Jim Chanos Tells Why He Is Shorting Tesla Motors (TSLA)

Jim Chanos, founder and president of Kynikos Associates explained his reasons why he is shorting the stock of Tesla Motors during a recent interview with CNN.

The billionaire hedge fund manager and well-known short-seller said Tesla Motors needs to transform from being a small, boutique and elite car manufacturer to a mass-market auto manufacturing company. He emphasized that such transition was a “very difficult thing” to achieve.

Chanos acknowledged that Tesla Motors has a great product—selling $50,000 to $100,000 cars, but he emphasized that it is a “small business.”

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Chanos says Tesla needs a lot of capital investment to compete

Chanos emphasized that selling millions of cars is where the stock is valued. He noted, “The stock is being priced as if they are going to completely succeed as a major car manufacturing.”

Chanos added, Tesla Motors “has a long way to go and it needs a lot of capital investment” to compete with major automakers such as Bayerische Motoren Werke AG and General Motors.

The billionaire hedge fund manager said Elon Musk, the CEO of Tesla Motors is a visionary, and he created a great product. However, he pointed out that it is a “different animal to be competing in the $35,000 to $40,000 space.”

Tesla Motors started delivering its Model X sports utility vehicle (SUV) last week, and it is continuing to accelerate its production, according to the company’s spokesperson. The Model X with prices starting at $132,000 is more expensive than the Model S with a base cash price of $70,000 to $75,000.

Tesla market value down by $3.5B since the Model X debut

Since the debut of the Model X SUV on September 29, Tesla Motors lost more than $3.5 billion in market value. It has approximately $29.4 billion market capitalization.

The electric car manufacturer’s stock closed at $220.68 per share, down by more the 2% on Friday. Tesla Motors’ stock was impacted by the bearish report from Brian Johnson, an analyst at Barclays. He reduced his price target on the stock to $180 per share.

According to Johnson, “While the bulls believe Tesla will be the next Ford, we see many challenges ahead for Tesla and argue the “crossing the chasm” is harder than it looks.”