Who’s Tesla’s “Operation Bluestar” Silent Partner?

by Travis Johnson, Stock Gumshoe | May 8, 2014 3:05 pm

Sniffing out a solution to Michael Robinson's tease for Nova-X Report

Michael Robinson[1] is out with a pitch for a company that he thinks will profit as “Tesla’s silent partner” in “Operation Bluestar” — and, naturally, Gumshoe readers are just dying to know who it is.

Without, of course, ponying up for a subscription to his Nova-X[2] Report newsletter — though that is, apparently, Robinson’s “entry level” newsletter now, it’s currently $99 (and he says that’s a “92% discount” to what the subscription and the special reports are worth). The first newsletter he launched when he came over to Money Map Press[3] a couple years ago was Radical Technology Profits[4], which they persist in trying to sell for $3,199.

The ads for his Radical Technology Profits letter have been flacking the idea of MEMS chips for ages now, focusing on the idea that MEMS will enable “one device to end all disease”[5] but really just teasing the largest MEMS chipmaker (that report of his now seems to be freely available on their website[6], by the way) — and this pitch seems a bit similar to that, lots of big picture pie-in-the-sky possible technological breakthrough, the huge potential for electric vehicles from Tesla’s planned battery[7] plant, but actually recommending a much less sexy company.

Which may work out well, who knows — but let’s sift through the very light clues and see if we can actually name that company for you, shall we?

The basic pitch is that Tesla’s “Operation Bluestar,” being spearheaded by wunderkind techno wizard J.B. Straubel (he’s the chief technology officer at Tesla, who also apparently invented some new propulstion system as a 14-year-old that made it into aeronautics and had his first company bought out by Boeing before he became the name behind the battery and propulsion patents at Tesla), is going to change the world as it brings electric cars to the masses.

That is a real project name, by the way — but Tesla doesn’t use it anymore. “Operation Bluestar” was the name they gave to their goal to build a mass-market electric car, an aim they’re still pointed toward (though now they just call it their “Third Generation” vehicle or their $30,000 vehicle — it used to be a “$20-30,000 goal five years ago, now it’s a $30-40,000 goal”). Tesla can obviously not ever become a profitable company worthy of even its current valuation (let alone the huge potential growth investors are expecting) by just producing 30-40,000 cars a year for the wealthy at $100,000 a pop… they have to get costs down and get capacity way up to make it possible for them to sell a car that middle class Americans could buy.

It’s going to take a while. Their plan is to have these cars in 2017, and that’s the number Robinson uses when saying they could be building 500,000 cars a year in three years, but that’s probably extremely optimistic — the basic idea is that they’ll build this massive “Gigafactory” to dramatically increase lithium[8]-ion battery production somewhere in the Southwestern US, and when that factory is hitting its stride in a few years the plans and designs for the new, smaller and probably more distinctive, “Operation Bluestar” car will be ready for initial production. So yes, the plans for their massive new battery manufacturing complex are a key part of their plans to roll out a mass-market car.

(Of course, other carmakers aren’t sitting still — BMW’s i3 is the car that’s most often compared to what Tesla might eventually build for the high end of the mass market (the people who now buy the cheapest Mercedes and Audis), and it’s already for sale in the $40,000 neighborhood, as are less-sexy and less expensive EVs from Chevy, Ford, Mitsubishi and others).

But anyway, a massive cut in the costs of lithium ion batteries would be a big boon for Tesla and give it a chance to get real scale in their car production, and may also help advance EVs from other carmakers (Tesla makes batteries and powertrains for some other manufacturers too, though in small numbers at the moment, and Toyota is thought to be interested in the “gigafactory” too (Toyota is a Tesla customer and was an early strategic investor in the company). As of their last earnings release (last night), Tesla is now saying that they’ll break ground on two different locations for this huge battery factory in the near future — I don’t know if that’s really because they want to build two massive factories instead of one, or if they’re still just playing the possible host communities off one another like a NFL owner trying to get a new stadium built.

And Robinson has claimed that the key “secret partner” who will be working on the new battery factory (or factories) with Tesla is not really well known, but that he’s been following the “paper trail” and gabbing with his high tech contacts, and he knows who the key partner will be.

So that’s the tease, that Tesla’s partner on these gigafactories will see huge gains. Who is it?

In Robinson’s words:

“I’m going to reveal the “silent partner” I believe, Straubel is turning to in order to carry out BlueStar…

“And I anticipate, in the coming weeks, when the identity of this “silent partner” is made public – it’s going to ignite an unstoppable profit inferno…

“Where an overlooked tech outfit that has strategically set up offices in eight states – could see its share price begin to surge 2,000%, nearly overnight….

“For 5% of the cost of a single share of Tesla… You Could Make 2,000% Gains off its “Silent Partner!”

“Its identity is expected to be revealed in the coming weeks.”

They’re pretty good at wordsmithing these pitches, eh? Our greedy little investor brains say, “hey, he thinks this stock is going to quickly go up 2,000%!”, but what he actually said was it “could see its share price begin to surge 2,000%, nearly overnight” (my emphasis). Which really means, “I think it will go up, and it might eventually go up a lot.”

And no, I probably can’t give you a 100% solid answer on this one — there aren’t enough clues — but I can feed the clues we do get into the Thinkolator and give it our best shot.

You saw one hint in that bit above, which is that the stock of this “secret” potential “silent partner” is trading for about $10 a share (5% of the cost of a Tesla share, TSLA is in the $200 neighborhood even after their post-earnings beatdown today).

Here are the rest of the clues:

Robinson runs through a long bit of chatter about this “Operation Bluestar” and the “Gigafactory” Tesla is planning, including requirements that it be in a solar[9]-friendly state with a lot of land and some nice tax treatment and a rail line to California to reach Tesla’s assembly plant, but that’s really just storytelling to keep getting you excited — it has nothing to do with who this partner will be.

And yes, the other major requirement is money. It will cost at least $5 billion to build the “gigafactory” and Tesla, as an unprofitable company in a tight-margin and capital-intensive business, doesn’t have $5 billion. They’ll raise some of it, no doubt — but if they sell a few billion dollars worth of stock right now the shares will probably crater, so they want to spread the cost to partners. Here’s more from Robinson:

“Operation BlueStar Requires a ‘Silent Partner.’

“Thanks to J.B. Straubel, Tesla is proud to say that their battery packs, electric motors, on-board chargers, and universal connectors are all homegrown.

“However, it still requires the work of an army of suppliers, just to roll one vehicle off the assembly line.

“Tesla keeps their full list of suppliers classified, but 26 are known to the public.

“From high-performance brakes from Italian leader Brembo…
“To Michigan’s Fisher Dynamics for power recliners…
“To Japan[10]’s Panasonic for their lithium-ion cells…
“And Japan’s Harada for antenna systems….

“So After Publicly Declaring They Were Looking for a Partner to Help Them Build, Fund, and Run Operation BlueStar’s Gigafactory…

“Speculation Immediately Began to Run Rampant About Who Will Be the Handpicked ‘Silent Partner.'”

Possibilities? He throws out a few names that have been mentioned:

“Japan’s Panasonic was the early leader, since they do supply Tesla with their lithium-ion cells.

“But they aren’t guaranteed this business in the future. Japan’s Sony is also in the conversation.

“In South Korea[11], LG Chem[12] and Samsung SDI have been mentioned.

“In China[13], the companies being touted include Lishen, and Amperex Technology Limited.

“But many believe the frontrunner from this Asian superpower is BYD.

“That’s because China controls 5.4 million tons of lithium – and BYD has developed China’s top electric vehicle battery technology.

“Plus, years back Warren Buffett[14] invested $230 million into the company. So that’s a softball choice for the press.”

Who, then, is the leader that he thinks will be most likely to come in as this “silent partner?”

“Everything I’m hearing, and all of the evidence I’ve gathered, points to one company that, for many, is going to come out of nowhere.

“But if you follow the money… it leads you right to Operation BlueStar….”

First he says that graphite[15] technology will be a key:

“You need three elements in lithium-ion batteries: lithium, graphite, and cobalt[16].

“So if a potential ‘silent partner’ in Operation BlueStar happened to have a competitive advantage in graphite technologies – that would give it a nearly insurmountable head start…

… fortune smiles upon an exciting tech player, with a long list of graphite technologies….

“One, in particular, involves a thin graphite-polymer film sheet that is four times as conductive as copper[17] and can withstand temperatures up to 400 degrees Celsius.

“That will surely come in handy inside high-voltage cars like the type Tesla produces.”

Well, that actually points us to one of Tesla’s existing partners — I’ll keep you in suspense for a moment. More clues?

“This same unheralded tech company has just allocated $150 million to upgrading its facilities, so that it can accommodate a rapid demand increase for a device that connects to Tesla’s patented battery pack innovation….

“They aren’t the only company that provides this technology, but everybody now believes they are the top dog.”

And the company is already of substantial size, and has a US presence:

“This prospective ‘silent partner’ already operates in America, employing thousands.

“It has strategically placed facilities in eight states on the East Coast, in the Mid-West, and the South.”

He also implies that it’s important that this company is located in the US, with widely distributed business that will somehow help with the rapid expansion of Tesla’s supercharger network (they’re not waiting for governments and third parties to build EV chargers, they’re building a network of chargers to help combat the “range anxiety” that deters some customers from going electric). That seems to just be more storytelling, frankly, this “secret” partner certainly isn’t a US lithium producer or an operator of truck stops that host EV chargers (though Tesla is talking with graphite, nickel[18], cobalt and lithium companies, and will need a fair amount of development in those areas in the near future to get all of their materials from North America, as they say is the plan — with the possible exception of some of the nickel producers in Canada[19], none of these companies have enough money to be partnering with Tesla to build a “gigafactory”, they’d all be the kind of partner who pre-sells production to Tesla, not the kind that kicks in capital for a new plant).

More clues?

“This “silent partner” has already petitioned and received very specific exemptions from the U.S. Departments of Transportation and International Civil Aviation.

“These exemptions allow it to handle lithium-ion batteries, which are viewed as a hazardous material by our government….

“Those exemptions were granted on January 1st of this year.

“Right when the whispers of this deal began to circulate.

“So it appears this prospective “silent partner” was given a helping hand from Uncle Sam as well.”

And then we get a few clues as to the valuation of this stock — which sounds like it’s awfully cheap:

“… this company is currently sitting on a forward price-to-earnings (PE) ratio of about 7.6….

“Wall Street’s bargain-hunter ratio is nicknamed PEG. It takes your price-to-earnings ratio and adds another layer… its earnings growth rate.

“If a stock’s PEG ratio is 1.00 – that means the market says it’s fairly valued.

“If it’s below 1.00 – it’s cheap.

“This company is sitting at .37.”

Of course, PEG ratios are not universally beloved or accepted — but it’s true that they’re a good barometer of whether a stock is expensive or not based on its current valuation and growth rate (though both forward PE and growth rate are analyst estimates, and five-year growth rates are really more like guesses).

But that does indeed mean that this company is pretty cheap. So who is it?

Two more clues:

“Since January of 2013… Since the Beginning of Last Year… All the Way Up Until Right Now – Today…

“Not One Corporate Insider Has Sold a Single Share of Their Stock.”

And …

“They’re stockpiling equity.

“The company itself has covertly repurchased an estimated 543,651 shares of stock… all without capturing any attention… except mine.

“They’re preparing for something big.

“Something that could transform them from a forgotten player on Wall Street…

“Into one of the biggest companies in the world.”

And then, of course, we get that last bit of promised riches:

“you can decide whether you want to try for fast gains (150% in months), or the historic windfall (2,000%+) that’s waiting as this story develops.”

So who is it?

Well, as I said I can’t give you 100% certainty on this one — but the Thinkolator has been chugging away, and it looks like the stock he’s teasing is, well, the obvious answer: Panasonic (6752 in Japan, PCRFY for the sponsored 1:1 ADR on the US pink sheets… the pricing in Japan and the US is very close right now, so the ADR doesn’t trade at a bit discount or premium to the “real” price in Japan).

Panasonic used to be the biggest brand name owned by Japanese conglomerate Matsushita Electric, but they changed the name of the company to Panasonic back in 2008… and then, just a year ago, they decided to delist from the NYSE to save some money (that’s why the ADR is on the pink sheets now, no longer actually listed — but volume is still decent, at least for individual investors).

Why is Panasonic the match? Well, beyond the obvious fact that they’re Tesla’s battery supplier and are widely expected to partner with them on the new battery plant, and have already signed a letter of intent to that effect, they also match all these “silent partner” clues:

They’re priced right around $10. And, yes, a 2,000% gain would put them among the largest companies in the world with a market cap of about $500 billion (they’re around $24 billion right now).

And the estimates on both Bloomberg[20] and Yahoo[21] Finance put their forward PE in the neighborhood of 6 or 7 for the US ADR (though the actual Japanese listing comes in on Bloomberg with a forward PE of 16 — there is often substantial confusion in publishing earnings estimates across currencies on these financial portals). And yes, the Yahoo forward estimate does also give them a PEG ratio of 0.37, though it’s based on just one analyst’s estimate.

So it’s a reasonable match for the clue, but that doesn’t necessarily meant that’s the “real” valuation of Panasonic shares right now — those Yahoo and Bloomberg numbers aren’t necessarily particularly on-target, particularly for foreign listings. Panasonic’s own guidance for fiscal 2015, which started on April 1 for them, is for JPY140 billion in net income — that would translate into a current fiscal year PE of about 17. (Actual performance was JPY120 billion in profit for the fiscal year that just ended, so the trailing PE would be about 20 and earnings growth is expected to be about 15-20% next year.) The data collected at adr.com[22] pulls in more analysts, they have a forecast of about 50 cents in earnings this year and 80 cents next year, so you could call that a forward PE of 12 or so (they also have one analyst estimating $1.30 for 2017, which would be a PE of about 7.5… but that’s going out pretty far). So you can see that it’s a bit of a hodgepodge when it comes to actually figuring PEs for this stock — but it’s not particularly expensive and earnings are growing out of a trough (unfortunately, earnings growth has come not only from jettisoning unprofitable operations but also from the weak Japanese Yen, which benefits exporters … so there could be big swings in expectations as currencies shift).

They did also resume paying dividends[23] this past year, after taking a year off from dividends during the very weak fiscal 2013 (mostly calendar 2012), but it’s a pretty small dividend — 13 yen per share, that’s pretty close to 13 cents so it would mean a trailing yield of just over 1%. The expectation is that the dividend should rise as earnings rise.

And yes, Panasonic does sell those specific graphite sheets Robinson mentioned in his tease — you can see their offering here[24] if you’re curious.

And they have gotten the rules adjusted as of January 1 of this year for transport of li-ion batteries — exempting the smaller ones, like the ones that Panasonic makes, from some rules against transport by air. Panasonic shares the details here[25], though I don’t know if they were actively involved in getting these rules adjusted or not… as one of the major global battery manufacturers, I presume they were involved.

They’ve also, as teased, recently (last Fall) invested another $150 billion in expanding capacity for lithium ion battery manufacture in their Japanese plants, as covered in this article[26].

I have not checked buybacks or insider trading, because doing so is a pain in the neck for Japanese listed stocks (and there isn’t much of a tradition of owning company stock among Japanese managers and executives, frankly). 500,000 shares bought back would be fairly meaningless, given that they have 2.5 billion shares outstanding — that’s a buyback of 2/100ths of a percent of the outstanding shares. But with that confluence of matching points, Panasonic is the Thinkolator’s best guess for today’s tease solution (no, we don’t usually guess — I prefer and can usually deliver certainty, but you work with what you’ve got).

And it is, actually, an interesting company that is indeed reorganizing and refocusing — in large part, to put more emphasis on their big business-to-business divisions (like automotive and energy storage) and less on their well-known consumer electronics brand, where competition is extraordinarily tight and where overcapacity is a problem in areas like LCD televisions. They’ve been putting a lot of effort into automotive systems lately, including battery supply to Tesla but also batteries and power systems for other electric cars and in-cabin electronics.

If you’d like to read into Panasonic’s transformation a bit more, their short presentation about the reorganization is here[27], and their Fiscal 2014 press release for last month’s earnings announcement is here[28], past results and releases are on their IR site here[29]. There was a Reuters sum-up of their earnings release in this article[30] if you like a little more chatter with your numbers.

And yes, Panasonic is quite likely to be a substantial partner in the Tesla gigafactory. Whether that generates substantial earnings growth for them in the next five years is an open question, I’d say, and they haven’t actually agreed on terms, but they’re a key Tesla supplier and it’s quite likely that will continue. Several stories have come out today about the commentary on the gigafactory plans from the Tesla conference call, here’s a taste[31]. And there’s still plenty of time, so you can research at your leisure — If Panasonic is the match, the “profit inferno” Robinson hints at has yet to be ignited (Panasonic has doubled from it’s pre-restructuring woes of 18 months ago, and got some hedge fund attention last Summer, but is not likely to move in huge swings like Tesla’s stock does — though coincidentally, the two companies have almost exactly the same market capitalization… by point of comparison, TSLA trades for about 12X sales, Panasonic for about 0.3X sales).

And, of course, if you’ve got a better guesstimate for a secret “silent partner” that matches the clues from Mr. Robinson, well, feel free to send it along — we stand by the 99%+ accuracy rate of our teaser solutions, but we have gotten a half dozen or so wrong in seven years. Also, naturally, we’d be delighted to hear about other favorites of yours as secondary Tesla plays, or as battery companies even if they don’t match the clues — feel free to pile on with a comment below. Thanks!

Source URL: https://www.stockgumshoe.com/reviews/nova-x-report/whos-teslas-operation-bluestar-silent-partner/