Has Tesla finally killed the short-sellers?
By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets
Tesla has previously held the rather dubious title of the most short-sold company ever. Some famous managers have been part of this crusade against Elon Musk’s baby. One of the most vocal short-sellers, Jim Chanos, has scaled down his position recently but not completely removed it. This is a victory for Tesla and Elon Musk, who has been vocal in his opposition to investors who bet on a negative outcome for a company. Short sellers have reportedly lost $25 billion this year on Tesla stock, as the companies shares have rallied nearly 600%.
Chanos has claimed to have reduced his position because other opportunities are even better in the EV space. He made it clear that he still believes in his thesis of Tesla being overvalued and having a flawed business model. It is hard to disagree with Chanos on the valuation front. Tesla is now the 6th largest publicly traded US company by market cap. That is absolutely absurd. It is a good business and one that will presumably continue to succeed, but it will probably never be big enough to deserve a valuation of this size. It produces less revenue and profit than the major car manufactures. To buy Tesla at this price you have to believe that it will come to dominate not just the automotive sector. You have to be part of the cult of Elon.
Even Musk has issued warning signs over the current valuation. In an email to staff, he said that the current share price reflects expectations of future earnings. He went on to say that, “If, at any point, they conclude that that's not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!”. This all boils down to search for further profitability, Musk is looking for cost savings to be found across the company to achieve this. It is ironic that Musk is now emphasising penny-pinching after his personal wealth had increased by over $100 billion this year.
Tesla may be a bubble, but at this point attempting to pick the top is foolish. While you may commend the short sellers for their perseverance, Tesla has become a beast that they will struggle to topple. I am completely confident that Tesla does not deserve to be valued at half a trillion dollars but will I put any money on it? Definitely not.
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