Mikhail Baryshnikov's former lover and says, why did you break up? And she said, I got sick of as soon as. And she kept saying, as soon as this happens, this will happen. Musk is literally the genus of as soon as. Okay, I have a better EV. It's gonna change the world. Wow, all right, no, other people are coming to the EV market. It's a shitty low margin company. Wait, we're gonna have autonomous.

4. 9:40

   As soon as we have autonomous, I'll be able to justify this valuation. Okay, you're making no progress in Autonomous. Waymo's doing a half a million rides a week. You're doing very few with a safety monitor in the front seat. Okay, as soon as we produce 5 million robots, everyone is running out of patience with this boyfriend called Tesla. So he is going to merge it into a company that distinct to the valuation, which I would argue is irrational, really has an incredible story. So he's taking shareholders who are getting 2.9 million of market cap per car. And I think that is really tenuous.

5. 10:22

   And he's putting it into a company that has, quite frankly, a more enduring, sexier story. Now, to be fair, there are some real synergies here. SpaceX has purchased more than 1 billion of Tesla batteries and more than 100 million of Cybertrucks, although I would argue that's a related party transaction. Tesla knows how to manufacture at scale and SpaceX has compute that self-driving needs. It's a real merger with a fake premise. When Musk merges something into another, it's an acknowledgement that it's about to crater. When he bailed out a company he chaired that was owned by his cousins, I think it was called SolarCity, and he bailed it out by stuffing it into Tesla.

6. 11:02

   He stuffed Twitter into XAI, which then got folded into SpaceX. His M&A strategy is simple. When one of his kids are failing, he makes another... family adopt it. So right now, Tesla is the patient and SpaceX is the organ donor. SpaceX shareholders are the organ donor. So who wins? Tesla shareholders. They get to trade a declining shares in a declining car company for a stake in Starlink and AI. That's like trading your Buick for a piece of a Gulfstream. And he wins because he's going to get to maintain control. Largest merger ever bigger than the gdp of france um but again i think this is more he keeps pulling more and more rabbits out of the hat and he needs a new one for tesla and that new rabbit is spacex your thoughts i think that's exactly right i mean you look at tesla stock it's down 13 percent in

7. 11:59

   the past year people people love to say tesla's been like such a great investment but over the past five or six years it actually hasn't um when you just look at the five-year time frame it's actually underperformed the S&P by about three times so this is a stock that has been lagging uh in recent years and it's because the business is actually in decline it's because revenue is falling it just fell again last quarter the car deliveries just fell as well uh the the story that people are excited about is the robotaxi. But as we also know, the robotaxi is like millions of miles behind Waymo, which is the winner and the front runner in this race.

8. 12:45

   And it's not even close. So the story for Tesla is certainly coming under a lot of pressure. And I think you're exactly right. The adoption analogy is perfect. It's like, I kind of think of it as sort of brand laundering, or maybe even multiple laundering, where you have SpaceX, which currently has a sexy story about satellites in space, or excuse me, data centers in space, orbital data centers, they already have satellites in space.

9. 13:14

   The next story is the orbital data centers. The story after that is the asteroid mining. The story after that is creating colonies on Mars. So he's creating all of these stories and currently investors are kind of lapping it up because you've got, I mean, Tesla, we already believe you and I agree that we think that Tesla is way overvalued trading it, you know, more than 300 times earnings and the average across the auto industry is 17.

10. 13:39

    Now we can't do that with SpaceX because they don't have earnings, but we can look at the the price to sales multiple. Tesla's trading 14 times sales. SpaceX is trading at 87 times sales. So he's kind of doing the same thing again. Okay, let's put them all in the same bucket together. And maybe people will stop asking questions about why are car deliveries declining? Why are your sales declining on a quarter of a quarter basis? Why is this happening? Maybe they'll stop asking those questions. And they'll say, oh, well, that doesn't matter because the main thing, The main prize is the asteroids, or it's the AI, or it's renting out the data centers.

11. 14:16

    And to be honest, it's not a terrible argument to make. It just means that you're kind of, as you often say, smearing the Vaseline over the lens so that we don't actually have to dig into the reality. And as you point out, he's done this plenty of times before. He did it with SolarCity. He did it with Twitter. He did it with XAI. I mean, you remember, we used to actually see all of the financial details of Twitter.

12. 14:41

    We saw how much user growth was increasing or decreasing. Like, we had all of those details. Then suddenly it's bought up by XAI, and suddenly we don't really get that level of detail. Like, you know, technically that company is part of SpaceX, and we don't really get to see what the revenues actually look like, what the financials look like, because it doesn't really matter anymore to the story of the business.

13. 15:03

    So it does seem like that is pretty much the game plan here. we're going to distract away from the fact that tesla is seemingly in structural decline at least when you look at its core business who knows what happens with the robotaxi um but spacex is is the sexy hot new ai company look a brand if you will is one part promise one part performance and elon musk has become the master the jedi knight the you know the sensei of promise And the moment the performance begins to catch up to the promise, he shoves it in another vehicle with more promise.

14. 15:46

    And also, there's a lesson to be learned here.