Latest Positions: TSLA Earnings, The Driverless/EV Revolution, Space Baskets, And Inflation Hedges

Here is Part 1 of the list of my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position.

The ratings for each stock go from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment.” The positions that are bolded are those that I consider to be “core” holdings and am unlikely to ever sell out of them entirely.

Longs –

• Forever assets and other permanent holdings –
  • Media, hedge fund and other private investment/business holdings (9+ because betting on yourself and running a business is always the best bet)
  • Real estate, including the office I work out of, some land and the ranch I live on in NM (6)
  • Physical gold bullion & coins (8)
• (Driverless / EV Revolution) –
  • TSLA Tesla (8) – The market is punishing TSLA today after earnings because the company’s margins and profitability were down following several rounds of recent price cuts. With the cuts announced today, Tesla has cut prices six times this year. On the conference call, Elon made clear that Tesla is willing to sacrifice some profitability at present in exchange for a higher volume of total shipments. Importantly, however, Tesla will be able to harvest more margin after the car is initially sold as autonomous driving and other software grades are rolled out. Elon stated that buying a Tesla today at reduced prices is like buying a call option on a fully autonomous vehicle. Tesla is clearly playing the long game with these cost cuts and these will likely keep customers from choosing one of the many competitors that they would otherwise consider buying in the near future. At present, TSLA is basically the only company that is able to profitably produce EVs at scale. This isn’t an easy process, and we have serious doubts that GM, Ford, Hyundai, Fisker, Lucid, and the hundreds of EV startups will be able to competitively produce large numbers of EVs in the next 1-3 years. By cutting prices now, TSLA is putting extreme pressure on these competitors who will be forced to also cut prices to stay competitive. Also remember that Tesla is still ramping production at its newly-built Austin and Berlin factories and as those approach full capacity, the cost per unit will come down and thus help improve gross margins. As Tesla is already years ahead of these competitors in ramping its supply chain, production, distribution, etc., it has a much lower cost structure compared to companies like Ford and GM which are just now starting the process of making EVs. In Elon’s words, Tesla is in a “uniquely strategically strong position” because it can sell cars today at little to zero profit and then capture that profit down the road with software and autonomy. No other car company can do that. Stick with TSLA.
  • RIVN Rivian (7) – With the shares trading at $12-$13, the market is basically saying that RIVN is going to zero. Remember, the stock came public at $78 and immediately rocketed to nearly $180/share at which time it had a roughly $162bb market cap. Today, it has a $11.8bb market cap and about $9.9bb in net cash on the balance sheet. That means you are paying only $1.9bb for RIVN’s actual business. The problem with RIVN for the moment is that the company is operating with negative gross margins while it tries to increase production. RIVN has huge sunk costs in its factory and those costs are allocated to RIVN’s currently small production, thus dramatically inflating the COGS of each vehicle. As production continues to ramp, the COGS will come down and gross margins will eventually turn positive, but what the market is saying is that RIVN will not reach that point before it runs out of cash. However, we like RIVN as it is essentially the only other EV maker in the US which actually has sizeable production and is producing a great product. In 2022, RIVN produced 24,337 vehicles and delivered 20,332 vehicles. This is expected to increase to 50,000 units in 2023. RIVN is not quite TSLA but with the market cap nearly equivalent to the net cash of the company, we like the risk/reward setup for RIVN right here.
  • UBER Uber (7+) – We did an in-depth write up on UBER back in February and the stock has been pretty range bound since then. UBER is continuing to dominate the ride-share market (see the near collapse of Lyft and exit of its CEO) but it needs to keep cutting costs (e.g. META) to increase operating margins. UBER is one of the faster-growing large caps in the portfolio at the moment with consensus growth estimates for 2023 at 16.4% and a $64.5bb market cap. If Uber only grows ~16% in 2023 this would be a big slow down from their 2022 growth. This could definitely happen as Uber is really providing a luxury service but if the economy/consumer spending don’t fall as rapidly as everyone thinks, Uber could easily beat the consensus estimates. As we’ve discussed before, Uber is approaching monopoly status in the rideshare market and has big growth drivers with delivery, freight, rental, taxi, autonomous vehicles, AI, etc. Additionally, we have been talking about operating expenses a lot lately and we are starting to feel like part of the bullish setup for stocks with high OpEx like Uber is that they have so much room to cut. If Uber can figure out a way to bring down OpEx and maintain a decent level of topline growth, expect the stock to rocket higher (again, think META). We think this is plausible becase as Uber solidifies its dominance in rideshare, they should be able to cut SG&A for that side of the business which is currently the largest segment. Long term, UBER will be a big player in the driverless revolution once full self-driving becomes mainstream and we think its status as a platform company makes for a compelling bull case for this stofck.
• (The Space Revolution) –
  • SpaceX (9) – SpaceX is set to launch Starship on 4/20 after scrubbing the first attempt on Monday. Starship will be the world’s most powerful launch vehicle ever developed with the capacity to carry 150 metric tons fully reusable and 250 metric tons expendable. SpaceX has already revolutionized the launch business by dramatically reducing the cost to place materials in space and Starship will further bring down the costs by several orders of magnitude. Falcon Heavy’s current cost is about $1400/kg and Elon has speculated that Starship’s cost/kg could eventually be as low as $10, and will likely be under $100/kg. That’s right, in an ideal world, one ten-dollar bill would be all it would take to place a kg of mass in low-earth orbit (LEO). If Starship works out, the ability to place objects in space at such a low cost will open up thousands of new use cases for space which will in turn allow tens and hundreds of thousands of businesses, governments, universities, and consumers to create new and innovative space ideas/companies. That said, SpaceX is known for its willingness to fail with early launch attempts and while we are super excited about a potentially successful Starship launch, don’t freak out if doesn’t go as planned on take 1. In fact, Elon stated last week that if Starship doesn’t blow up the launch pad, he’d call it a win.
  • RKLB Rocket Lab (8) – We recently wrote about RKLB and its place as its position as the only real alternative to SpaceX for launch services. Here’s an article from McKinsey talking about the expected demand for new constellations and the overwhelming lack of supply for launch services. However, launch is extremely hard and RKLB needs to continue to increase its launch cadence and get the larger Neutron rocket online as quickly as possible if the company is going to make it. The VORB bankruptcy puts in perspective just how hard this business can be. However, RKLB is doing a good job of executing on its plan to become the premier launch provider for frequent and reliable small launches and continues to gain traction with its customers accordingly. We also think RKLB’s services and components business is poised to grow in the near term as the demand for small sats keeps climbing and should provide a good source of cash to allow them to increase the launch cadence and develop Neutron.
  • BKSY Blacksky, PL Planet Labs, and RDW Redwire (7) – We started buying a basket of beat-up space names last week back when many were still near their all-time lows. Amazingly, these stocks are up significantly since then (PL up about 32% from its lows earlier this month). As you all are well aware, we are very bullish on the long-term prospects of the space economy and these are some of the better publically traded space stocks. A couple of weeks back it felt like you would get laughed at for pitching space stocks, and that is usually the perfect time to buy. These are still small positions for us and we don’t necessarily want to chase them into this rally. In case you don’t know, here’s ChatGPT’s synopses of each company:
    • BKSY (BlackSky Holdings, Inc.): BlackSky is a satellite imagery and data analytics company that operates a constellation of high-resolution imaging satellites. The company provides its services to a range of customers, including government agencies, commercial enterprises, and NGOs.
    • PL (Planet Labs Inc.): Planet Labs is an Earth-imaging company that operates a constellation of small satellites called Doves. The company provides high-resolution satellite imagery and data to a range of customers, including government agencies, commercial enterprises, and NGOs. Planet Labs has a focus on environmental monitoring and sustainability, and its technology is used for a range of applications, including agriculture, forestry, and disaster response.
    • RDW (Redwire Corporation): Redwire is a space technology company that provides mission-critical systems and components for spacecraft and satellites. The company’s products include power systems, antennas, sensors, and other components used in space exploration and commercial applications.
• (Gold and Crypto Revolution)–
  • Gold/GLD Gold ETF (8) – Gold has had a huge move this year thanks in part to the stronger-than-expected inflation numbers that keep coming out. Just recently we wrote about how we have to be disciplined to ignore the “noise” constantly spewing from the TV, Twitter, etc, and the mainstream inflation analysis seems way off to us. Last week we got CPI data that suggested the adjusted, adjusted rate was around 5%, and the media universally called it a great number. But when we looked at the numbers behind the main print, we were not encouraged. Food was up 8.5%, energy services up 9.2%, transportation services up 13.9%, and shelter was up 8.2%. The Fed has said over and over again that they want to see services inflation come down to 2% and that is not happening fast enough. While we aren’t necessarily thinking that the rate of inflation starts rising again, we don’t see it going back to 2% either. We think GLD continues to be a great inflation hedge and offers relative stability compared to BTC.
  • BTC Bitcoin (7)– Like with gold, BTC has had a huge run and is up about 82% this year. At $30,000, we don’t want to chase this rally but we are not selling our BTC either. Like with gold, BTC is a great inflation hedge and it has clearly solidified its place as the most legitimate cryptocurrency. That said, there are many silly, fake, and fraudulent cryptos that have rallied on the back of BTC’s move this year. Fear of missing out (FOMO) is a real phenomenon, especially amongst the retail community, and it is FOMO that is driving some of the action we are seeing in BTC and other cryptos lately. As we expect economic conditions to remain soft and interest rates to remain high, there is likely a lot of soft money holders that will sell their BTC and other cryptos to pay bills, mortgages, car payments, etc. Thus, we think there is likely more pain in store for the broader crypto universe as the trash gets washed out, and that means BTC will likely get dragged down to some extent as well. We are buyers around $20,000. Also, here’s ChatGPT’s thoughts on how GLD and BTC can serve as inflation hedges:
    • Bitcoin and GLD (SPDR Gold Trust) are often considered as potential inflation hedges because they have historically shown some correlation with inflation expectations.Bitcoin, a decentralized digital currency, is designed to have a limited supply, with a maximum of 21 million bitcoins that can ever be created. This scarcity feature has led some investors to view Bitcoin as a potential hedge against inflation, as it cannot be debased or inflated like fiat currencies. Moreover, Bitcoin’s decentralized and borderless nature has made it an attractive investment for those seeking to hedge against currency depreciation and geopolitical risks.Similarly, gold has been traditionally viewed as a hedge against inflation and economic uncertainty. Gold has a long history of maintaining its value during times of inflation, as it is a tangible asset that can serve as a store of value. GLD is an exchange-traded fund that holds physical gold as its underlying asset and allows investors to gain exposure to the price movements of gold without having to own and store physical gold themselves.In summary, Bitcoin and GLD may act as good inflation hedges if inflation remains above the Fed’s target, as they have demonstrated a historical correlation with inflation expectations and have been viewed as alternative stores of value to traditional currencies. However, it is important to note that both assets can be highly volatile, and their performance may not always align with inflation trends. Additionally, there are other factors that can affect their prices, such as market sentiment, global events, and regulatory changes. As with any investment, it is important to conduct thorough research and seek professional advice before making any investment decisions.That’s it for today. Part II tomorrow!