While its cars are near-universally praised, Tesla Inc (NASDAQ:TSLA) has plenty of detractors when it comes to its viability as a business model and investment. 27% of the stock’s float is being sold short as of April 28, and numerous bears take swipes at it at every turn.
Nonetheless, the stock continues to defy the bears’ roars and march ever upwards in value. Shares topped $325 for the first time earlier this year and have gained 70% since December 2 despite the company’s results continuing to miss targets. Heck, the company’s own CEO admits that the stock is overvalued, yet even that does nothing to slow it down. It appears that reality has led Scott Miller‘s Greenhaven Road Capital to give up on its Tesla short, as revealed in the company’s first-quarter letter to investors.
“We were able to side step much of the Tesla carnage, but I undeniably underestimated investors’ ability to ignore the poor unit economics, need for additional capital, and unrealistic pricing of the upcoming Model 3,” the fund’s letter stated.
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Greenhaven Road Capital appears to have begun shorting Tesla Inc (NASDAQ:TSLA) in the second-quarter of last year, as its investor letter for that quarter referenced that the fund was now shorting an unnamed auto manufacturer. It revealed Tesla as one of its major shorts in its third-quarter letter, declaring it a “cult stock” and stating that its unit economics are broken (the company loses money on every car made) which requires continuous access to the public markets to fund (Tesla did that again in March, raising $1.25 billion, more than half of which it’s already burned through). The fund also questioned Tesla’s ability to deliver the Model 3 on time and with the proposed 20-25% margins.
Bernstein analyst Toni Sacconaghi recently expressed the same concerns, stating that investors should be very worried about Tesla hitting its Model 3 margins target in the near-to-medium-term, while Argus recently predicted that Tesla will now post an operating loss in 2018 after the firm had previously predicted an operating profit.
Other concerns abound as well, including the fact that Tesla’s existing models already appear to be experiencing falling demand, with deposits sliding by $48 million quarter-over-quarter in Q1. There also appears to be some brand confusion in the marketplace regarding the Model 3, with some believing it to be a high-end successor or upgrade to the Model S, rather than the lower-end entry that it is. Brand confusion is partly credited as being responsible for the failure of Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY)’s Wii U console, so Tesla will need to correct perceptions of what the Model 3 is ASAP.
Then there’s The Guardian’s story today on the working conditions at Tesla’s Fremont plant, where ambulances have reportedly been called hundreds of times since 2014 to deal with injured and exhausted workers. CEO Elon Musk admitted that the workers there are putting in long hours and on hard jobs, and stated that “we’re a money losing company” to emphasize that corners aren’t being cut out of greed, but necessity. “It’s just a question of how much money we lose. And how do we survive? How do we not die and have everyone lose their jobs?” Musk has said that Tesla’s goal of producing 1 million vehicles annually by 2020 is “still quite likely”; it produced less than 84,000 vehicles in 2016.
Tesla’s stock has essentially remained a speculative one based on stories more than fundamentals, with investors and analysts continuing to remain split on whether the company can achieve its lofty goals. And as of now, the bulls appear to be telling the better stories and scaring off at least some of the bears.