Here’s What Shorts Think About Tesla Inc (TSLA) and Why They’re Wrong

Tesla Inc (NASDAQ:TSLA) is probably one of the most controversial stocks on the market today. On the one hand, many people are genuinely excited about the company, its products and its (let’s face it) brilliant CEO, who apparently stops at nothing to do what he wants. On the other hand, the stock’s strong performance and skyrocketing valuation has created a lot of skeptics, many of whom have shorted the stock (currently over 38% of the float is short).

Among the investors shorting the stock is Jim Chanos of Kynikos, who said that Tesla’s problem is its scale and that it will struggle to increase its scale in order to become a fully-grown car manufacturer alongside General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Fiat Chrysler Automobiles NV (NYSE:FCAU), etc. Vilas Capital’s John Thompson has been another long-time critic of Tesla Inc (NASDAQ:TSLA), having called it an “over-hyped, lousy company” and a company that is “destined to go bankrupt”. In a recent letter to investors, billionaire David Einhorn‘s Greenlight Capital also outlined its short bet on Tesla (which has lost it a lot of money this year, as the stock gained over 30% in Q1) saying that the company is unlikely to produce its next Model 3 vehicle in high-enough volume and at sufficient margins to justify its current valuation.

Then there’s Mark Spiegel of Stanphyl Capital. Judging by his Twitter feed, Spiegel either has a very big bet against Tesla, or has some personal vendetta against Elon Musk, because he really wants to see him and Tesla Inc (NASDAQ:TSLA) fail. Last year, Spiegel spoke at the Robin Hood Investors Conference and outlined why he things that Tesla’s valuation is zero (he actually says it’s less than zero including the debt) in a 152-slide presentation. Basically, he thinks that Tesla will have a rough future as it will face more competition in the EV-space from larger car makers and that Elon Musk should not be trusted, because he is making misleading statements.

Copyright: wolandmaster / 123RF Stock Photo

Is Spiegel right? There is some truth in his ideas about Tesla Inc (NASDAQ:TSLA). The stock is indeed overvalued, as also expressed by other big fund managers and a lot of this overvaluation has more to do with the hype around the company, its innovation, and Elon Musk’s genius. At some point the hype will dial down and the stock will fall, probably by a lot (analysts currently mostly rate the stock as a ‘Hold’ with an average price target of around $271). Plus, Spiegel seems to be a great investor, with Business Insider saying Stanphyl’s gains amounted to 34.7% in the first 11 months of 2016. On the other hand, it’s the opinion of a guy who’s clearly trying too hard, and who clearly has an interest in seeing the stock go down. And the market, for its part, seems to not give a crap about short-sellers’ opinions, as Tesla’s stock is 44% in the green so far this year (probably a lot of that has to do with “animal spirits”, though).

So, on the one hand we have the analysis conducted by short-sellers like Spiegel and the opinions presented by Einhorn, Chanos, and Thompson. On the other hand, we have Tesla Inc (NASDAQ:TSLA) bulls like Ron Baron, who expects to quadruple his investment in Tesla by 2020 and Social Capital LP’s Chamath Palihapitiya, who at the Ira Sohn Investment Conference earlier today, compared Tesla’s performance to Apple Inc. (NASDAQ:AAPL), but said that he hasn’t bought shares of the company, opting instead for convertible bonds. This provides him downside protection and also gives him “a chance to stand shoulder to shoulder with the guy [they] think is our generation’s Thomas Edison.”