Can unpredictable Tesla CEO hold it together to see off challengers?
By NEAL E. BOUDETTE
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 the hope of dragging down its stock price. Their goal, in Musk’s view, is nothing less than Tesla’s destruction.
George Noble does not fit that description. Manager of his own hedge fund, Noble Capital Advisors, he rarely comments 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 as an auto analyst and then a rising fund manager at Fidelity in the 1980s.
There is no doubt Tesla and Musk, the company’s high-profile chief executive, have plenty of detractors, especially on Twitter, where some critics trumpet vitriol and unsubstantiated information about the company and its business.
But 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 financial calculations, including its heavy debt load and voracious cash burn.
“This is not only about Musk,” said Mark B. Spiegel, a managing partner at Stanphyl Capital, which has a large position shorting Tesla.
Here are some of the reasons sceptics offer for their position:
The stock is overvalued
Unlike Noble, Mr Spiegel regularly tweets about Tesla and makes no secret of his scepticism about the firm and Musk. He acknowledges that his fund was “massacred” by the surge in Tesla’s stock price in the second quarter, but believes his short position will pay off in the end.
The main reason Tesla is the most shorted stock on Wall Street is its market valuation of $50 billion.
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 pretax profit. Tesla sold just over 100,000 cars in 2017, and lost $2.2 billion.
Tesla is burning through cash
The argument against Tesla almost always cites its shaky finances, often obscured by the hype over its cars and by Mr Musk’s own tweets and ambitious ideas, such as an electric semitruck and his hope to transport people through networks of underground tunnels.
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: nearly $1 billion every three months.
Tesla had $2.2 billion in cash at the end of June but needs more. About half the cash is restricted, because it comes from customer deposits that it may have to refund if customers decide not to buy.
The balance sheet shows Tesla also owes its suppliers and other contractors $3 billion. It has a convertible bond payment of $230 million due in November and another of $920 million due in March.
Mr Musk has vowed that a sharp increase in sales of the Model 3 sedan in the current quarter will drive up revenues enough to make Tesla profitable and provide the funds it needs, but short-sellers are skeptical.
Gabe Hoffman, a partner at Accipiter Capital, says that because of its shortage of cash and all its liabilities, “Tesla looks worse than General Motors one quarter before it filed for bankruptcy.”
Musk does not inspire confidence
Marc Cohodes, a former fund manager now on his own, decided to short the stock in August, prompted by an interview with
in which Mr Musk was described as alternating between laughter and tears while describing an “excruciating” year that had taken a toll on his physical and emotional wellbeing.
Two weeks after the interview took place, Musk smoked marijuana during an interview shown on Youtube.
The chief of any company needs to be disciplined and to “execute at a high level,” Mr Cohodes said. But the string of recent events has convinced him that Musk is “not mentally fit” to deal with all of Tesla’s challenges successfully.
“I view Elon as a tragic figure,” Mr Cohodes added.
There are questions regarding demand for Tesla’s cars
For Mr Noble, the biggest doubt about Tesla is whether consumers are actually clamouring to buy its cars. The company has reported that 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. “That is the heart of Tesla’s story. That is why people buy the stock, because it looks like they have unlimited demand.”
But some recent actions by Tesla suggest that may not be the case. The weekend after Labour Day, it held a “sales event” at its plant in Fremont, California, allowing deposit holders to stroll among several hundred cars and pick one to buy.
Hundreds more have been parked for weeks at lots in Burbank and Lathrop, California.
“That’s inventory. Everything they produce is supposed to be delivered or in transit on the way to the customer. If there is nothing wrong with demand, why are there all these cars in Burbank? Something does not add up,” Hoffman said.
Tesla vehicles stand at a Brooklyn showroom and service center in New York. The electric automaker’s stock dropped after its chief executive Elon Musk reversed his plans to make the company private.