Tesla Inc. (NASDAQ:TSLA) has proven to be one of the most divisive stocks over the years, driven by the tension between CEO Elon Musk and the many well-known investors who are shorting it. Multiple hedge funds highlighted their Tesla positions in their recent letters to investors, and perhaps unsurprisingly, those who are talking about the stock are shorting it. At least one firm suggested the EV maker may even be engineering its financials.
Meanwhile, Tesla stock is soaring today on a major upgrade from one analyst firm, increasing the pain felt by short-sellers.
GrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More
Analyst is bullish on Tesla
Canaccord Genuity analyst Jed Dorsheimer said in a note today that he has upgraded Tesla stock from Hold to Buy and boosted his price target from $330 to $450 per share. His bullish view is based on his firm's white paper on electric vehicles. He also said he believes the last two quarters and recent Q1 guidance "have removed significant concerns for both production capability and profitability of the critical Model 3." He thinks this year will be "more stable… with far fewer concerns for investors."
Dorsheimer even said he believes Musk "is demonstrating a calmer demeanor characteristic of strong leaders." However, there continue to be examples of things he probably should not have said. For example, Navigant analyst Sam Abuelsamid told Business Insider recently that Musk's recent claim that Autopilot is capable of full autonomy was "reckless." It also seems unlikely that short-sellers will forget the tweets that got Musk into trouble last year.
Despite all of Dorsheimer's positive remarks, there are still plenty of short-sellers whose concerns haven't been alleviated yet.
RBI is shorting Tesla with Qs about financials
For example, Skip Tague of RBI Capital Management updated his fund's short position on Tesla in his fourth-quarter letter to investors. The EV maker was a winning short for the fund in the third quarter, but fortunes reversed in Q4, and it became a major losing position for RBI.
"After a better-than-expected earnings report in October, the stock gained 45% in the subsequent 6 weeks, and it held up surprisingly well in the market correction in December," he explained.
He then went on to question whether those strong results may have been "engineered."
"Given the backdrop of the SEC penalties and negative publicity surrounding Elon Musk, they couldn't afford an earnings disappointment," Tague wrote.
He also described two potential points of evidence which may support his view: "a boost to profits from the sale of government credits, and a reduction in warranty reserves."
"In both cases they were higher than previous quarters, providing a potentially unsustainable boost to net income."
However, he also admitted that he could be wrong about Tesla, so he trimmed the fund's short position "somewhat." He cited the "significant improvement in operating cash flow" as the reason he might be wrong about Tesla, adding that he will be "watching this metric very closely to see if that was a blip or a trend."
Stanphyl Capital also questions earnings
Mark Spiegel of Stanphyl Capital has spoken and written in depth about his short thesis for Tesla for quite some time. In his January letter, he also questioned the automaker's last earnings release — and its January update. He seems to have similar concerns about Tesla's financial reports, and he calls the automaker's stock "the biggest single stock bubble in this whole bubble market."
He said Tesla lacks anything meaningful or "substantially proprietary." He also believes the automaker "will again son by losing a lot of money and has a terrible balance sheet." Finally, he described Musk as "extremely untrustworthy."
In his January letter, Spiegel went beyond what Tague said about Tesla's Q3 earnings release and cast doubt on the automaker's January update as well.
"In January Tesla reported an (unaudited) Q4 2018 GAAP profit of $139 million that (as anticipated) was considerably smaller than Q3’s never-to-be-topped and highly misleading (as explained in previous letters) figure of $312 million…"
He went on to say that Tesla's Q3 earnings call was "filled with so much hilarity that it's hard to pick a favorite example." He also alleges that the call contained "so many lies and obfuscations" that it "must be heard to be believed." Additionally, he explained why he expects the automaker to revert to losses this year.
"… the company guided to a (desperately needed, based on currently awful customer service) opex increase of "less than 10%" in '19. Let's say it's 9% x the 2018 number of $4.43 billion = $400 million = $100 million/quarter. As noted above, Tesla also guided to annualized unit sales equal to those of Q4 2018, which had net income of $139 million. So before adjusting 2019 income for the far fewer (vs. Q4 2018) GHG credits that will be earned (due to far more sales overseas, where those credits aren’t earned), we derive just $39 million/quarter in 2019 earnings. However, after Q4 2018’s $94 million in GHG credits are halved (due to more sales overseas), that profit will be wiped out completely.
Vilas Capital covered Tesla short but reentered
Vilas Capital has also held a short view of Tesla for quite some time, and CEO John Thompson updated their position in an email to ValueWalk.
"We have a short position in the stock and have sold out of the money calls and leaps," he tells us. "We had covered the entire position around $270 and re-entered when it rebounded. We are short because Tesla is incredibly overvalued, as it has a larger enterprise value than Daimler, is facing massive competition from incumbents with extremely strong balance sheets and distribution capabilities, is facing the expiry of their tax credits, which will effectively create a material price increase for consumers, is simultaneously faced with an extremely weak balance sheet, and has apparently extinguished much of its demand for higher end cars due to the very small size of that market, their burst of sales the last few years, and its aging offerings."
Other funds commenting on Tesla
Plenty of other hedge funds also hold positions in Tesla, but some avoid talking about them. Odey listed a notional short position of -5.4% in Tesla in its December 31 update, although the fund's management didn't discuss the position. In fact, Odey's Tesla short was one of its top 10 holdings during Q4, coming in at fourth place.
Livermore has also held a short position in the EV maker for some time. Seth Klarman protégé James Litinsky of JJL Capital also expressed skepticism about Tesla in one of his letters to investor late last year.
These funds are probably short Tesla
Now we come to the funds which haven't said they are short Tesla, but they do say they are shorting an automaker which can only be Tesla, based on what they said about the "mystery" automaker short's CEO. GMT Capital and the David Einhorn-backed Firefly both fall into this category.
Firefly's description of the "mystery" automotive company says this: "It was a crazy year for this company—which nearly went out of business and missed all the milestones it articulated at the beginning of the year—and its CEO, whom the SEC sued for market manipulation. The company reported a potentially promising quarter in October, and all was forgotten."
Firefly remained short on this unnamed automaker at the time of their Q4 letter.
We should note that GMT's Bay Resource Fund mentioned this short last summer, so it's unclear whether the position has been covered by now.
This article first appeared on ValueWalk Premium