The marriage of auto insurance & Tesla. Fiction or non? It must be hell on the sell side when you have a sell recommendation on a stock that takes off like a SpaceX rocket. Or on a company raising capital. POMO (Pressure Of Missing Out)? So it seems. Yet another $TSLA thread...1/

Can't help it. Hard to miss the price target raise on $TSLA this week (1/5) at Morgan Stanley from $540 to $810. The stock was $729.77 at the 1/4 close. The analyst had an underweight (sell) recommendation on Tesla as recently as June 12 and a target of $130. Oh so long ago.. /2

The stock was upgraded to equal-weight (hold), price target $272 on 8/13, two weeks before a $5B at-the-money equity raise (no coincidence). Another upgrade, this time to outperform (buy) target $540 on 11/18, three weeks before another $5B equity raise (no coincidence). /3

Finally, this price target bump to $810, prior to another uncoincidental equity raise? We’ll see. My purpose here, shamefully diverting from drafting my year-end letter, is neither to discuss stock ratings nor to congratulate $TSLA and its legion of Telsanaires on passing $FB. /4

Tesla joins the trillion-dollar club* fully diluted, of course, and secures the number 5 spot in the venerable S&P 500 index. AMAAT. Congratulations, by the way. No, my purpose is to provide another shred of perspective, some will say kicking the proverbial dog until its dead. /5

The perspective that another week like the one just ended (up 24.7%!) will see $TSLA pass $GOOG and its $1.2 trillion market cap or another month like the one just passed and bound ahead of $AMZN at $1.6 trillion or $MSFT at $1.7 trillion? Nope. /6

It’s the perspective that price so far ahead of the business matters not a whit, save the ability to raise money on EXTREMELY FAVORABLE terms at the expense of price-insensitive passive investors & envious fools (or those w/ no grasp of valuation) on EQUALLY UNFAVORABLE terms. /7

Here’s the perspective: To justify a $810 stock price, the analyst can’t get there by considering $TSLA a car company alone. The car company, assumes the MS analyst, will produce 5.2m units in 2030, up from his previous forecast of 3.8m. /8

A declining market share in EV from 25% to under 20% is forecast, a reasonable nod that Tesla faces stiff competition in a rapidly growing EV market (itself in a slow-growing, mature auto industry). /9

To justify $810 (already $70 below Friday’s close!), MS comes up with a value on the car business of $332/share, up from $254, a valuation at “13x exit EBITDA multiple and an EBITDA margin of 18.4%.” That’s seriously high for an auto manufacturer, but its Tesla, so why not. /10

Here’s where Mars & the remainder of Tesla's destiny comes in. CFA's just can't make stuff up when wearing that hat, evidently. So, MS adds $69 per share for mobility, $96 for 3rd party powertrain supply, $44 for Energy, $233 for Network Services, whatever all of that means. /11

The one number that gave me pause, pulling me from my letter to pen this missive, is $37/share for insurance. Again, $37 a share. For insurance. On a $810 valuation it sounds like a plug, a throwaway, so here’s where perspective lends to the insanity of the present valuation. /12

$37 per share implies a value, today, of more than $40 BILLION for Tesla’s INSURANCE OPERATION. By comparison, Progressive is the 3rd largest auto insurer in the US with 12.5% market share, slightly behind Berkshire Hathaway’s GEICO and its 13.8% share. /13

Both, with direct-to-consumer sales, have been disrupting State Farm & its severely diminished 16.1% share of the $260 billion market. State Farm is a mutual & with GEICO held within $BRKA we can compare publicly traded Progressive more readily to Tesla’s insurance operation. /14

Auto insurance is regulated by each state’s insurance commission, and insurers can write $3 of premium for each $1 of statutory surplus (essentially book value or equity) held. On $13.7B of surplus at year-end 2019, $PGR will have written ~$40B in premiums during 2020. /15

Assets held by Progressive total ~$63B and are mostly investment assets in stocks, bonds and cash plus various insurance receivables and fixed assets. Mr. Market values Progressive at $55B, roughly 3 times book value and ~137% of premiums written. /16

By comparison, Tesla, all of it (not just the insurance operations) commands $46B of assets, ~3/4ths of $PGR's. Book value at Tesla was $17.5B at 9/30 up from $8.1B at y/e 2019 thanks to sales of equity to those willing to pay incredible prices, ~50x book for little profit. /17

Against Tesla’s book value, it could write roughly $50 billion in premiums, slightly more than Progressive or GEICO. Remember, the MS analyst suggested on the 4th that more than $40 billion of Tesla’s value was derived by a value for its insurance operations. /18

If $37 out of $810 per Tesla share is insurance, then at the current fully diluted market value we can value Tesla Insurance at approximately $45B. Remember, it was up last week. By alot. Again, Progressive is valued today at $55B and was $45B as recently as this past autumn. /19

Now, State Farm has been at the insurance game since 1922, coming up on its 100th birthday next year! The newbies, the two disruptors on State Farm’s heels, crashed the party much later, in 1936 for GEICO and 1937 for Progressive. /20

It’s remarkable that in less than 90 years both will grind past industry leader State Farm in share. By the MS estimate of market value, Tesla Insurance looks to be about as large as Progressive already. The problem is, THEY DON’T HAVE AN INSURANCE BUSINESS! IT DOESN’T EXIST! /21

Justifying valuation assumes $TSLA's insurance value is almost as great as $PGR's. Further, to play in auto insurance & operate at the scale of a Progressive or GEICO or State Farm would utilize EVERY DOLLAR OF ASSETS & EQUITY ON HAND AT TESLA TODAY. This is genuine insanity. /22

Tesla is a bigger bubble than any single company in 2000, 1972 or 1929. It’s the biggest bubble I’ve seen. Tulipomania? No. South Seas? No. Beanie Babies? No. My Twitter feed is blessed with entertaining comments from the Tesla bulls these days. Many have made a lot of money. /23

I hope those that have grown rich with Tesla shares have a plan to harvest gains before the stock price reflects a realistic value, even with fast-growing operations. Ballooning numbers lean dangerously on more and more margin to increase concentrated positions in the stock. /24

Larger than Facebook? Whatever. But to justify a price target you tell me that 4.6% of Tesla’s value is derived by an insurance operation as large as Progressive, one that doesn’t exist, has zero capital and has written nary a single dollar of insurance premium? /25

Most of the money that came into the late 1990's NASDAQ bubble stocks as the index rose from 1,000 to 5,000 came in at the end. That’s the money that was eviscerated. I see many Tesla insiders and directors recently exercising their options and SELLING their shares. Smart. /26

There were lots of insiders in Silicon Valley during the tech bubble that kept their shares upon exercising their stock options. When the stocks collapsed, the poor souls still owed taxes for the “gains” on exercise. As the Surfaris played, Wipeout. /27

The stock market is a funny place. You can buy real insurance companies with real assets, real equity, real profits, real operations, real investment portfolios and growing premiums for low to mid-teens multiples to earnings. /28

Or you can pay $1 TRILLION for a car maker w/ $30B in sales, a mere double from eclipsing the largest company in the world (by market cap). @elonmusk, two years removed from an Aubrey McClendonesque margin call, is now the richest dude in the world. On paper. Enjoy the ride. /29

The coming car crash will be spectacular. Who knows how high Icarus soared before his wings melted away? But what do I know? It’s required 22 years to see my stocks grow 10x. Tesla has done that in a year and a week. Better go back to letter writing…30/30