Skeptics make their case that Tesla is destined to tank
Why short-sellers are betting billions of dollars Musk’s auto company will fail
For the past year, Elon Musk has waged a bitter war of words with short-sellers, the investors who are betting billions of dollars that Tesla will fail.
On Twitter and in interviews, he has called them haters and jerks who know little about electric cars.
He has accused them of spreading false information and amplifying negative news about Tesla in hopes of dragging down its stock price. Their goal, in Musk’s view, is nothing less than Tesla’s destruction.
George Noble doesn’t fit that description. Manager of his own hedge fund, Noble Capital Advisors, he rarely com- ments on Tesla in public or on Twitter, and he comes with an impressive pedigree. He has been following and investing in car companies for nearly 40 years, having started his career an auto analyst and then a rising fund manager at Fidelity in the 1980s.
“I’m not one of these individuals with superficial knowledge who’s tweeting garbage on Twitter,” Noble, 61, said. “I’ve followed this industry a long, long time. I’m not a bomb-throwing hack.”
Many of those who believe that Tesla is destined for a major restructuring — or even collapse — are buttoned-up investors.
They base their view not on antipathy for Tesla or Musk, but on cold financial calculations, including its heavy debt load and voracious cash burn.
“This isn’t only about Musk,” said Mark B. Spiegel, a managing partner at Stanphyl Capital, which has a large position shorting Tesla. “It’s about a terrible capital structure, because of the debt, and a stock price that is out of whack with the demand for the product and the competition that’s coming in.”
Here are some of the reasons skeptics such as Nobel and Spiegel offer for their position:
The stock is overvalued The main reason Tesla is the most shorted stock on Wall Street is its market valuation of $50 billion (U.S.). Until recent declines in its stock, Tesla was worth more than General Motors. But in 2017, GM sold 9.6 million cars and trucks and made $12.8 billion in pre-tax profit. Tesla sold just more than 100,000 cars in 2017, and lost $2.2 billion.
“It’s not that I don’t like Tesla,” he said. “The cars are cool — the acceleration, the torque.” But a struggling, highly leveraged company with a valuation of $50 billion, he said, is “one of the biggest bubbles in the market.”
The company is burning cash With cars priced at $70,000 and up, a company selling more than 100,000 a year would normally rake in hefty profits. But Tesla still spends more money than it takes in, consuming nearly $1 billion every three months.
Elon Musk does not inspire confidence The chief of any company needs to be disciplined and to “execute at a high level,” former fund manager Marc Cohodes said. But the string of recent events has convinced him that Musk is “not mentally fit” to deal with all of Tesla’s challeng- es successfully. “I view Elon as a tragic figure,” he added.
There are questions about demand For Noble, the biggest doubt about Tesla is whether consumers are actually clamouring to buy its cars. The company has reported more than 400,000 people have paid deposits of $1,000 each to reserve Model 3s.
“That suggests that every car they make has a paying customer waiting for it,” Noble said.
But some recent actions suggest that may not be the case. On Friday, Tesla sent an email to customers and deposit holders inviting them to the plant in Fremont, Calif., for a test drive — the kind of marketing event car companies organize to drum up sales.
“Something doesn’t add up,” said Gabe Hoffman, a partner at Accipiter Capital.