Tesla is a bonfire of the vanities

From David Stockman, a former congressman, budget director under the Reagan administration, and partner of private-equity firm Blackstone Group. Today, Stockman is an outspoken opponent of the current monetary policy. He argues that Tesla and its sky-high valuation are a product of a money-printing Federal Reserve.

 He wrote an essay for our friends at Casey Research. Excerpts from the essay below…

The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla – a crony capitalist con job that has long been insolvent and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino…So raptured were the day traders and gamblers that in the short span of 33 months between early 2012 and September 2014, they ramped up Tesla’s market cap from $2.5 billion to a peak of $35 billion.

 Stockman notes Tesla’s inability to make a profit…

Since 2007, [Tesla] has booked cumulative sales of just $6.1 billion, and that ain’t much in autoland; it amounts to about one week of sales by Toyota and two weeks by Ford. Its cumulative bottom line has been a net loss of $1.4 billion, and the losses are not shrinking – having totaled nearly $300 million for 2014 alone.More significantly, during its entire seven years as a public filer, Tesla has failed to generate any net operating cash flow (OCF) at all and has, in fact, posted red ink of $500 million on the OCF line. During the same seven-year span ending in Q4 of 2014, its [capital expenditures] amounted to a cumulative $1.8 billion.

So go figure. Combining OCF and cap-ex, you get a balance sheet hemorrhage of nearly $2.4 billion. The real question, therefore, is not why Tesla was worth $35 billion, but why it wasn’t bankrupt long ago?

 Stockman says that Tesla only exists because it got a $500 million bailout from the U.S. government… and it’s taking advantage of low interest rates and the Fed’s money manipulation to raise more and more capital (like the startups Gurley discussed above).

 But can you blame investors for shifting their capital into these types of companies? When governments debase currencies, the people lose faith in their money. They spend recklessly. They gamble. How would you characterize Fidelity investing in Silicon Valley startups anything other than gambling?

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