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Why I Was Bearish on Tesla

By Andrew Aziz  |  
Andrew's Newsletter  |  
Apr 22, 2024

Dear Traders,

Today Paras and I traded Tesla live. I made a small profit with $TSLA and it turned out an amazing day trading Netflix. You can watch today’s recap here. Please let me know in the YouTube comments if you have any questions.

As you know, I have been bearish on Tesla for quite some time, even though our community members are split over him for some good reasons. Elon Musk went and solved the (difficult, capital-intensive) problem of electric cars. He has a lot of fans both on Main Street and Wall Street. But the story of Tesla and Elon Musk is not just about cars and climate change. It is more personal to Elon Musk. Even though Tesla Inc. is an electric car company, arguably its most important mission is generating cash for Elon Musk for his other capital-intensive projects such as artificial intelligence, brain implants, Twitter, and colonizing Mars.

And this is not just me saying that. In 2017, Musk told a Tesla director that he needed billions of dollars from Tesla “so that I can put as much as possible towards minimizing existential risk by putting the money towards Mars.”

“Colonizing Mars is an expensive endeavor,” a Delaware Chancery Court judge wrote this year.

In 2018, Tesla’s board granted Musk 12 tranches of stock options, each representing 1% of Tesla’s stock at the time. The tranches would vest based on performance targets, and particularly market capitalization targets. The first tranche vested if Tesla hit a $100 billion market cap (up from about $59 billion at the time of the grant), and the other 11 tranches would vest at $50 billion increments, up to $650 billion for the final tranche. He had 10 years to hit those milestones; he hit them in three!

So Tesla then became Elon Musk’s personal piggy bank and his main source of wealth for solving the many other difficult, capital-intensive problems that interest him. He used his vast Tesla wealth to fund his various other projects, like buying Twitter. By this year, he was back asking Tesla’s board for more money.

This was all good for Elon Musk until a disgruntled Tesla shareholder named Richard Tornetta sued the company, arguing that Musk’s pay package in 2018 was illegal, and in January 2024 that previously referenced Delaware judge ruled that it was. And so Musk’s options disappeared, making at least a theoretical dent in his ability to do Mars, AI, brains, tweets, or whatever it is he’s up to now.

Tesla’s market capitalization, as of yesterday’s Close, was below $500 billion; it was lower this morning as it is down another 2%. Four of the milestones — covering roughly one-third of Musk’s options — have been un-achieved!

Elon Musk decided to move Tesla from Delaware to Texas in order to void the rulings of Delaware’s courts, while Tesla is asking its shareholders to approve Musk’s pay again, now, while it’s still based in Delaware. Re-approving Musk’s pay is a bit of unfinished business that Tesla needs to wrap up in Delaware so that it can move to Texas.

As you can see, Tesla is in deep trouble. On one front, it was losing to the competition from Chinese and German car makers and had to cut 10% of its staff globally. Its growth has been stalled and Elon Musk has been deep into other projects that have distracted his focus (and impacted his wealth!) in taking Tesla to the next level.

Checkout Tesla’s Highlights

To your success,