TMB #42: Cathie's Sky High Expectations
Cathie keeps buying the dip on some tenuous assumptions, and the office market just can't catch a break.
ARKK Loads Up
Cathie Wood, the founder of ARK funds and the subject of more financial press coverage than almost any other fund manager out there is making waves again, this time for buying Tesla TSLA 0.00%↑. For Tesla diehards and fanboys, there’s nothing wrong at the company currently. From a fundamental, more realistic perspective, however, things aren’t exactly great. Some of the most recent issues include…
The company’s Full Self Driving (FSD) isn’t, you know, exactly fully self-driving. It has resulted in deaths and, now, lawsuits! The company even embarked on a massive recall of FSD software, but even with that problems remain.
Tesla is losing market share in the all-important Chinese EV market to competitor BYD.
Americans are discovering that Tesla isn’t the only EV maker available.
Musk’s off-the-rails behavior on Twitter (sorry, X) and in public.
Musk also may be using (or have used) illegal drugs at work.
Fun!
Now, to call Wood and her fund Tesla ‘bulls’ would be an understatement. According to ARK’s internal thesis (check it out here, it’s well worth the read and good for a few laughs), the bear case for Tesla is $1,400 per share by 2027.1
For reference, Tesla trades in the $230-240 range today. But let’s take a step back here—anytime someone proposes that you could 6x your investment in 3 years according to the bear case, the rationale is at least worth a peak. Right?
Well, don’t waste your time. The numbers proposed by ARK for Tesla are beyond comical. For example, Tesla delivered 1.8 million vehicles in 2023. ARK’s bear case demands 10.3 million deliveries (yes, in 2027).
In 2023, Tesla is expected to post $97 billion in revenue. ARK’s estimates show the company posted over $1 trillion (yes, with a ‘t’) in revenues in 2027.
I mean… I don’t know. This doesn’t seem like something that’s… credible? But alas, this is part of the problem with financial models: they’ll spit out anything you want depending on what numbers you plug in.
At the end of the day, Cathie will do what Cathie will do. I mean, it’s not as if investors have been poorly served in the past, right? …right?
The Office Market is Still Bad
Here’s a pretty startling chart from the Wall Street Journal today:
Office vacancy rates are tagging the highest levels since the mid to late 80s. For context, the consequence of the last peak “was a glut of office buildings that couldn’t find tenants when the economy went into recession in 1990 as the country suffered from the savings-and-loan crisis, when many S&Ls failed.”
The economy in the 90s, of course, recovered. But this time around things may not be so simple. After all, it doesn’t appear that the hybrid work trend is going to stop anytime soon, meaning that companies will have less use for office space as they can hot desk or find other ways to creatively lower their real estate footprint (read: expenses).
Further, landlords don’t have a lot of great options for converting office space into something else. An interesting May 2023 report from CBRE showed that conversions from office to multifamily were only modestly up. While I think that’s likely to change and conversions are probably going to accelerate as corporate leases roll off, it’s still not a completely attractive proposition since the multifamily market is experiencing a boom (read: soon to come glut) of its own.
I don’t really have too much else to say here other than this is something worth keeping an eye on.
Final Thoughts…
Boeing BA 0.00%↑ is having a terrible, horrible, no good, very bad day after a door blew out on a 737-MAX9. Lululemon LULU 0.00%↑ and Abercrombie & Fitch ANF 0.00%↑ raised guidance after a stronger-than-expected holiday season. If AI is the next big thing, where are all the investments? Apple’s AAPL 0.00%↑ Vision Pro is set to debut in stores on February 2nd. Blackstone BX 0.00%↑ is moving ahead with a retail (!) private equity fund.
Yes, this presentation was made in April 2023, but they haven’t updated it, so hey.
"Things aren't exactly great." Well, how about market share compared to non-Chinese OEMs? Trajectory? How about their position on EV charging? Other related infrastructure? How about their position on FSD RELATIVE to all other OEMs? Sure, an occasional sanity check to look at the weaknesses is advised, but - well, the fundamentals appear to be there. And even though the Cybertruck is late in launch, it is unprecedented in its content and market. Robotaxi - THAT is a crap shoot, and worth verifying.