Certain shareholders of certain companies should be thinking very carefully about how this affects certain assumptions of certain financial reporting and analyses.

By Mike Ramsey

Consumers aren’t buying electric cars. They’re leasing them.

Experian Automotive, a data research arm of the credit company, reports that 93% of people who obtained an electric car in the fourth quarter of 2012 leased it rather than financed it.

There are good reasons for this trend. Most of the companies that sell electric cars are offering much lower monthly payments to customers who lease Nissan Motor Co. 7201.TO -0.18%has been offering a $199-a-month lease on its Leaf electric car. Mass market rivals are offering similar deals on their electrics General Motors Co. GM +0.86%is offering a $269 a month, three-year lease on its plug-in hybrid Chevrolet Volt.

The sticker price for most of the electric cars is north of $30,000 and even with a hefty $7,500 federal tax credit, the monthly payment is hundreds of dollars a month higher than for a lease. Tesla Motors Inc. earlier this year began offering a lease-like financing deal aimed at dropping the monthly payments for its $70,000 and up Model S sedans.

Leasing an electric car also insulates the customer from long-term costs associated with replacing tired batteries. A lease represents a bet that in three years, electric car batteries may offer longer driving range at a lower price.

I’m talking about TSLA

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Welcome, and I hope I find you well.

I’m coming into the afternoon with strong rallying across my portfolio. AEC and CLP are both up over 100 points. CCJ, RGR, and BAS are all pushing 200. The euro cracked this morning, and EUO is now up 150. Silver is enjoying a relief rally, but it’s down so much inside of this year, it seems stupid to talk about.

The only place I’m losing money today are the TSLA puts. And since they’re puts at 2-3% of the account, I really don’t care.

I’m actually looking to add to the Tesla put position, this time targeting the 2015 expiries. A $70 strike price should do nice – maybe as low as $50.

I believe TSLA is the new NFLX; sans the recovery.

All in all, I’m still up over a percent so far, with a 30% cash position to boot. But if I were to be honest, I would say I still expect the summer to end dreadfully.

Have a great day.

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Every now and again, I like to look back over where I’ve been to see what I should have done. Sometimes I find I was exactly right. Sometimes I see the errors (hopefully not relevant). And sometime, much to my frustration, I see I was exactly where I should have been but then decided to wander off just before the party got started.

Utilities more or less sum up those frustrations.

I called the utility move about 2 years ago. My reasoning was essentially that a utility is equivalent to a publicly insured bond (a company with a legal monopoly and appropriate guarantees), and that since these bonds have (had) a nice yield, they would become the de facto target if bonds held low prices. But even if bonds somehow fell, they were good enough value to warrant the buy at the time.

Then I picked through and found my favorite utility – AWK (water).

I bought AWK in the low $20’s, road it up to $30, and then…I just sort of wandered off.

So much money got left on the table. Did I leave the utility play because I thought the move was done? No, I mostly left because I thought we were going to sell off and wanted to trade both ways. So I raised cash.

I cannot tell you how many times I’ve overplayed my hand like this, trying to nail the inflection like an ace. And what I’ve witnessed, in hindsight, is that I’m a much better stock picker than I am a market timer.

Which brings us to oil.

I just sacrificed some more money on the alter of oil. But this time, instead of shorting more like a beast, obsessed with “being right”, I’m taking my drubbings and walking off. I’ve been almost perfectly hedged the past few months (excluding silver, which I treat as almost an off balance sheet position at times). And I refuse to let the SCO “hedge” (read, loser) sink my year, which has been very profitable. EUO is doing well, I have a healthy cash position, and BAS, CCJ, AEC, CLP, and RGR will all prove winners. Of this I am confident. The only other thing is the TSLA puts, which are low single digits of assets and will cause as much fluctuation in my portfolio as the month of June, should they burn out.

Or they make my year.

The message here is flexibility. Learn to have it – don’t waste away your hard labors on the rash emotions of the moment.

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Tesla is running again today, up 7% because some analyst report came out trumpeting the stock on the back of Model S deliveries.

Effectively, what Elaine Kwei has said here is that since she thinks Tesla may have delivered a few more Model S’s than forcasted (how many?) and that since she believes Tesla can sell more than 21,000 vehicles for all of 2013 (a few hundred more? A few thousand more?), that Tesla should be worth $130 a share.

Using a 10 year discounted cash flow approach, she somehow worked out this value for the company. Here’s what she didn’t say.

In order to believe this number, Tesla earnings per share would have to grow at 60%-70% per year to break even, with a 10% normalization after that to justify them being priced at $130 today.

Let’s pretend for a second that I buy into this concept which has electric vehicles taking over the country inside of a decade, based on the technology and real world costs we have to work with right now.

Alright – well if Tesla “only” manages to grow at 40% per year, then the stock wouldn’t become worth what this woman is pricing it until 2028.

Do you see the problem here? Still astronomical growth rates at anything less than the 30 meter high bar these people want Tesla to jump over adds time-risk to the equation measured in the half decades.

If Tesla is more of a normal “tech” growth company and pulls 20% EPS growth year over year? That puts it at fair value sometime in the year 2040.

And if Tesla is a 10% annual growth company, then you’ll be looking at breaking even around 2065.

Discounting future cash flow is a horrible method; I don’t know why it hasn’t been thoroughly discredited at this point. It flies in the face of salt-of-the-earth good advice about not counting chickens that haven’t hatched yet. Especially when you’re trying to target these high growth numbers on a company with no real track record, if the good folks at Jefferies have overlooked anything or the unexpected should crop up (as it almost assuredly will), you’re talking tacking on an extra 30 years for being a sucker today. That quadruples the risk folks.

Exponential functions are real terrifying like that…

Keep in mind, the US has averaged a recession about once every decade since the 60’s. Whether it was the Nifty Fifty, the savings and loan crisis, the ’87 crash, oil embargos, unexpected wars, tech market explosions, LTCM smart guy eff ups, housing epidemics,…life never goes as planned.

You can get away with betting stocks act perfectly for about 6 months into the future. You might even get lucky for a year or two. You bet 5 years out that behavior will be constant and you’re pushing it. 10 year bets are usually acceptable when dealing with 2X book, 10x EPS companies because there are average cost chances to get you back to even quickly.

But if you’re buying Tesla at 120x EPS right now, you’re betting that for the next 10 years, the company can basically double year over year without any competition, any economic headwinds, any unforseen problems, any variation from “perfection”.

If you get this wrong, the resulting selloff won’t be “recoverable”. There’s no averaging in you could possibly engage in that will save you in this lifetime.

We are in classic South Sea Company levels of hyperbole here.

For those of us in our 30’s or 40’s, if Tesla stumbles, you’re looking at being in your 70’s or 80’s before you find a recovery. I’d say you have fairer chances of flipping open a mortuary table and betting on whether or not you’ll even be alive by then.

Looking at their current EPS, I’m thinking a price closer to $20-30 is more fair. That puts them at about twice book value (expensive for an auto, but hey it’s a compelling story). You could maybe put up $35-60, a price range which has them moderating to 20% EPS growth after being blessed with a decade of 40% annual growth – which is still a pretty compelling valuation, if you’re being honest with yourself.

Mind you I wouldn’t pay that because I don’t believe that electric vehicles are the future. My personal price where I would maybe think about tipping in is about $10. But listening to the stories you lot are weaving, the price you should be paying is at least half of what you’re doling out right now. Probably more like a fifth, to be direct.

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Have a quick look at the graph on this site. I haven’t audited any of the numbers, but if the author has done his homework, it fortells fairly clearly what oil longs have to expect.

For the moment, all of my short exposure is being pesteringly resilient; most probably because I am counting on those positions to even out my account. So of course, oil is holding up here, the euro is trying to push higher, and TSLA recovered a $3 move.

There’s no reason for any of those things other than that they hurt Cain Hammond Thaler. The market is trying to harm me, because that is the only consolation anyone in these positions will ultimately have…if they can shake me out.

But I have the patience of sheet rock. You will not win.

Current positions by size (greatest to least)

Cash – 27%
CCJ – 18%
CLP – 8%
AEC – 8%
SCO – 8%
EUO – 8%
Silver – 8%
BAS – 7%
RGR – 7%
January 2014 TSLA 35 Puts – 1-2%

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I’m just up late reading the steady stream of wild conjecture being published on the important subject of how unstoppable Tesla is.

You know what the difference is between AAPL and TSLA groupies?

AAPL groupies can afford iPhones…

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