4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home, by Wolf Richter

Here is the bloodied bear case on Tesla, from Wolf Richter. For the gleeful bull case, you’ll have to look elsewhere. From Richter at wolfstreet.com:

The bloodletting among Tesla shorts has become legendary.

Tesla has been shorted for years by some very smart money betting the overvalued shares will tank any moment. At the end of March, short interest was 31.4 million shares. This short interest amounts to 26% of the “float,” which is the number of shares available to trade (shares outstanding minus restricted stock). This is huge!

Yet, at $308 a share, the stock brushes up against its all-time high, giving Tesla a market capitalization of $50 billion, just shy of GM’s $51 billion. But they don’t even compare. In March, GM sold 63 times as many cars in the US as Tesla. Over the past eight years, GM earned $47.1 billion; Tesla lost $2.7 billion.

With this valuation, Tesla has been a logical short. But the bloodletting among Tesla shorts has become legendary. So the Los Angeles Timesasked these four short sellers why they’d venture into this trade:

  • Mark Spiegel of Stanphyl Capital Management.
  • David Rocker, formerly of Rocker Partners.
  • Mark Yusko, founder and CIO at Morgan Creek Capital Management.
  • Anton Wahlman, former stock analyst who now writes about the auto industry (he said he currently holds no position on Tesla).

And here are seven of their reasons for shorting Tesla:

1. Negative Cash Flows

“If you can’t make money selling a $100,000 car to rich people, how are you going to make money selling a $45,000 car to normal people?” Rocker told The Times. He was referring to the upcoming mass-market Model 3.

“I’m saying they’re going to lose money on every Model 3 they build and sell,” Spiegel said. Based on Tesla’s Q4 2016 earnings report, he figured the combined average selling price for non-leased Model S and X is about $104,000 and the combined average cost of building them about $82,000.

The Model 3 will be smaller, more basic, and with a cheaper battery. There is also hope Tesla can produce several hundred thousand per year, thus getting better prices from suppliers and bringing per-vehicle production costs down. Alas…

“You can cut the price of a car in half, but you can’t cut the cost in half,” Wahlman warned.

To continue reading: 4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home

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