Caterpillar (CAT) Fundamentals Have Not Changed; Tesla/SolarCity “Makes No Sense”: Chanos

Jim Chanos runs New York-based hedge fund Kynikos Associates, which manages over $3.34 billion in assets. Mr. Chanos is famous for short-selling and is not afraid to speak his mind when it comes to his bearish stance on certain companies or even entire economies. In particular, Chanos has long been skeptical of the Chinese economy, which he thinks is doomed for a decline due to an impending real estate bubble burst.

Mr. Chanos recently talked about Caterpillar Inc. (NYSE:CAT), Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) on CNBC’s ‘Halftime Report’, giving his bearish take on these companies. Let’s find out the reasoning behind Chanos’ bearish outlook and see what other hedge fund managers think of them.

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Caterpillar’s Growth Prospects are Bleak

Jim Chanos is bearish on Caterpillar Inc. (NYSE:CAT), as according to him, the fundamentals of the construction equipment company have not changed since he first started betting against it. He said that Caterpillar’s stock was trading at about $80 when he first shorted it back in 2012, and the price is still in the same range today despite adjusted earnings estimates for the company’s 2016 and 2017 fiscal years being $15 and $18 respectively at that time, while the estimates today for those years have fallen to $3.50 and $3.60 respectively. Chanos thinks that the growth in commodities that happened in 2011 and 2012 was a “once-in-a-lifetime” phenomenon, and that there is serious overcapacity in the mining and construction equipment industry. Chanos thinks that the real estate and debt bubble in China has also not burst yet, which will lead to dire consequences for construction companies doing business there.

Jim Chanos
Jim Chanos

Caterpillar’s CEO Doug Oberhelman recently announced that he will step down by the end of the year amid the company’s record sales slump due to its overspending in equipment production and expansion. Oberhelman’s offensive expansion policy in China took a beating after an economic slowdown in the country and falling oil and commodities prices. Caterpillar Inc. (NYSE:CAT) is up by around 30% year-to-date. A total of 31 hedge funds tracked by Insider Monkey owned over $1.17 billion worth of Caterpillar Inc. (NYSE:CAT) shares at the end of the second quarter.

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On the next page we’ll discuss Chanos’ comments regarding Tesla and SolarCity.

Tesla Is About to Face Tough Competition

Jim Chanos roasted Tesla Motors Inc (NASDAQ:TSLA) over its acquisition of SolarCity Corp (NASDAQ:SCTY) during the program. Chanos thinks that the deal comes at a time when Tesla should be focusing on production and added that he will be “dumbfounded” if the deal goes through given that Tesla’s board denied lending money to SolarCity in the summer, which suggests that they were not confident taking on some of the risks associated with the company and given their own position. Chanos called the deal “perplexing” and thinks Tesla is trying to grow into an unnecessary business, as SolarCity is not a high-tech company. He also said that Tesla will double its cash burn due to the buyout. The investor also claimed that there were insider conflicts in the Tesla/SolarCity deal.

Mr. Chanos added that Tesla Motors Inc (NASDAQ:TSLA) is about to face tough competition, as several companies are readying to start production of electric cars in 2017 and 2018. According to him, the company is in a “dogfight”, and deals like SolarCity are a distraction. Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital owns 60 million shares of Tesla Motors Inc (NASDAQ:TSLA) as of the end of the June quarter.

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Disclosure: None