The share price of tech market darling, Tesla, rose inexorably more than ten-fold between early 2013 and early 2018. One manager not convinced by the hype was Jacob Mitchell from Antipodes Partners, who presented his short thesis on the stock at Livewire Live as early as July 2017.
At its heart, Tesla is a very small car manufacturer with a very large market cap. We put this stock in a cluster of short opportunities called ‘overhyped growth’. They are also stocks that have been beneficiaries of very forgiving credit markets.
After then treading water for 6 months, the share price plunged 30% last month as the rubber hits the road. To hear Jacob’s full thesis, watch the video below.
Key points from the short thesis:
- Tesla is trying to be ‘all things to all people’; a luxury brand, a tech brand, alternative energy, the next iPhone
- At heart, Tesla is a small, overhyped car manufacturer.
- Tesla has been benefitted of very easy credit.
- Tesla makes only 3% of EV/hybrid global production.
- Car manufacturing is a highly competitive industry.
- They need to invest heavily to achieve scale and be profitable, but they have a shortage of capital preventing this.
Recent developments at Tesla
Production numbers for the critical Model 3 missed forecasts in the first quarter. The company produced 2,020 cars in the last week of the quarter, well short of the 2,500 target. Furthermore, it appear Tesla may have used extensive overtime and transferred staff from other production lines in order to get closer to the target. It would appear that this is not sustainable.
This week, Goldman Sachs cut their price target on Tesla and reiterated their Sell rating, downgrading the target price to $195. At close on 10 April, Tesla shares traded at $304.70, which implies over 36% down from the current price.
The closing price on 26 July 2017, the date the video was recorded, was $343.85. Tesla’s all-time intraday high was $389.61 on 18 September 2017.
Though the company denies that they will require a further capital raise this year, many including Goldman Sachs, have said that a capital raise will be necessary and difficult. Tesla’s bonds were recently trading at an 8% discount to their face value.