A number of readers have asked for an update on my Tesla short position. I posted the following on a discussion forum today:
After studying the accounts for the first six months, my views on Tesla haven’t changed much from when I first wrote about it in April 2018:
Before getting to the numbers, the reference to FSD (Full Self-Driving) in the announcement doesn’t inspire confidence: “We are making progress towards stopping at stop signs and traffic lights”. Wonderful!
Moving to the numbers, there was $1.3 bn more cash at 30 June than at year end, but more mouths to be fed, in the form of another €1.0 bn in long-term debt (now a whopping $13 bn) and $1.8 bn extra subscribed by shareholders, increasing the number of snouts at this trough by 3.8%. It will be a long time before they get anything to eat!
There are signs of penny-pinching to meet short-term financial goals – always a sign of trouble. R&D is down compared to the same period last year. General, selling and admin expenses are also down, despite sales up more than 50%. Maybe Tesla has become super-efficient, but I doubt it. More likely, it's salary savings from the constant haemorrhaging of key staff.
All in all, it looks as if the company is still some way from delivering a return to long-suffering shareholders. At the current $236 share price, I'll probably increase my short position.
Ouch! My latest diary update (4 July “Shelling out on a tortoise”) told of buying shares in Novo Nordisk. After reading the update, one of my regular readers asked if I was concerned about allegations of price gouging in the insulin market, in which Novo Nordisk is a market leader.
I had to confess I didn't even know of the allegations. My informant went on to tell me that the price of insulin has increased 700% over the last 20 years. There are allegations that the three companies that dominate the market - Sanofi, Eli Lilley and Novo Nordisk – have colluded to keep prices high, shutting out competitors by “patent evergreening”, i.e. making small changes to the products over time, so that patents don’t expire. There’s a class action against the them in the US.
No wonder the shares seemed such great value. I thought the fundamentals - price/earnings ratio, etc. - were fantastic. I should have remembered the adage: “If something seems too good to be true, it probably is”.
Does this mean that another of my efforts to add to my core portfolio will come to the same sorry end as my purchases of Samsonite and WPP, as recounted in diary updates 3, 4 and 13?
I'm not selling for the time being, at least not until I get a better handle on Novo Nordisk's financial exposure. I am also taking the advice of the reader who alerted me to the problem. He/she (my informant wished to remain anonymous) advised that one of the selection criteria for investing in a pharma company is to be able to tick the "comfortable with its ethics" box. I thought Novo Nordisk ticked that box. Now I'm not so sure.
Yesterday’s (4 July) update on my investment diary (“Shelling out on a tortoise”) analysed the main contributors to the total return of 17.2% in the first half of 2019. I have been asked the contributions to the return in the half-year from (1) the Tesla short position and (2) from my flirtation with Charles Taylor, as discussed in update number 13 of 7 May. (3) I have been also asked the impact of fees and charges.
I’m pleased to oblige.
1. The Tesla short contributed 1.3% to the total return in the first half. Tesla's share price fell from $332.89 at 31 December 2018 to $223.39 at 30 June. It has rallied slightly in the first few days of July, mainly on encouraging production and sales numbers for the first half. I'm keeping my short in place, at least until I see whether the higher sales (some at reduced prices) have translated into higher profits. I'm a great believer in the adage that "Sales are vanity; profit is sanity." Sanity is in short supply in Tesla.
2. My brief adventure with Charles Taylor contributed 0.4% of the 17.2% return in the period.
3. Fees and charges reduced the half-year return by 0.5%. Included in this are the provider’s fee for administering my ARF (Approved Retirement Fund) and AMRF (Approved Minimum Retirement Fund), stamp duty on share purchases and broker’s commission on purchases and sales. Also included under this heading is the rollover charge on the sterling hedge (the hedge is rolled over every quarter). Other bid-offer spreads are not included.