A Long-Term Play: Buy TSLA, Short AAPL

Here’s a long-term trading opportunity that seems foolproof: short Apple shares and buy Tesla. Looking out over the next 10 years, this hedge position has the potential to produce outsize profits. How could Apple stumble badly enough to make it work? This is hardly inconceivable. Since Steve Jobs died 14 years ago, the company he co-founded has demonstrated again and again that it couldn’t innovate its way out of a wet paper bag. How many more iPhone versions will it take to solve the battery-drain problem? Whatever happened to the Apple car? And how about the device that was going to manage your TV and all of your home entertainment gizmos with a single remote control? Apple’s new-products division has repeatedly failed to deliver, and its idea of a technological breakthrough is an iPhone camera with a longer lens and a few million more pixels. As for the AI mania that is raging in the tech sector, the Cupertino-based firm doesn’t even have a horse in the race.

It wouldn’t be the first time an iconic company failed to keep up with the times. Here’s a partial list of shockers to remind you how often this has happened: Eastman Kodak, RCA, Intel, Radio Shack, Enron, Woolworth’s, Compaq, Digital Equipment Corp. and Polaroid. One could argue that none of these stalwarts achieved Apple’s size or market share. True enough, but that hardly guarantees unforeseeable changes in telephony will not blindside Apple.

The Pi Phone

Tesla and Elon Musk, on the other hand, have the vision not only to see the changes coming, but to bend them toward opportunity. The Pi phone, a potential category killer, is a good example. Musk has repeatedly denied that this device is even on the drawing board, and Wall Street seems to believe him. But why would a guy who has his sights set on a trillion-dollar payday pass up an opportunity to crush iPhone with an alternative that is better, cheaper, and which, using Starlink, could eliminate monthly phone bills?

Look at the sneak attack Musk just pulled off in Texas, where a relatively small fleet of driverless Robotaxis learned to navigate Austin’s streets in almost no time. Ultimately, what his engineers learned there will enable Musk to get Robotaxis safety-certified relatively quickly anywhere in the world, and to operate at a much lower cost than Waymo, Uber or Lyft. They are all dead ducks, even if Wall Street’s best and brightest cannot yet see this coming. Creative destruction seems likely to take Waymo down first. Realize that in the time it takes them to negotiate a deal with Jaguar for 1,000 more cars, Musk can produce 5,000 Robotaxis.

A ‘Comfortable’ Tim Cook 

Apple CEO Tim Cook would get laughed out of the boardroom if he asked for a trillion-dollar compensation package. After all, what has he done besides protect the iPhone franchise and placate cult buyers with gratuitous improvements in each product cycle? Musk would never allow himself to grow so comfortable. The fact that his seemingly outrageous pay demand is up for debate shows how valuable he is to Tesla. He will need to grow Tesla’s market cap from $1.5 trillion to $8.5 trillion by 2035 to earn the full $1 trillion. Ambitious as that may sound, only a fool would bet against him. He stands to reap more profit from revolutionizing the trucking industry with driverless rigs than Apple does from selling 225 million iPhones a year.

Concerning the hedge trade, odds were juicier than ever when last week ended. AAPL’s canny handlers goosed the stock to new all-time highs simply because they could. TSLA, on the other hand, got pummeled because strong EV sales did not translate into higher profits. There are many ways to put on the trade, including with options, but to keep it simple for tracking purposes, I will use equity shares in a 1.65:1.00 ratio. That means shorting 165 shares of Apple for $263 apiece while buying 100 shares of TSLA for $434. Good luck!  [Click here for my latest interview with Jim Goddard at This Week in Money.]