Colorado-based investment firm Upslope Capital Management recently published its Q2 investor letters (you can download a copy here). In the letter, the firm discussed its investment thesis on Tesla Inc (NASDAQ: TSLA), Molson Coors Brewing, and Cboe Global Markets – we’ve already covered CBOE and TAP. In this article, we’re going to focus on Upslope Capital’s comments about Tesla. Here’s what Upslope Founder and Portfolio Manager George Livadas said about the electric car maker:
I confess that we are short Tesla, the high-flying electric auto manufacturer. I am mildly embarrassed to hold and discuss the position, given how crowded and unoriginal it is (I’ve even mocked the idea in the past, noting it’s quite stupid to short a stock that rises as the short thesis plays out). However, I think the time may finally be right.
Why now? In addition to the many well-known arguments for shorting Tesla, there are real signs that Tesla’s stretched balance sheet may be having an adverse impact on its quality and service. Combine this with the very public and increasingly erratic (to be very generous) behavior of its CEO (Elon Musk) and it’s not hard to see that the Tesla brand – for both consumers and institutional shareholders – is being tarnished.
Given how crowded the short is, managing risk is as important as getting the call right. To do this, we’re maintaining a modest short in the stock and pairing it with options. Lastly, I’ll leave you with this notable quote from Elon Musk about the now-bankrupt solar company, Solyndra:
“The most you could say is that Solyndra executives were too optimistic. They presented a better face to the situation than should have been presented in the final few months, but then, if they didn’t do that, it would have become a self-fulfilling prophecy of – as soon as a CEO says I’m not sure if we’ll survive, you’re dead.”
– Elon Musk (2011)
Tesla Inc (NASDAQ: TSLA) isn’t very popular among hedge funds tracked by Insider Monkey. At the end of the fourth quarter of 2017, there were 38 funds in our database with position the electric car maker.
Recently, Needham & Co. downgraded Tesla Inc (NASDAQ: TSLA) to sell from hold, citing a possible increase in Model 3 cancellations. “Based on our checks, refunds are outpacing deposits as cancellations accelerate,” analyst Rajvindra Gill wrote in the note, as reported by CNBC. “The reasons are varied: extended wait times, the expiration of the $7,500 credit, and unavailability of the $35k base model.”
Meanwhile, J.P. Morgan believes that Tesla shares will fall “dramatically the rest of this year due to its high valuation and rising competition,” according to a report by CNBC. The firm’s analyst Ryan Brinkman reaffirmed his $180 December 2018 price target for TSLA. On Friday, the stock was closed at $313.5. Over the past three months, Tesla shares have gained 10.63%. While the stock has dropped 7.66% over the past 12-month period.