My analyst's bull case for TSLA; Elon Musk's Friendship With Sergey Brin Ruptured by Alleged Affair; Musk denies the story; Summary of what I've written about the Musk-Twitter feud; I met a Dreamer; I'm climbing Mount Shasta tomorrow

1) In Thursday's e-mail, I covered Tesla's (TSLA) earnings and concluded:

As for Tesla's stock, I wouldn't touch it with a 10-foot pole right now.

This is mainly because I think Chancellor Kathaleen McCormick of the Delaware Court of Chancery is going to compel Musk to adhere to the contract he signed and buy Twitter (TWTR), which would mean he would likely be forced to sell large amounts of Tesla's stock later this year.

There could also be selling pressure on the stock from Oracle (ORCL) CEO Larry Ellison, who leaves Tesla's board on August 4. He might want to sell some or all of the 15.3 million shares he owns, equal to 1.5% of the shares outstanding, worth more than $11 billion.

This said, I also wouldn't short Tesla's stock here – production is ramping up rapidly and there appears to be no shortage of demand.

My analyst Kevin DeCamp disagrees and gave me permission to share what he sent me about why he remains bullish on the stock:

OK, let's say you're right and Musk and Ellison are forced to sell a large chunk of Tesla shares in the second half of this year. Of course, that would pressure the stock. 

However, I would say greater than 95% of the retail investors who own this stock are in it for the long run, so will their selling really matter if the company continues to execute on its long-term plans? 

What if Coatue Management is right and Tesla surpasses Apple's (AAPL) market cap, per this slide from its recent presentation? Remember, this slide is from one of the largest hedge funds in the world, not HyperChange's Galileo Russell! 

I think this is a >90% probability outcome at this point. If so, any drop in the stock this year will be like a blip in the long-term chart and actually be a buying opportunity.

In summary, here are reasons I remain bullish: 

• Earnings revisions continue to climb, as Coatue notes (2022 and 2023 EPS estimates are rising rapidly and 2023 is now above $17). 
• EVs are at a tipping point in the U.S., accounting for 5% of current sales, plus 14% to 25% of Americans say they will consider an EV as their next purchase.
  • There is not even close to enough supply to meet this demand, which is why Tesla is able to sell every car it produces, likely even in a recession (still major wait times as of now).
  • The biggest fear of consumers remains range and charging locations, where Tesla remains in a league of its own.
• Tesla is likely to finish this year producing at a run rate of 2 million vehicles per year.
• Bears continue to be wrong on full self-driving ("FSD"). I paid $7,000 for it two years ago hoping I wouldn't regret it. Now that I have FSD beta I know I would DEFINITELY pay the $12,000 that Tesla is charging for it now. Sure, laugh at videos of it messing up on YouTube (or call your Senator to have it banned), make a robotaxi joke, or call Elon a fraud. Have fun, but it's not going away, and it is a REAL PRODUCT – a very high-margin product that people love.
• Tesla will continue to have the highest operating margins of any auto company due to increasing scale, strong brand, manufacturing innovations, and high-margin software revenues continuing to climb. 
• What other company has $60 billion in TTM revenue, $10 billion in earnings, growing 50% annually into the biggest market of the decade with a ton of operating leverage?

In conclusion, if these big block sales happen, they will undoubtedly put pressure on the stock, but a deep recession or another Shanghai lockdown are a much bigger risk. However, if these more significant risks happen, I think they will present a buying opportunity for a company that is likely to eventually become the biggest in the world. 

2) Speaking of Musk, the Wall Street Journal published this salacious story yesterday: Elon Musk's Friendship With Sergey Brin Ruptured by Alleged Affair. Excerpt:

Elon Musk engaged in a brief affair last fall with the wife of Sergey Brin, prompting the Google co-founder to file for divorce earlier this year and ending the tech billionaires' long friendship, according to people familiar with the matter...

The liaison with Mr. Musk took place in early December 2021, at the Art Basel event in Miami, those people said. Art Basel is a multiday, annual festival that draws wealthy attendees from around the world.

At a party earlier this year, Mr. Musk dropped to one knee in front of Mr. Brin and apologized profusely for the transgression, begging for forgiveness, according to people with knowledge of the incident.

Mr. Brin acknowledged the apology, but still isn't speaking regularly to Mr. Musk, those people said.

The alleged liaison happened after Mr. Musk had broken up with his on-again, off-again girlfriend, the singer Grimes, in September. Mr. Musk and Grimes, whose real name is Claire Boucher, had a second child, a daughter, via surrogate in December 2021. Mr. Musk's twins with Shivon Zilis, the executive at Neuralink, also were born last fall.

A friend, tongue firmly in cheek, commented:

This is one heckuva way to distract from this morning's 10-Q filing and whatever Gremlins are in it. The distraction is worthy of an Oscar.

3) Musk, however, is denying the entire story, tweeting the following:

My take: Either Musk is lying (likely, given his lifelong strained relationship with the truth) or the Journal got snookered and this is one of the greatest journalistic failures EVER (unlikely but not impossible)...

Either way, I think it's likely that we'll soon know the truth...

4) Speaking of Musk and Twitter, I've compiled what I've written in the past couple of weeks here about his attempt to buy the company and why I think he will be forced to buy the company at (or near) $54.20.

5) I just left Eugene, Oregon this morning, where I went to the last three days of the World Track and Field Championships with my cousin Alex and his family. It was great fun! Here are some pictures of us:

One of the highlights was meeting a Dreamer on Friday. Allow me to explain...

On Thursday, we were watching a qualifying heat for the 5,000-meter race on TV and noticed a Guatemalan runner sprint far ahead of the pack. A few guys caught him at the end, but he qualified for yesterday's final.

The next day we were walking around the athlete's village, and I noticed him sitting alone at the cafeteria having lunch, so we went over and started talking to him. Not knowing if he spoke English, my cousin's wife, Deborah, started talking to him in Spanish, explaining that she was Nicaraguan.

He replied in perfect English that his family had come to the U.S. when he was one and that he'd grown up in California.

We had a great conversation with him, as Alex bonded with him over his running achievements (including finishing 12th in the 5k last year in the Tokyo Olympics and leading his college cross country team to three NCAA championships), while Deborah bonded with him over their shared stories (her family fled to the U.S. when she was four just before Nicaragua fell to the Sandinistas and she, too, grew up in California).

When we asked if he'd ever been back to Guatemala, he said no because "it's complicated," so I put two and two together and asked, "Are you a Dreamer?"

Sure enough, he is! (For more info on Dreamers, see: Who are the dreamers?, and for more info on him, see this New York Times article from a year ago: A Runner's Olympic Dream Was in Doubt Because of His DACA Status.)

When I texted the story of this chance encounter to my friend Don Graham, the former publisher of the Washington Post and co-founder of TheDream.US, a national scholarship fund for Dreamers, he replied...

This is such a wonderful story. Obviously he is extraordinary, but in so many ways he's a typical Dreamer: so motivated and pushing ahead against all obstacles.

Indeed! We were cheering loudly for him during the finals yesterday, in which he finished an impressive fifth. Here's a picture of us with him:

6) Today, I'm driving to Crater Lake and then Mount Shasta, which I'm going to climb tomorrow. Here's the e-mail about it that I sent to friends and family:

I'm doing it again! For the seventh year in a row, I'm doing a big climb to raise money for my favorite charity, KIPP charter schools, to help thousands of KIPPsters on their even bigger climb to and through college.

This coming Tuesday, July 26, I'm going to scale Mount Shasta in northern California, which, at 14,179 feet, is one of the tallest mountains in the continental U.S. It usually takes two days, but I'm going to start in the middle of the night and do all 11-plus miles and 7,651 feet of vertical in one very long day.

You've been so generous in supporting my past climbs for KIPP. Might you be willing to support me again? You can do so here.

Serving on KIPP NYC's board for more than two decades, I've seen firsthand the transformative education the schools provide, so I'd be grateful if you'd help the 7,150 KIPPsters in NYC make it from kindergarten all the way through college. It's a challenge that has become immeasurably harder thanks to the pandemic and its aftermath, so they need our help more than ever. Again, here's the donation page.

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.