Jim Chanos Questions Tesla Motors Inc (TSLA)’s Battery Business
Short Seller, Jim Chanos, is one hedge fund manager who is not buying the Tesla Motors Inc (NASDAQ:TSLA) story especially in the wake of reports that the EV giant is burning cash faster than initially thought. Speaking on Bloomberg, the Kynikos Associate’s founder and president took swipe of the recently unveiled battery business affirming it did not make any economic sense in the US.
CEO, Elon Musk, has already acknowledged the fact that Tesla will have to shift its attention to other markets including Germany and Australia with the small battery packs. However, the primary focus with the battery business will be on big companies that can buy big packs and in volumes as the company moves to generate more value from its battery factory.
“We’ve done some work during last week and canceled out the numbers and realized right away that neither of the units is really economic with the exception maybe being in peak hours in California. This story is all about 2020, 2025, the Gigafactory and I just keep pointing out that analysts who have very precise valuation for 2025 on this company can’t seem to get the current quarter correct,” said Mr. Chanos.
The battery business is expected to make more economic sense in Europe where net metering is not an issue as in the US. Despite the economic inefficiency concerns, Tesla Motors Inc (NASDAQ:TSLA) affirms that demand for the storage units will exceed demand once the Gigafactory comes online.
Reports that Tesla Motors Inc (NASDAQ:TSLA) could run out of cash in the next three-quarters has taken the Street by surprise. As the automaker continues to ramp up production for Model X, It is incurring a great deal on the battery factory. The cash burn is expected to put more pressure on Model X once it unveils at the start of the fourth quarter should the automaker not find a fix to its cash burn.
“The more car sales at the moment, the higher the cash burn that is not a position you want to be in; in addition his gross margin in the auto business X tax credit are dropping not going up. As an automaker you want economies of scale you want your margins to be flat to up,” said Mr. Chanos.
Jim Chanos of Kynikos Associates LP does not hold any stake or position in Tesla Motors Inc (NASDAQ:TSLA) as of 12/31/2014 based on 13F filed by the company.
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