More Hilarious Facts About Tesla From A Hedge Fund Shorting The Stock


A few weeks ago, we shared a note about Tesla from the hedge fund Vilas Capital Management. The firm, which is short the shares, said “Tesla is going to crash in the next 3-6 months.”

I received an update from Vilas this morning explaining why they’re even more bearish on Tesla today. The firm pared its short positions after the recent selloff. And Telsa now comprises about 98% of their short book.

Clearly Vilas thinks Tesla’s reckoning is imminent.

You can read the rest of Vilas’ thoughts on Tesla below:

We added meaningfully to our Tesla position in the first quarter at prices in the $340 range. We continue to believe that Tesla is extremely overvalued and that it will experience significant financial difficulties over time.

All companies in a capitalistic system need to earn profits and those profits need to be attractive relative to the amount of shareholder capital employed. Tesla has never earned an annual profit. Along with digital currencies and Unicorns, Tesla appears to be caught up in a gold-rush-fever type of emotional response, both from a “they will take over the world” and a “they will save the world” combination of hopes, instead of their owners looking at the numbers.

Tesla bulls will argue that their production will rise to 5000 Model 3’s per week soon and, therefore, the stock will trade meaningfully higher. Given that the company lost $20,000 per Model S and X sold for roughly $100,000 each last year, due to the fact that it cost more to build, sell, service, charge and maintain these cars than they collected in revenue, as it is important to include all costs when evaluating a business, we predict it will impossible for Tesla to make a profit on a $35,000 to $50,000 car.

As anyone with automotive experience knows, profit margins are far higher on bigger, more expensive cars. Therefore, the faster Tesla makes Model 3’s, the more money they will lose.

Roughly five institutions make up nearly 50% of Tesla’s freely floating shares. All it will take is for one of them to realize the likely fact that the company won’t ever earn an annual profit, has been overly optimistic, at best, or quite dishonest, at worst, with their projections of cash flow and profit and Tesla’s shares should fall precipitously. We believe that the CEO’s recent tweet that the company will be profitable and will generate positive cash flow in the second half of the year are likely attempts to artificially inflate the stock and keep creditors at bay.

Given that our calculations show that Tesla needs to raise at least $5 billion of equity, if not closer to $8 billion, to stay solvent in the next 14 months, the company needs to find at least another dozen Ron Baron sized investors.

We do not believe that this will be possible given their expected future losses, working capital and capital expenditure needs, lousy execution with the Model 3, falling demand for their somewhat stale Model S and Model X, tax rebates of $7,500 per car that will start going away shortly, impending competition from Jaguar, Mercedes, Porsche, BMW, Audi, etc., the credit rating downgrade by Moody’s to Caa+ while leaving the credit on watch for further downgrades (Caa+ is basically defined as impending default), the NTSB investigation into the accident caused by the “Full Self Driving” option that they collected $3000 for (which may create a class action lawsuit, fines and the disabling of the feature), the fact that they have had 85 letters and investigations back and forth with the SEC (a very unusual pattern), the fact that their three top finance executives (CFO, Chief Accounting Officer, and Director of Finance) have left the company over the last 18 months leaving huge amounts of awarded by unvested shares on the table, a highly suspicious pattern, and the fact that the company owes suppliers roughly $3 billion of unsecured payments, which could be “called” at any time, similar to a run on a bank.

If Tesla’s suppliers simply asked for their past invoices to be paid and to be paid in cash at the time of their next parts delivery, a likely outcome the worse Tesla’s balance sheet gets, it is clear that Tesla would need to file for protection from creditors. Further, the banks lending Tesla money cannot ignore the balance sheet. They have strict rules that regulators enforce about lending to companies with increasingly negative working capital.

The company’s story about further drawing down lines of credit to finance operating losses and capital expenditure needs may seem plausible to novice investors but, in our opinion, not to suppliers and regulated lenders. In a game of financial musical chairs, it is important to sit down quickly.

Who in their right mind would continue to finance this money losing operation? Up to this point, it has been from growth investors who have likely never owned an auto stock before. Once they figure out the industry and the truth about Tesla’s future, we doubt it will continue.


Stuck on Zero JRobby Thu, 04/19/2018 - 18:03 Permalink

Most of the large Japanese and Chinese companies ran losses for ten or twenty years before they took over entire industries. America is way too impatient with its capital to ever survive against determined mercantilists. 

In reply to by JRobby

jcaz Stuck on Zero Thu, 04/19/2018 - 18:43 Permalink

It's actually pretty simple-  Tesla can't pay their bills.

What they owe unsecured creditors right now would bankrupt the company.   All it takes is for ONE of them to call their marker in, and POOF- game over.  That's how unsecured creditors work- when one jumps, they ALL jump. 

This is why Elon pumps the stock so much- he's made promises to keep the common over $300, keeps the frosting on the cake intact.  He's got a shitload of convertible debt that's going to come due, and the common is nowhere near the price it needs to be for the debt to be converted, they'll want cash- uh oh, didn't count on that.... Keep the tweets and "confidential emails" flowing, must keep the frosting on the cake pretty;

Problem is, the cake underneath is falling apart.

Maff ain't that hard, doesn't matter how you feel about Musk or electric cars- the CFO left the company, forfeiting stock options that are under water- you don't get a bigger red flashing light than that.

In reply to by Stuck on Zero

Hugh_Jorgan The_merovingian Fri, 04/20/2018 - 14:42 Permalink

It's isn't that they cant pay their bills. Tesla have a failed business model. I suspect that there is simply no happy ending here. If Tesla got another infusion of $5B without significant fiscal oversight, it would buy them 3-5 years of operation and then they'd be right back here. Hubris will preclude the necessary wholesale revamp of their products and production line without outside intervention and it still doesn't change the fact that premium electric vehicles are not profitable unless you are working in the $100K+ price bracket.

This is what happens when a narcissist gets busy spending other people's money in this day of easy credit and green cultural insanity...

In reply to by The_merovingian

oldschool jcaz Thu, 04/19/2018 - 20:34 Permalink

What they owe unsecured creditors right now would bankrupt the company.   All it takes is for ONE of them to call their marker in, and POOF- game over.  That's how unsecured creditors work- when one jumps, they ALL jump. 

Guess what, the unsecured creditors know that.  They also know they get bupkus in bankruptcy.  So where's the incentive to call those markers?

In reply to by jcaz

Last of the Mi… Automatic Choke Fri, 04/20/2018 - 07:00 Permalink

All tech companies harvest government subsidies or more closely massive taxpayer funds then launder it back to the government in the form of political contributions for the globalist cabal. It is a complete circle with billions flowing back and forth. The tech companies get billions, congress gets relected, and the government gets all the free information it needs with massive globalist propaganda oozing out everywhere on the side.

In reply to by Automatic Choke

philosobilly Utopia Planitia Fri, 04/20/2018 - 15:23 Permalink

ikr right, i mean all they have to do is go from being shut down to producing 5000 a week, while simeltaneouly working out all the bugs in both, production, supply, and final product, while raising billions of dollars in equity, as all their gubmit money runs out. all the while musk is like meh buy a flame thrower that is know to the state of california to cause cancer.  i love living in the future.

In reply to by Utopia Planitia

quesnay cougar_w Thu, 04/19/2018 - 19:02 Permalink

not shorting the stock

"I can't listen to them; they have no skin in the game!"

shorting the stock

"I can't listen to them; they're just talking their own positions!"

Every opinion and every person falls on one side of this line. So either don't bother to read anything, or just listen to their arguments and make up your mind based on that. Everyone is biased in some way but that doesn't mean it's not possible to learn something anyways.

In reply to by cougar_w

backwaterdogs Thu, 04/19/2018 - 17:38 Permalink

could this be it?

shams like telsa finally exposed?  crooks like mcabe, comey, podestas, clintons, obama, exposed?


could this really be it?  will the whole thing finally implode?


I kinda doubt it.