3 Reasons Jim Chanos Is Still Bearish on Tesla Motors Inc (TSLA)
Tesla Motors Inc (NASDAQ:TSLA) is in a mess that is according to billionaire hedge fund manager, Jim Chanos, who continues to question the exit of high-profile executives from the company. The famed short-seller says shorting the electric carmaker is the right call, given the underlying issues. Skepticism over the automaker’s ability to ramp up deliveries at the back of a mass outflow of high profile executives all but continues to affirm short-sellers position.
Chanos remarks come as a surprise given that Tesla Motors Inc (NASDAQ:TSLA) has been on an impressive ride. The stock is up by more than 50% its February lows with a lot of room to run given its 52-week high of $286 a share. The recent wave of concerns, however, threatens to disrupt the impressive run as investors become wary of underlying issues.
Unending management Woes
The hedge fund manager bearish thesis alludes to the fact that getting it right on management is key to ramping up investors’ confidence.
Greg Reichow and Josh Ensign famed for helping build Tesla Motors Inc (NASDAQ:TSLA)’s current line of cars are in the process of leaving the firm. Chanos has already questioned the reasons behind the two leaving, which he believes is an indication of more trouble brewing in the company.
“One of our historical sign posts, of a company in trouble is when numbers of senior people leave over a short period of time. Tesla fits that bill,” said Mr. Chanos.
Tesla has lost a good number of top executives and engineers in the recent past. Many of its engineers have ended up at Apple Inc. (NASDAQ:AAPL) further arousing concerns that it could struggle to compete as competition becomes stiff in the industry.
Tesla’s Manufacturing Capacity Questioned
Failure to forecast deliveries one-quarter out is another underlying concern that Chanos says justifies his short position in the stock. Given the shortcoming, the hedge fund manager believes it is wrong to believe that the company will come through on it 2020 or 2025 projected deliveries.
During the earnings call CEO, Elon Musk said they are working on a plan to bring forward by two years to 2018, the production of 500,000 units of the Model S, Model X and Model 3. The sentiments have not gone well with Chanos, who believes the company is overstating some things.
Delivering 500,000 units may prove to be a tough task given the challenges the automaker is facing on production. Some investors have already expressed their skepticism on the plan given that the company delivered just 50,000 units of the Model X last year and now wants to stamp out ten times more.
Manufacturing issues, especially with the gullwing-doored Model X, further arouses doubts about the automaker’s ability to meet its delivery targets.
Tesla Motors Inc (NASDAQ:TSLA) has always insisted that a lack of enough batteries all but continues to hurt its production capacity. The pressure from building the Gigafactory plant could affect its ability to ramp up production given that the same calls for more capital expenditure. While Pre-orders for Model 3 suggest strong demand, it will be tough to achieve the projected deliveries given Tesla needs outside funding to support the same.
Tesla Motors Inc (NASDAQ:TSLA)’s ability to deliver over 500,000 units by 2018 is dependent on its competitive edge in the industry. More companies are rolling out electric cars that are quite affordable that could significantly affect the Menlo-park based automaker ability to meet its delivery targets. With the Model 3 not yet available for deliveries, the company could take some time before accruing some market share in the low-end marketplace.
Brokerage firms are no longer comfortable recommending Tesla as a buy. For the stock to trade higher from the current levels, Tesla Motors Inc (NASDAQ:TSLA) will have to quash concerns over the impact of the recent wave of the exit of high profile executives. The automaker also has to prove that its production capacity is more than capable of meeting delivery targets.
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