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Bireme Capital: “We are Short Tesla (TSLA)”

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Jose Karlo Mari Tottoc
·5 min read
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Bireme Capital, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 47.1% was recorded by the fund for the year end 2020, outperforming its S&P500 benchmark that delivered an 18.3% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Bireme Capital, in their Q4 2020 Investor Letter, said that they are short Tesla, Inc. (NASDAQ: TSLA). Bireme Capital stated that Tesla may have the most unrealistic expectations among the companies they treat as great contenders. Tesla, Inc. is a premier electric vehicle company that is currently leading the world's transition from diesel and gasoline engines to electric powered cars. The company currently has a $658.9 billion market cap. For the past 3 months, TSLA delivered a decent 17.39% return and settled at $686.44 per share at the closing of March 2, 2021.

Here is what Bireme Capital has to say about Tesla, Inc. in their Q4 2020 investor letter:

"Of all the contenders, Tesla may have the most unrealistic expectations. Now Tesla inarguably deserves a ton of credit for driving forward the frontiers of electric vehicles, car design, and consumer adoption of autonomous driving. However, as we said in Part I, “There’s a difference between a great company and a great investment.”

Tesla’s worldwide market share is only about 1%, but its market cap is higher than the nine largest car companies combined. Growing into this market cap is going to be impossible. Bending metal just isn’t that good of a business: car manufacturers generally earn single-digit net margins. Hopes of recurring high-margin revenue from software sales and robotaxis are pipe dreams -- in a third-party ranking, Tesla’s much-ballyhooed autonomous driving system recently came in dead last out of 18 competitors.

Tesla did eke out a profit for the first time this year, but only because of $1.5b in pure-margin revenue from sales of automotive regulatory credits to other car manufacturers that did not meet emissions standards. This pure-margin revenue will disappear shortly as competing EVs enter the market. Nearly a hundred EV models are set to debut in the next few years, from large and established industry players like Ford, Toyota and GM, as well as upstarts like NIO, Fisker, Lucid, Rivian, and many, many others.

Tesla does have a market share lead in the EV market, but we find it hard to believe that the technology lead is insurmountable -- Tesla’s latest annual report revealed that it spent more on bitcoin than on research and development. (We would be remiss not to mention the incongruity of a company focused on sustainability buying bitcoin, the energy-intensive mining of which produces more greenhouse gases than many medium-sized countries.)

We suspect that for many stockholders a share of Tesla is more of a collectible than an investment. Jim Cramer recently tried to explain Tesla’s astonishing stock gains (up 13x in the past two years). He said, “The analysts couldn’t understand that Tesla is more than just a vehicle. It’s a vehicle of hope in a miasma of gloom.” That may be true, but if you are looking for a solid investment rather than a manifestation of optimism, we suggest you look elsewhere.

We are short Tesla."

10 Best EV Stocks to Buy According to Cathie Wood
10 Best EV Stocks to Buy According to Cathie Wood

Hadrian / Shutterstock.com

This past Monday, March 1, 2021, we published an article about the 15 biggest renewable energy companies and stock, and Tesla Inc. (NASDAQ: TSLA) is part of it. TSLA delivered a whopping 360.38% return in the past 12 months.

Our calculations show that Tesla, Inc. (NASDAQ: TSLA) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Tesla was in 68 hedge fund portfolios, compared to 67 funds in the third quarter.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020. At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best innovative stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.