David Einhorn (Trades, Portfolio) of Greenlight Capital has just published his letter of the first quarter.
Although Einhorn's performance has been really bad in recent years, I remain a loyal supporter and I love reading his letters to see what he thinks of the company's positions. Greenlight posted a return of 11% for the quarter, 2.6% lower than the S & P index. That's not great, but the company is 112% long and 70% short, which means that its net exposure is only half that of the S & P 500 index.
AerCap Holdings (NYSE: AER), Brighthouse Financial (NASDAQ: BHF), Deutsche Pfandbriefbank (PBB), General Motors (NYSE: GM) and Green Brick Partners (NASDAQ: GRBK) were the best performers in the portfolio. On the short side, Einhorn finally made a bundle on Tesla (NASDAQ: TSLA).
He discussed two companies in depth.
Brighthouse is essentially an insurer, but Einhorn says his GAAP accounting is very difficult to understand. The company hedges its exposure to equity markets and interest rate risks. With GAAP accounting, these are marked on the market each quarter. Unfortunately, the liabilities that they actually cancel are not. In the words of Einhorn:
"All things being equal, BHF is benefiting from rising stock markets and interest rates, as the economic gain from lower expected claims more than offsets the company's losses on its hedges. , the company's GAAP accounting indicates the opposite: losses in the market, there is no corresponding reduction in liabilities under GAAP.As a result, when markets increased in early 2018, the results of BHF according to GAAP showed losses and book value decreased. "
But in reality, the business has become more valuable. Einhorn believes that the fourth quarter results will clarify this problem. Brighthouse plans to buy back $ 1.5 billion of stock by the end of 2021, a third of its market capitalization in three years. In other words, a redemption yield greater than 10% over the next three years. Einhorn continues to appreciate the stock at current levels:
"We believe that they remain significantly undervalued, at around 4 times the adjusted earnings of 2019 and 30% of the year-end book value."
In his letter, Einhorn seems quite angry about Tesla. It reminds me of his work on Allied Capital. He began by telling the horrible story of Tesla's victims:
On February 24, a man driving in Davie, Florida, was tragically killed in his Model S after hitting a tree.The driver's front wheel was separated from the wreckage. caught fire, and neither the driver nor the first responders open the doors that were locked with the retracted door handles … "
Tesla claims that its cars are the safest because of their performance in crash tests, but according to Einhorn, their practical safety is much lower because of these events:
"The death rate of TSLA drivers is much higher than that of other luxury cars." We recall the public's concern when a handful of Samsung Galaxy phones burned spontaneously in 2016. For comparison Some people have suffered burns and none Nevertheless, this has resulted in the recall of millions of phones and a variety of new safety rules.When Uber had a single death in his self-driving program in 2018, he has suspended the program for nine months to resume it with enhanced security protocols.Gen (NYSE: GM), Ford (NYSE: F) and Toyota (NYSE: TM) have recently announced the creation of a consortium to establish safety rules for the development, testing and deployment of autonomous vehicles use its customers and other motorists, cyclists and pedestrians sharing the roads with distracted Tesla drivers or endor put in guinea pigs. "
Einhorn is not only concerned about the safety of Tesla vehicles. He does not think his operations work well either. In his letter, Einhorn pointed out that Model 3 sales in the United States fell by 66% in March on a sequential basis.
The guru sees a total annual worldwide demand of 200,000 models 3. He also estimates that the demand for Tesla's Tesla and X high-end models has fallen sharply. The company is trying to solve this problem by lowering prices, but that does not seem to work. Einhorn thinks the builder will go from a $ 2.5 billion gross profit on S & X to only $ 1 billion for 2019. In the future, the situation will hardly be any better. He wrote:
"TSLA continues to guide towards a quarterly demand of about 100,000 to 115,000 cars for the rest of the year.We do not see what could lead to such a demand.In fact, we think that without the increased initial demand, TSLA will struggle to even maintain unit volumes in the first quarter. "
If sales reach this low, it will not only destroy growth. Einhorn also believes that Tesla's commitment to purchase batteries from Panasonic could quickly escalate. Einhorn thinks that the company has to buy $ 3 billion worth of batteries from Panasonic (TSE: 6752) this year. Einhorn thinks the company is in a difficult situation
"We think that here, now, society seems to be on the verge of collapse, signs are everywhere: lack of demand, desperate price cuts, layoffs, closing and closing of shops, closing service. centers, capex cuts, announcements of rushed products and new effort to distract investors from the demand problem with hyperbole about TSLA's autonomous driving capabilities. "
Einhorn is eager to inform us of the follow-up given to this thesis during the next quarter.
The largest long positions disclosed are AerCap Holdings, Brighthouse Financial, CONSOL Coal Resources (CCR), General Motors and Green Brick Partners (GBRK). Einhorn also has a great position in gold.
Disclosure: the author is long GM, short TSLA.
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