Asymmetry is the essence of the short Tesla (NASDAQ:TSLA), long General Motors (NYSE:GM) pair trade thesis. Tesla’s valuation is extraordinary in relation to GM and the automotive industry as a whole. In fact, Tesla is valued materially higher than the top eight automotive companies combined.
On the growth front, global automotive unit sales are in a well-established stagnation trend. The lack of overall unit growth combined with rapidly expanding EV adoption ensures that industrywide EV competition will become increasingly intense. With capped industrywide unit growth potential, an incredible valuation, and intensifying competition, Tesla’s valuation comes under the spotlight.
Unlike Tesla, GM is trading at a deeply discounted valuation in relation to its underlying earnings power while its growth prospects are materially improving. In fact, GM is likely to grow EV production much more quickly than Tesla going forward while targeting a much larger addressable EV market.
On the innovation front, GM has taken the lead in autonomous transportation and is now rolling out commercial robotaxis as Tesla continues to grapple with its basic driver assist system. As a result, GM offers exceptional growth potential relative to Tesla and the industry generally. GM is beginning to fire on all cylinders.
When viewed against the backdrop of the top eight public automotive companies, Tesla’s valuation is an anomaly. The following table was compiled from Seeking Alpha’s Peers and consensus earnings pages for each company, and displays the market capitalization and P/E ratio for each. The Industry Leaders row (highlighted in blue) provides a summary of the top eight firms. For comparison, Tesla’s details are provided in the final row.
I have highlighted in yellow GM and Tesla for ease of comparison, and the industry leaders in blue for ease of contrast. The data speaks for itself, Tesla’s valuation is extraordinary compared to the industry leaders. In essence, the market is valuing Tesla as if its unusually high growth rate in recent years (resulting from its first mover advantage in EVs) will continue indefinitely. As a result, the question of Tesla’s sustainable growth potential becomes the fulcrum on which the Tesla-GM pair trade will be decided.
Tesla: Growth Potential
To answer the question of Tesla’s automotive growth potential, we must first understand the current competitive situation and the size of the opportunity that is available to Tesla. I summarize the Q1 2022 market share data for the top eleven companies as well as Tesla below (excluding the large Chinese automakers). The data was compiled from focus2move, InsideEVs Mercedes, InsideEVs BMW, Just Auto, and Tesla’s Q1 2022 10-Q filed with the SEC.
I have highlighted in blue Tesla and BMW (OTCPK:BMWYY) as I view BMW as the nearest and most pure direct competitor to Tesla. BMW and Tesla are each targeting the same higher end of the market with forays into the upper middle market. Additionally, they both have similar brand strategies which are centered on the corporate brand rather than model brands. In contrast to Tesla and BMW, GM builds brands around models, such as its Cadillac brand which will compete with Tesla directly in the higher end of the market.
As a result, as things stand, BMW’s total automotive market share serves as a natural estimate of Tesla’s potential given its current model lineup, pricing, and brand strategy. Of note, Tesla has already achieved half of BMW’s market share as of Q1 2022.
BMW has a long and successful history in the upper end of the automotive market. This suggests investors must consider the possibility that BMW’s 3.1% market share represents Tesla’s sustainable market share potential.
The following two tables summarize Tesla’s product and production roadmap. I have highlighted in blue the two new factories currently coming online. Tesla’s Model Y growth plan, with a base model asking price near $67,190, clearly places Tesla in direct competition with the higher end of the market. The following two tables were compiled from Tesla’s Q1 2022 10-Q, Statista, and the Motor Trend Group.
Tesla’s base Model Y price is 60% above the average 2021 US light vehicle price. Pricing alone will limit Tesla’s automotive market share potential. For example, GM offers a broad model and pricing lineup that appeals to a wide spectrum of the automotive consumer market. With a broad approach, GM has achieved 6.7% market share.
Tesla’s current product roadmap, featuring the Model Y, is highly unlikely to compete across the broader consumer market due to price alone. Furthermore, its future consumer product roadmap consists of the Cybertruck and Roadster. If they come to fruition, each of these models will be priced well above the Model Y, further limiting Tesla’s market share potential. The Roadster would be priced at over $200,000 and the Cybertruck has no identifiable natural use case in the market as a truck.
In summary, I have no doubt that Tesla can achieve BMW’s market share at just over 3% in the coming years. That said, there is an extraordinary amount of uncertainty as to whether Tesla can penetrate the broader automotive market and come close to GM’s market share at nearly 7%. While predicting Tesla’s future market share potential is highly speculative, we can roughly quantify what the market is expecting using consensus sales estimates.
Consensus Growth Estimates: Tesla Unit Sales Extrapolation
The table below was compiled from Seeking Alpha’s earnings estimate page and displays Tesla’s consensus sales growth estimates through 2030. I extrapolate an annual unit sales estimate from the sales growth numbers which, while not perfect, should be in the ballpark in terms of consensus unit sales expectations. In the column to the right, I display the competition that Tesla will surpass if it achieves consensus sales estimates through 2030, assuming the competition’s unit sales remain stagnant.
I have highlighted 2024 in blue as that would be the year that Tesla surpasses BMW, which I view as the nearest pure competitor to Tesla. By 2030, Tesla is expected to be roughly the second largest global automaker in terms of unit sales, behind Toyota (NYSE:TM). Tesla’s current valuation is certainly pricing in it becoming the top global automotive company and much more, being valued at over 3x Toyota. Becoming the top global automaker would certainly be a feat in itself for Tesla, although highly improbable given its product roadmap, branding, and pricing strategy.
Consensus Earnings Estimates
It is highly unlikely that Tesla can achieve an automotive market share on par with the broadly diversified manufacturers such as GM and Toyota. As a result, the market must be pricing in an enhanced and sustainable profitability advantage for Tesla at 3x Toyota’s valuation and 15x GM’s.
Understanding Tesla’s sustainable profitability advantage is therefore of some importance. The following table was compiled from Seeking Alpha and displays the consensus earnings estimates for both Tesla and GM. Please note that I have highlighted in blue the year that would follow Tesla reaching BMW’s market share.
GM’s earnings are forecasted to stagnate through 2025. Interestingly, GM is forecasted to grow its earnings more rapidly than Tesla in 2025. This is because Tesla is expected to reach an interim growth plateau after surpassing the BMW market share level. If Tesla achieves consensus targets through 2025, it will still be trading at a valuation multiple that is extraordinary in relation to GM in 2025, as well as in comparison to today’s mid-single digit P/E ratios across the industry.
Tesla: Sustainable Earnings Power?
What is fascinating about Tesla’s current elevated profit margins is that they appear to be driven entirely by its Chinese operations and Shanghai factory in addition to the sale of regulatory credits. The following table was compiled from Tesla’s 2021 and 2020 10-Ks filed with the SEC. Tesla breaks out its income before taxes across foreign and domestic operations.
Tesla produced operating losses prior to 2021, which are highlighted in yellow. The company has achieved only one year of profitability to date, leaving little evidence as to sustainable profitability through cycles. Importantly, 2020 and 2021 coincided with Tesla’s Shanghai factory coming online and ramping production alongside supply chain disruptions for the traditional automotive companies. You will notice in the Foreign row that 2020 and 2021 were the first profitable years for Tesla’s foreign operations.
Shedding some light on Tesla’s sustainable profitability, excluding the unusually profitable Chinese operation, please take note of the Domestic row above. Tesla continues to operate at a loss in the US. With its new factories coming online in Texas and Germany, there is historical evidence from the US market pointing to a peak being in place for Tesla’s profit margins. In fact, Elon Musk recently referred to Tesla’s new US and German factories as “gigantic money furnaces.” It should be noted that Tes
la is currently valued at 159x its 2021 operating profit before tax and excluding regulatory credit sales.
In addition to higher-cost manufacturing plants coming online, Tesla will progressively lose its ability to sell government regulatory credits as the automotive industry broadly ramps zero emissions vehicle production. Essentially, Tesla has been subsidized by governments, which will be coming to an end. This alone will remove roughly 24% or $1.5 billion per year of operating profit from Tesla’s income statement (the Automotive regulatory credits row). Regulatory credits represent pure profits transferred to Tesla via government mandate.
In summary, as a result of the higher-cost manufacturing plants coming online and the eventual loss of regulatory credit subsidies, Tesla’s profit margins indeed look to have reached a peak. Given the homogenous nature of the automobile industry, Tesla’s profit margins are highly likely to revert toward industrywide norms in the future.
Tesla’s reliance on China to date for its profitability entails taking a closer look at the global market, and China in particular. The following table summarizes global light vehicle sales across the top geographies as of Q1 2022. I have highlighted in blue China and Europe as Tesla has been exporting to Europe from its Shanghai factory. With its German plant coming online, there may be less demand for Shanghai exports to Europe in the future, which will require Tesla to take greater market share within China.
The following table places Tesla’s China sales into context at 26% of total revenue. China sales have grown an incredible 7x since 2019. The data was compiled from Tesla’s Q1 2022 10-Q, 2021 10-K, and 2020 10-K filed with the SEC.
While Tesla has experienced scorching growth in China in recent years, additional market share gains are likely to become much more difficult. The first reason for this is that industrywide China unit sales are in a well-established stagnation trend, as can be seen in the following monthly chart from Trading Economics.
China: Monthly Light Vehicle Sales
For reference, the chart below from the St. Louis Fed displays monthly US unit sales and illuminates what a mature market looks like over time. It is unclear whether China has reached its own peak or plateau of annual unit sales. At minimum, the duration of the current stagnation points toward a structural growth deceleration in the Chinese vehicle market.
US: Monthly Light Vehicle Sales
The second reason that China growth is likely to be more difficult going forward is the intense competition Tesla faces in China. Not only is Tesla competing with the leading Western brands in China, but it is competing with many larger Chinese-based automakers. The following table displays the world’s top automakers by 2021 sales. I highlighted in blue the Chinese firms and in yellow the US companies.
Tesla faces a formidable list of competition in the Chinese market and globally. It will have to climb the above ladder of competition to the very top in order to justify today’s valuation. Tesla faces a daunting task ahead. Additionally, the above list of the competition is a stark reminder of why automotive companies do not achieve a material or dominant market share: competition is fierce, markets are local, and car models vary widely to accommodate the broad spectrum of consumer automotive preferences.
China Valuation: BMW Comparable
With China being the largest global market by a wide margin and the source of Tesla’s enhanced profitability, it stands to reason that Tesla’s Chinese operations should be its most valuable. Interestingly, BMW acquired 25% of its China joint venture in Q1 2022 bringing its China joint venture ownership to 75%. This transaction provides an excellent market-based valuation comparable for Tesla’s China operations. This is especially the case given that BMW is arguably the most comparable single auto manufacturer to Tesla.
BMW sold 846,237 vehicles in China in 2021. According to Tesla’s Q1 2022 investor presentation, it has production capacity of greater than 450,000 vehicles in China today. Furthermore, according to recent press reports, Tesla plans to double its Shanghai capacity in the nearer term. This would place its China unit potential on par with BMW near 850,000. In essence, while not perfect, BMW and Tesla are excellent comparables in the Chinese market.
BMW paid 3.735 billion Euros for 25% of its China j
oint venture in Q1 2022, which suggests a total equity value of roughly 15 billion Euros for its China business. While this is not a perfect comparison given the lack of details regarding both BMW’s and Tesla’s China operations, it is likely in the ballpark of a private fair market value. This transaction places Tesla’s outsized $764 billion market capitalization further under the spotlight.
General Motors: Asymmetry
Asymmetry is the essence of the short Tesla, long General Motors pair trade thesis. As discussed above, GM trades at an incredible discount to Tesla at only 5x the consensus earnings estimate for 2022 compared to 61x for Tesla. The valuation asymmetry is incredible and lends itself to the favorable pair trade dynamics of buying multiple expansion potential, GM, and selling multiple contraction potential, Tesla.
As discussed above, consensus sales estimates are pricing in Tesla roughly becoming the second largest automaker by 2030. Given the realities of the industry and intense competition, while it is possible, the probability of Tesla achieving this level of market share is quite low. As a result, GM offers upside surprise potential on the growth front compared to Tesla, relative to the consensus growth estimates embedded in the valuation of each.
Seeking Alpha Quant Ratings
I view Seeking Alpha’s Quant Rating system to be especially well-suited for the automotive industry as it is quite homogenous compared to most. The homogeneity is on full display in comparing the valuation multiples of the leading automotive companies at the beginning of this report as they are all clustered in the mid-single-digit P/E range. As a result, the automotive industry naturally lends itself to the use of quantitative techniques. The following images display Seeking Alpha’s Quant Rating for both GM and Tesla.
General Motors: Quant Rating
Tesla: Quant Rating
Seeking Alpha’s Quant system rates GM a buy and Tesla a hold. The factor grade details are especially interesting. Tesla’s F valuation rating, which is in line with the above discussion, is clearly an anchor on its Quant Rating.
While Tesla currently receives top grades for growth and profitability, these ratings appear likely to trend lower over time as detailed in the above discussion. Additionally, the solid scores for momentum and estimate revisions are likely to trend lower as well given Tesla’s incredible share price momentum in recent years, its extreme valuation, and the likelihood that consensus growth estimates are too high as we approach mid-decade.
General Motors scores a top grade for profitability, with valuation and estimate revisions rating positively. This too makes sense given the above valuation discussion and the likelihood of GM outperforming consensus growth estimates relative to Tesla. As we will see below, GM’s rather weak scores on the growth and momentum factors look likely to trend higher over the coming years compared to Tesla and its industry peers.
GM: Growth Potential
Given the mature nature of GM, its wide investor following, and the limited space herein, I will lean on slides from GM’s Q1 2022 investor presentation to frame the company’s growth potential. I have included a header above each slide to highlight the importance of each in communicating the GM investment case. Additionally, I provide a statement under each investor slide to further illuminate GM’s growth potential in relation to its low valuation multiple of 5x earnings and the possibility of multiple expansion.
Growth Objective: Double Revenue By 2030 With 50% CAGR In New Businesses
Notice that GM is targeting 50% annual growth in its new business segments in addition to moderate growth in its core automotive business of 4%-6% per year. This growth combination would be well above GM’s historical trend in recent years, near -3% contraction per year, which is derived from Seeking Alpha’s growth page. As a result, GM’s growth plans point to the potential for a materially higher valuation multiple going forward. GM’s 5-year average P/E multiple, from Seeking Alpha’s valuation page, is 6x earnings, while the industry median is just over 10x.
EV Platform Approach: Battery Cell Growth & Vertical Integration
In regard to manufacturing battery cells and vertical integration, GM’s EV expansion plans are bold and look to rival Tesla’s capabilities going forward. This further supports the valuation multiple convergence of the two companies which is at the heart of the pair trade.
EV Models: Broad Automotive Market Appeal And Direct Tesla Competition
The above slide demonstrates GM’s broad EV model roadmap designed to appeal to a wide spectrum of end consumers. Tesla’s product capabilities to date are largely centered on the sedan market and sedan-like vehicles at the higher end. GM’s lineup above will offer formidable competition to Tesla. Additionally, GM and Honda have partnered to bring mass market, lower-priced EVs to market. As a result, GM and the industry are highly likely to limit Tesla’s potential market share, which is increasingly looking more similar to BMW than to GM or Toyot
Autonomous Vehicle Growth Begins: Cruise Beats Tesla To Robotaxis
GM’s Cruise is now operating a commercial autonomous transportation service in 70% of San Francisco. As a result, it is safe to say that GM has beaten Tesla to the Robotaxi market. Interestingly, as highlighted in my prior report, “Will Ford Surpass Tesla By 2025?”, many in the market have assigned incredible value to Tesla based on an assumed successful rollout of its autonomous robotaxi service. From the report:
Ark Invest released a Tesla valuation model in March of 2021 which projected up to $327 billion of revenue for Tesla in 2025 from robotaxis alone, under a bullish scenario. The valuation potential for this level of high-margin revenue would be enormous. Ark’s bullish valuation scenario for Tesla is $4 trillion by 2025, with robotaxis accounting for 47% of Tesla’s total revenue… As a result, the Tesla robotaxi business alone would be valued in the $2 trillion range under Ark’s bullish scenario.
A successful robotaxi rollout by Tesla would lend support to its extraordinary valuation. That said, it is now clear that Tesla is not even competing in the autonomous transportation space, as multiple government investigations into its driver assistance system (named Full Self Driving) are now underway. Tesla is stuck in basic driver assist mode while GM is the one rolling out a commercial robotaxi service. The upside potential for GM is indeed quite large.
GM vs. Tesla Summary
While Tesla had a head start in EVs, its outsized growth rate will in all likelihood come to an end as we approach the 2024 to 2025 timeframe. The automotive industry is now ramping EV capacity at scale, with GM (and most other major automotive firms) planning to reach at least 50% EVs in its product mix by 2030.
As a result, GM is likely to grow EV production much more quickly than Tesla going forward. Additionally, as evidenced in the model overview slide above, GM will be targeting a much larger addressable EV market with its broad model lineup. Furthermore, GM has beat Tesla to commercial robotaxis. This offers GM extraordinary growth potential relative to Tesla and the industry generally. GM is beginning to fire on all cylinders while Tesla is indeed facing a tsunami of EV competition and government investigations.
Aspen Aerogels: A Call Option On EV Growth
With GM and the traditional automotive industry ramping EV unit production to compete with Tesla, a pure play on EV unit growth can add asymmetric upside potential to the Tesla-GM pair trade. Aspen Aerogels (NYSE:ASPN) represents a direct play on non-Tesla (for now) EV unit growth. The following quote (emphasis added) from Aspen Aerogels’ recent 8-K filed with the SEC offers a sense of the rapid growth and upside surprise potential that is currently unfolding.
Increased visibility to expected order volume for 2022 from General Motors and Toyota is driving an updated outlook in thermal barrier revenues from $18.0 million to a range of $52.0 million to $62.0 million, a potential threefold increase in demand versus original expectations.”
The GM leg of the Tesla pair trade offers an excellent valuation multiple convergence opportunity and could produce a sizeable return in its own right. For the more enterprising investor, adding an exponential growth opportunity linked to the GM leg could create materially higher upside potential.
Essentially, one can split the GM portion of the trade into a GM/ASPN long with the percentage in each company depending on one’s risk tolerance and desired upside potential. The following quotes from my recent Aspen Aerogels report, “Aspen Aerogels: The Next Big Opportunity,” sets the stage. For those interested in this more enterprising Tesla-GM-Aspen pair trade, I highly recommend reading the full Aspen report.
Aspen Aerogels is on the cusp of the greatest growth opportunity in the company’s history, the electrification of transportation and energy. The initial growth driver will be electric vehicles and the mitigation of fire risk that is introduced by EV battery technology…
From a consumer perspective, the risk of being trapped in an intense battery fire is likely to dampen demand for EVs which do not employ the highest quality and most effective safety materials. This is the competitive advantage offered to automotive manufacturers when partnering with Aspen Aerogels on their EV battery designs…
Aspen currently works with ten global automotive OEMs and is supplying commercial amounts of its PyroThin™ thermal barriers to two of the largest in the world: General Motors (GM) and Toyota Motor (TM). Aspen is most deeply integrated into GM’s Ultium battery platform.
Growth: Aspen Aerogels vs. Tesla
The following table was compiled from Seeking Alpha’s earnings estimate pages and displays the consensus sales growth estimates for Tesla, Aspen Aerogels, and GM through 2030. I have highlighted in blue the year that the consensus projects Tesla overtaking BMW in terms of market share. I view this timeframe as a high-risk period for Tesla’s forward-looking growth as it will require Tesla to compete more broadly across the automotive end market.
Notice that GM and Tesla are expected to grow at the same rate in 2025, near 10%. On the other hand, Aspen is projected to be growing at over 64% in 2025. If Aspen can achieve its growth plans, which the initial quote above from the recent 8-K filing suggests, its valuation multiple could be exceptionally high. The following table was compiled from Seeking Alpha and compares consensus earnings estimates and the associated valuation for both Aspen and Tesla.
I have highlighted in blue the critical growth risk timeframe for Tesla. Notice that Aspen is projected to achieve exploding earnings growth during Tesla’s growth ri
sk time period. Given that Tesla is valued at 61x the forward consensus earnings estimate today, one can easily envision Aspen trading at a higher multiple than that based on the consensus estimate of 153% earnings growth in 2026.
In essence, Tesla faces extraordinary growth and multiple compression risk while Aspen Aerogels offers an extraordinary multiple expansion opportunity. Adding Aspen Aerogels introduces exceptional upside asymmetry to the GM-Tesla pair trade for the enterprising investor.
Seeking Alpha Quant Rating: Aspen Aerogels
For consistency, given the heightened applicability of Seeking Alpha’s Quant Rating system to the automotive industry as discussed above, it is important to touch on the Quant Rating for Aspen Aerogels, which is a Strong Sell rating as can be seen below.
Keep in mind that the Quant Rating system is relative to each company’s industry. Aspen Aerogels is in the specialty chemicals industry which is a subset of the materials sector. This industry and sector are exceptionally diverse or heterogenous as opposed to the automotive industry which is homogenous. The inclusion of the word “specialty” in front of “chemicals” offers a hint of the idiosyncratic nature of the specialty chemicals industry.
Additionally, Aspen Aerogels is in the process of fundamentally transforming itself into a secular growth company levered to EV demand from its historical reliance on sales into the oil and gas sector (which has recently exited a long recessionary environment). Interestingly, the oil and gas industry is in the early stages of a cyclical upswing which should further boost Aspen’s growth and adds to the allure. In essence, the Quant Rating is not well suited for Aspen Aerogels given its idiosyncratic nature, small size, and its early stage of growth within a massive secular opportunity.
Like the valuation asymmetry between GM and Tesla, the technical backdrop is one of asymmetry as well. On the 20-year monthly charts below, the asymmetry is immediately visible. Tesla remains materially overextended to the upside being well above long-term support. In contrast, GM is sitting on top of what should be an exceptionally strong long-term support zone. Please note that the green and blue lines represent support levels, and the orange lines represent resistance levels.
Tesla: 20-Year Monthly Chart
Notice that Tesla is now testing its first support level (the first green line) and that the next two support levels are materially lower, representing downside risk of -37% (the second green line) to -71% (the blue line). A test of the second green line near $441 looks to be an extremely high probability nearer term given the aforementioned valuation extreme.
General Motors: 20-Year Monthly Chart
GM on the other hand is currently below its first major support level and is much closer to the lowest support level, which represents -18% downside potential. The following 5-year weekly charts provide a closer look at the setup.
Tesla: 5-Year Weekly Chart
Notice that a test of the lowest Tesla support level near the blue line would only be a test of early 2020 levels for Tesla. Clearly Tesla is materially overextended to the upside.
General Motors: 5-Year Weekly Chart
GM is sitting just above its COVID-panic levels and at its IPO price from November of 2010. GM’s technical setup is the antithesis of Tesla’s technically overextended backdrop.
The upside to each resistance level is +44% to +71% for GM. Tesla’s upside potential to its two resistance levels is +13% to +41%. Technically speaking, Tesla’s risk/reward setup is heavily skewed to the downside. Conversely, GM’s technical risk/reward is heavily skewed to the upside. The fundamental asymmetry between GM and Tesla is mirrored by the technical asymmetry.
Aspen Aerogels: Technicals
The technical backdrop for Aspen Aerogels features the best qualities of the technical setup of both GM and Tesla. Like GM, Aspen is testing what should be an exceptionally strong long-term support level near its IPO price from June 2014. Unlike GM, Aspen’s share price exploded recently suggesting the possibility of a long-term breakout to the upside.
Like Tesla, Aspen had an incredible run-up recently in response to its leverage to EV unit growth and a strategic investment from Koch Investments. Unlike Tesla, Aspen has corrected the burst higher and is not materially extended, being close to what should be strong long-term support levels. The following 10-year monthly chart captures Aspen’s trading history.
Aspen Aerogels: 10-Year Monthly Chart
Aspen’s downside to the two support levels is -25% to -42%. Recall that Tesla’s technical downside is materially worse at -37% to -71%. The upside potential to all four of Aspen’s resistance levels is +22%, +84%, +158%, +247%. Recall that Tesla’s technical upside potential is +13% to +41%. The following 3-year weekly chart provides a closer look at Aspen’s technical setup.
Aspen Aerogels: 3-Year Weekly Chart
Technically speaking, Aspen’s risk/reward setup is extraordinarily skewed to the upside. This is especially the case in relation to Tesla’s technical setup being heavily skewed to the downside. Aspen clearly offers additional upside asymmetry to the GM leg of the pair trade with Tesla. The technical backdrop mirrors the fundamental asymmetry at the heart of the pair trade.
Please note that Aspen announced a capital raise after-hours as I write this report and is now testing the IPO price near $11. The company needed to raise additional capital to fully fund its EV expansion plans as discussed in my recent Aspen report. As a result, the announcement is not unusual or unexpected. This is especially the case given that demand is running 3x ahead of Aspen’s initial 2022 plans which will require it to expedite its capital investments. That said, it is disappointing that the capital raise is occurring at the currently depressed price level.
The fundamental and technical asymmetry between GM and Tesla is incredible and lends itself to favorable pair trade dynamics. For the enterprising investor, Aspen Aerogels introduces substantial upside asymmetry to the trade. The pair trade setup is ideal, buying exceptional multiple expansion potential in GM and Aspen while selling short Tesla given the high probability of material multiple contraction.
Investors may choose to implement this pair trade through the direct purchase of GM and Aspen Aerogels shares and a direct short sale of Tesla shares with an equal dollar amount on each side of the pair trade. More aggressive investors may choose to use the options market to express the pair trade through time. For example, one could buy calls or sell puts on GM and Aspen and sell calls or buy puts on Tesla (there are various options strategies available). Given the extreme asymmetry between the GM and Tesla legs of the pair trade, the timeframe over which this trade could work is quite long and could easily persist for one to five years.
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