Jim Chanos Adds To Tesla Short, Sees Musk Stepping Down

Tyler Durden's picture

The ongoing vendetta between the scourge of Enron, Jim Chanos, and Elon Musk escalated when the Kynikos Associates founder said he has been adding to his Tesla short position throughout the year even as the company’s shares soared to record highs. Speaking at the Reuters Global Investment 2018 Outlook Summit, Chanos - who first disclosed his TSLA short last May - said that he expected Elon Musk to step down from his position by 2020 to focus on his private rocketship company SpaceX as competitors such as BMW and Porsche expand their lines of luxury electric vehicles.

“Obviously this is not being valued as a car company, it’s being valued on Musk ... he’s the reason people own the stock,” Chanos said.

“Put it this way. If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

He said the company is burning more than $1 billion in cash each quarter and will have a harder time tapping the capital markets if and when Musk leaves

Still, while Chanos may have had a large enough balance sheet to avoid a short squeeze, others have been less fortunate, and as a result Tesla shares are up 44% for the year to date, briefly rising above General Motors in market cap, as countless shorts have been margined out despite Tesla's chronic - and often shocking - cash burn, and despite increasingly louder concerns that Tesla will be unable to deliver on its aggressive Model 3 timetable. Just last week, Tesla reported its largest-ever quarterly loss, unveiled it had burned a record $16 million per day...

... and pushed back its target of volume production of its new Model 3 sedan by three months. The company said it now expects to build 5,000 Model 3s per week by late in the first quarter of 2018 from its original target date of December. And yet, despite the production delays or perhaps due to them, the company has been a veritable widowmaker for shorts, with losses among funds that bet on its decline totaling more than $4 billion this year, according to S3 Partners and Reuters.

To be sure, Chanos is not alone in shorting TSLA, and some other notable skeptics who have likewise bet on Tesla's demise include:

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

Their short thesis is roughly captured by the following 7 points:

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.

2. Competition from the Big Guys

Electric vehicles are still only a tiny fraction of total new vehicle sales in the US. Tesla sold about half of them. In March, according to Autodata, Tesla sold 4,050 vehicles in the US, similar to Porsche. All automakers combined sold 1.56 million new vehicles. This gave Tesla a market share of 0.26%. "Tesla faces a formidable set of competitors, and they’re coming in with guns blazing,” Wahlman told The Times. “Once the market is flooded with electric vehicles from manufacturers who can cross-subsidize them with profits from their conventional cars, somewhere around 2020 or 2021, Tesla will be driven into bankruptcy,” Spiegel said.

3. Tesla’s vanishing tax credits

The federal tax credit of $7,500 that EV buyers currently get is limited to 200,000 vehicles for each automaker. Once that automaker hits that point, tax credits are reduced and then phased out. Of all automakers, Tesla is closest to the 200,000 mark. Under its current production goals, the tax credits for its cars could start declining in 2018. This would give competitors, whose customers still get the full tax credit, a major advantage. About 370,000 folks put down a refundable $1,000 deposit on Tesla’s Model 3, perhaps figuring they’d get the $7,500 tax credit. But as it stands, many won’t. Rocker thinks that this is going to be an issue. The refundable deposit “commits them to nothing,” he said. Those that don’t get the tax credit may just ask for their money back and buy an EV that is still eligible for the credit.

4. The Question of patent protection

Tesla has made its patents available to all comers, thus lowering its patent protections against competitors. Also, the key part of an EV, the battery, is produced by suppliers; they, and not Tesla, own the intellectual property. This is true for all automakers. But Tesla might still be closely guarding crucial trade secrets that are not patented.

5. Musk’s distractions from his day job

Musk has a lot of irons in the fire: Tesla, SpaceX (with which he wants to build a colony on Mars or something), solar-panel installer SolarCity which Tesla bailed out last year; projects ranging from artificial intelligence to tunnel digging; venture capital activities…. “He’s all over the map, from tunneling to flights to Mars to solar roof tiles,” Rocker said. These announcements have the effect of boosting Tesla’s stock: “It’s ‘Let’s get the acolytes excited. Implant in the brain! Let’s buy Tesla stock!’”

6. Execution risk

“Investing is all about possibility and probability,” Yusko said. “Is it possible that Tesla will produce 500,000 cars in the next two or three years? Yes. Is it probable? No.” Tesla has missed many deadlines and goals, and quality problems cropped up in early production models. As Tesla is trying to make the transition to a mass-market automaker, execution risk will grow since mass-market customers are less forgiving.

7. Investor fatigue

Having lost money in every one of its 10 years of existence, Tesla asks investors regularly for more money to fill the new holes. In March, it got $1.2 billion. In May last year, it got $1.5 billion. Tesla will need many more billions to scale up production and to digest the losses. Tesla has been ingenious in this department. But when will investors get tired of it? “We’re awfully close to the point where people wake up and realize these guys are seriously diluting our equity” with new stock and convertible bond issues, Yusko said. According to The Times, Yusko “is looking for the moment when the true believers begin to lose faith.”

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SloMoe's picture

Need to bury Musk in  time capsule on Mars...

pitz's picture

He pretends to be Einstein, but in reality, he's closer to being Ken Lay.

Hoi Polloi's picture

I’m afraid Space-X will not be ready in time to bring Musk to Mars in order to avoid all the Tesla creditors.

peddling-fiction's picture

Hey, no problem.

Point and shoot towards Mars and forget.

2_legs_bahhhhhd's picture

I was driving thru Moronto last week, I saw a bus's front sign flashing 100% electric, it was driving backwards, hooked up to a tow truck. I Have confidence that few saw the irony

GUS100CORRINA's picture

Jim Chanos Adds To Tesla Short, Sees Musk Stepping Down

My response: MUSK is TESLA!!!

MUSK steps down, TSLA will be $50 stock virtually overnight. No wonder CHANOS is floating the idea that MUSK will step down. What a short play!!!

Winston Churchill's picture

If he doesn't step down it will be a $0 stock sooner than a $50 one.

He cannot compete with the big boys now he's going mainstream, not staying with a niche

product.He's more bankrupt than Uncle Scam but without the printer and the armed forces.

QueeroHedge's picture

Steve Mnuchin the goldman sucks wunderkind? Surely trump didnt appoint him, hope and change right? We mugged some zerohedge folks

roddy6667's picture

Set The Controls For The Heart Of The Sun

roddy6667's picture

Nobody got that. We are in a Floyd Void.

smallblockchevy350's picture

Elon is the monorail guy from that episode of The Simpsons.

https://www.youtube.com/watch?v=taJ4MFCxiuo

Two-bits's picture

Elon  has lots to worry about, Killer Robots, handmade parts, and lawsuits. You know what that means... Time to double down on Mars!

chrsn's picture

Who has a questionable relationship with the truth?

wmbz's picture

Musky's Butt buddy and sugar daddy, Obozo can no longer pass out free shit/money to Elon. Sounds like he will have to face the music.

Of course he'll leave everybody else holding the bag. Asshole!

sixsigma cygnusatratus's picture

Right on target.  Tesla wouldn't exist or have lasted as long without taxpayer money.

Bernie Madolf's picture

DeLorean

Dodo

Telsa

Pussy

Which one of these is not like the others?

Bastiat's picture

Easy:   Dodo - low maintenance.

helloimjohnnycat's picture

Correcto Mundo !

The DoDo has ( had ) neither tits nor tires.

I thought everybody knew that.

mel3's picture

i need pussy. am i right?

8iron's picture

Blah Blah Blah cash smoh flow....LOOKIE at my new SEMI!!!!

buzzsaw99's picture

About 370,000 folks put down a refundable $1,000 deposit on Tesla’s Model 3...

no shit?  wow.  they will be waiting a long time but i had no idea they could sell that many cars if only they could make that many that is.

 

how much wood would a woodchuck chuck...

Two-bits's picture

Where do you think those 370,000 creditors are going to fall in the rank of who gets paid first when Tesla goes tits up?

buzzsaw99's picture

they probably won't get corzined. /snark

i do wonder how racial tensions at the production plant will affect build quality and productivity though.

Two-bits's picture

I'm sure Jose will hammer out ball washing seat covers much faster when no one is calling him wetback.

buzzsaw99's picture
It's easy to grin
when your ship comes in
and you've got the stock market beat.
But the man worthwhile
is the man who can smile
when his tesla shorts are too tight in the seat
[/judge smails]
Two-bits's picture

Elon Musk and Jeff Bezos make a bet of who can get to Mars first. Each of them spends their Fortune to get a rocket built to get them there as fast as possible. They both take off, and the race is neck-and-neck the entire way until they collide into one another inside the Martain atmosphere and crash down to the planet surface. Who is the winner?

Earth

doc333's picture

Going to Mars at the equater  is like vacationing in the Sahara Desert in the daytime in the middle of  winter, only you need an oxygen mask 24/7 and at night don't forget your long johns, -70 is a bitch. Just proves, even retards can make it big in the USA.

Dealyer Turdin's picture

Jeff Bezos.  He sent his clone.

Great Joke!

NeedleDickTheBugFucker's picture

You'll get nothing and like it!!

A Sentinel's picture

As collateral goes, inventory is probably the most worthless.

Rainman's picture

Still don't understand how the 'true believers' can have faith in a cash burning EPS of - 8.52

Cozy Vanilla Sugar's picture

It's because they believe there is gigantic residual value in the later years as Tesla achieves economies of scale that justifies the current outrageous valuation relative to trailing results (i.e. the Peter Thiel unicorn valuation method).

Unfortunately, they are applying this concept to the wrong type of company (i.e. highly capital intensive and soon-to-be highly competitive business model with zero chance of a monopoly position).

roddy6667's picture

If Tesla had any proprietary trade secrets that would provide a moat to deter the competetion, they might recover to make huge profits in the future. They use 20 year old Lithium Ion battery technology. Nothing new here. Many financially sound companies all over the world are producing  electric cars that the average family can afford. 

Their cash burn can only end in BK. And not the city in Thailand.

mkhs's picture

But they're organic.

 

FORD_FIESTA's picture

the year........2025

"Grandpa, I learned in school of an old car company that went out of business"

"Well kiddo, did you learn about the Edsel? Maybe the Corvair?"

"No, it was called something like Tesler, Taser, ummmmm, Tesla, ya that's it! Tesla!"

"Well kiddo, your grandaddy really got screwed on that one,,,HAHAHAH!"

DC Beastie Boy's picture

Electric cars are a big pain the fucking ass. Seriously, every electronic thing in my life is a pain in my ass! Musk and Branson and every other tax subsidized outer space fucktard can lick my musky balls!

Just saying..

Two Theives and a Liar's picture

Meanwhile Ford makes (made) a 65 MPG Fiesta but refused to offer it in the US:

https://www.wired.com/2009/02/ford-will-give/

Free Market? What free market?

 

RationalLuddite's picture

"Musky balls" :))) I see what you did there ;)

 

"a questionable relationship with the truth", aka practiced, serial, delusional liar.  He is scum in so many ways

Cluster_Frak's picture

Can't wait for Elon to be passed around state penn like a 5 dollar hooker. 

HominyTwin's picture

OK, Tesla should be bankrupt in a couple of years, and Elon is a bullshitter, but don't think he's broken any laws. Of course, all the assholes who bid up his stock to 300+ will be coming for him with legal knives when their stupid decision doesn't pan out.

abgary1's picture

The whole global warming theory is a fraud.

Co2 is not a GHG and does not cause global warming.

Solar panels and battery are going to useless as we going into a downturn in global temperatures.

Unless NASA is lying about the coming Maunder Minimum, it is possible we may even go into an ice age.

Read The Chilling Star: A New Climate Change Theory by Sevsmark and Calder to understand the science behind the cosmic ray theory and the implication of a Maunder Minimum.

We are presently in an interglacial temperature peak which won't last and we will need as much cheap energy as we can get.

The only people more insane than Elon Musk are the federal Canadian Liberal Party and the Alberta/Ontario provincial governemts who are trying to destroy the Canadian oil industry.

AlphaSeraph's picture

whoever down voted you is a muppet. Probably a Goldman Sachs client.

abgary1's picture

Corrections: governments; The Chilling Stars and Svensmark. Apologies to Mr. Svensmark for misspelling his name.

A shout out to Dr. Tim Ball who's books have opened my eyes to the science.

Rex Andrus's picture

The Steve Jobs moment

arrowrod's picture

 Normally, ZH commenters are clever.  So far, a bunch of morons have invaded the comment section.

Who wouldn't want Musk to be on their team?  

Money manipulators vs creator.

peddling-fiction's picture

While holding a paper folded in the shape of a carpenter's square <wink wink>, some of us have serious doubts about the quality of thrusted-upon-us brethren, that dropped out from Stanford.

Like Harvard Consitutional Lawyers that nobody saw on campus, and cannot handle a speech without a teleprompter.

Company boys R us.

CNONC's picture

Profit generally is the sign that you have actually created something, rather than consumed something.  It is the indication that more value exists after your exertions and use of resources than before.  Subsidies and cash from the sale of fake commodities (offsets and carbon credits) are forms of rents, or manipulations of money.