The founder of hedge fund Social Capital and one of Facebook’s first executives, Chamath Palihapitiya, gushed to CNBC this week about how Tesla is the “clear winner in electrification.” Palihapitiya cited Tesla’s first-mover advantage, as the company that truly defined the modern electric vehicle and is the current sales leader in the market segment. Palihapitiya also called Tesla CEO Elon Musk the Thomas Edison of our generation.
In the interview, Palihapitiya minced no words about his belief in Tesla and, perhaps more than that, in its ambitious, visionary, and sometimes controversial CEO. “It is done. That die has been cast. Now the question is can he build the infrastructure. If given time and given patience, I believe that he will,” Palihapitiya said.
Palihapitiya is himself in the middle of a significant transition as he steps away from his focus on generating consistent, best-in-class returns for customers by maintaining a portfolio of diversified risk and returns. His new interest is to find the really big fish and cultivate that handful of investments with a much higher level of investment and attention as a means of generating disproportionate returns for the extra effort. Tesla, it seems, made the cut and remains high on his list.
Typical investors focus more on the ups and downs of the news cycle, even more than they do on the fundamentals of a company. With Tesla, he said, that cycle translates into an erratic investment atmosphere that has led to a stock price that has become one of the most volatile on the exchange. Palihapitiya noted how a single tweet from Musk, about Tesla or otherwise, can send the stock soaring or tumbling, and can result in multiple tangles with the SEC.
Paparazzi aside, Palihapitiya sees Tesla as the iPod of electric vehicles, comparing Audi’s brand new, fresh-off-the-presses, ink-still-not-dry-on-the-car e-tron to Microsoft’s Zune media player. Zune, you might ask? Yeah, it was a very short lived, DRM-crippled portable media player. On the surface, it looked a lot like Apple’s iPod, but without the simplistic Jobsian design and experience-centric user interface that fueled the success of the iPod.
“My point is, who cares? Your job as a smart investor is to separate the facts and the news from the fiction and the noise,” Palihapitiya said. This is ultimately the crux of the debate. Chamath sees Musk’s bold vision and strong execution as consistently delivering over the 15 years Tesla has existed. Of course, the objectives do not always come to pass when he says they will, but ultimately, they come to fruition. A quick look at Tesla’s Masterplan and Masterplan Part Deux reveals that the company has absolutely delivered on its admittedly ambitious goals.
These goals are supported by strong demand that continues to far outstrip Tesla’s ability to build and ship vehicles to customers around the world. “Tens of thousands of consumers are buying that car faster than they can get their hands on it. It doesn’t change that as soon as you sit inside that car, your definition of what is expected is altered forever,” he said.
That, my friends, is the crux of the issue. Tesla has redefined what a modern vehicle is. It has built up a market for electric vehicles and, to date, is still the only serious high-volume player in the space.
Chamath has a long history of being very bullish on Tesla, and has the (Wall) Street cred to back his bold statements. As the CEO and founder of Social Capital, he delivered 31% returns for his investors while noting that Tesla was a very “dangerous stock to be short” last year. On the other hand, he bashed notorious Tesla short shorts spokesperson Jim Chanos, saying to CNBC that, “Jim Chanos makes money once a decade. While the market rips up, the guy just bleeds money.”
He’s not optimistic about incumbents in the automotive industry either and has no problem just laying his perspective out for all to see. On the BMW 3 Series, Palihapitiya didn’t pull any punches and referenced Tesla’s ability and demonstrated performance in the segments it plays in. Tesla gobbled up market share of the large luxury sedan segment with the Model S, then again with the large luxury SUV segment with the Model X.
That history had him feeling bullish about Tesla’s prospects for the Model 3, especially with its ability to generate demand, as evidenced by the 400,000+ reservations for the car from people who had likely never seen one in person. For BMW, the outlook is bleak. As Palihapitiya said, “That entire business is going to go to zero.” The key metric for him is BMW 3 Series sales (and other similar vehicles in the segment). Falling sales of BMW, Mercedes, Audi, and the like are clear signs that customers are moving on … to Tesla.