“There’s no maintenance on them.” - Marc Tarpenning, Tesla co-founder
Wall Street believes him. That is why Group 1 Automotive sells today for five and a half times earnings. That is the price of a business waiting for the sun to go down.
I believe the sun goes down too. One day a Group 1 store outside Houston will have half its service bays empty, because the cars in the parking lot have no oil to change. The last mechanic who knew engines will be retired. The sun will drop behind the building and nobody will be left to turn on the lights.
The only question is what time it is. So I checked the clock.
Tesla filed its quarterly report last week.
The company with no maintenance. Services and other, up 33%. $4.6 billion in one quarter. The reasons, in Tesla’s own words. Non-warranty maintenance. Collision repair. Used cars. The company that told the world there is no maintenance is now one of the fastest growing maintenance businesses in America. Its co-founder was wrong by $4.6 billion a quarter.
In Norway, where the electric car has already won, the dealer Bilia just reported the best quarter its service business has ever had. Service profit up 25.8%. Margin 12%, from 10.2%. Because 40% of what a workshop does has nothing to do with the engine. Bodywork. Paint. Tires. Glass. An electric car hits a deer the same way a diesel does.
Then I looked at the cars. In America, electric cars are 2% of the cars on the road. Two out of a hundred. The other ninety-eight burn gasoline, and they are the oldest cars this country has ever driven. Almost thirteen years old on average. Never older.
The horse needed sixty years to lose to the car. The sun over Houston is not setting tonight. It is not setting this decade.
Roger Penske has been selling cars since the 1960s. He has seen every oil shock, every recession, the internet, Tesla. He knows exactly how much a dealership earns and exactly what Wall Street thinks it is worth. On October 15, at 89, he decided the gap was too big to leave alone. He agreed to buy every share of Penske Automotive he did not already own. With his own money. In cash. He paid a premium over the market price. On a stock the market had already beaten down. That is how punished these companies are. The man who knows them best had to pay extra to buy one, and he still paid only 12 to 13 times earnings.
Group 1 trades at half that.
If Penske is cheap, Group 1 is dirt cheap. If the market priced Group 1 the way Penske priced Penske, the stock would double tomorrow. And it would still be a car dealer at twelve times earnings.
At prices like these you would expect nobody to bet against a car dealer. Somebody did. In the month before earnings, the shorts in Group 1 grew. 12% in one month, from 1.28 million shares to 1.43 million.
In the same month, insiders kept buying, until the day the rules stopped them. One side is selling what it does not own. The other is buying everything the market will give up. One of them is about to be very wrong.
The websites say 12% of Group 1’s float is sold short. That number is wrong. Count only the shares that can actually change hands and you get a different number.
It should freeze the blood of anyone short Group 1.
Let’s see what is going on…
