Jim Chanos (Trades, Portfolio) is a veteran short seller and the founder and president of Kynikos Associates. Over the course of his career, he has made headlines by taking high-profile bets against some very big companies, most notably Enron.
More recently, he has been publicly critical of Tesla (TSLA, Financial), and has put his money where his mouth is. Here’s what he had to say on the subject in an interview with Bloomberg.
It’s a car company
Chanos has many reasons for his short thesis on Tesla, including the erratic leadership, the deteriorating business fundamentals and the continuous lack of profitability. However, his main argument is that Tesla is ultimately just a car company, and it is overvalued on every metric that applies to other businesses in the automotive industry:
“It is a story stock that is being held up by people who want to believe that it’s on the cutting edge of [autonomous driving], electric vehicles, growth, or whatever else. But I keep on coming back to this tired old bromide: it’s a car company, it looks exactly like a car company, it’s been trading more recently in line with the other car companies (in terms of its moves up and down), it has to lay people off like a car company (not likely a Silicon Valley software company), it has manufacturing plants, like a car company, it’s got a lot of debt like a car company”.
Investors are trying to convince themselves that Tesla is a software company, when this is not the case. The business will lose money again this year - for the 16th year in a row. As Chanos points out, this is not a startup anymore, and so there has to come a point at which investors realise that there are other electric vehicle manufacturers out there, and that they do not typically incinerate cash like Tesla does.
As anyone who has been watching the financial news knows, a short position on Tesla has been an extremely expensive one to hold lately. The stock bottomed out in the summer of 2019 at around $185 a share, before rocketing up to all-time highs of $900 by February of this year. The recent market crash has done little to dull investor appetite for Tesla, as the stock trades at around $650 a share as of the writing of this article.
Still, Chanos remains convinced that his bet will ultimately pay off. In addition to what he sees as deteriorating fundamentals, he believes that the close ties between Tesla and China will ultimately be a very bad thing for the company, due to the rapidly deteriorating relationship between the U.S. and China. He thinks that the largest change in the mid-term future is that companies may begin to decouple from China and stop depending on their factories there for essential products and services. In such a context, it may not be such a great idea for Tesla and Elon Musk to cozy up to the country's government.
Disclosure: The author owns no stocks mentioned.
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