Jim Chanos (Trades, Portfolio) of Kynikos Associates got on CNBC and pulled no punches. He really went after Tesla (TSLA, Financial) hard this time, ultimately saying he believes Elon Musk will leave his CEO position at Tesla to move to Space X. Quipping one motivating factor could be, "Mars has no extradition treaty with the U.S."
Ouch...
You can watch the full interview down below, but I've summarized Chanos' views for you along with my added commentary.
Chanos hinges his latest salvo on the departure of Autopilot chip architect Jim Keller for Intel (INTC). According to Chanos there is now an accelerating rate of executive departures.Â
Jon McNeill left to join Lyft in February and top finance executives Eric Branderiz and Susan Repo left in March (finance execs leaving is an especially ominous sign in my much more limited experience). If you wanted to defend Tesla you could argue there's a talent war going on in the autonomous driving and electric vehicle space and Tesla's execs are getting offers they can't refuse. The latter could definitely be a contributing factor.
Chanos mentions Tesla has been an OK short. He's been short for four years. He claims it hasn’t made any progress in the last four years.
I checked and that's not exactly true as per the graph above. If you measured it exactly four years ago, it appreciated by about 40%. However, if Chanos put his short on at the peak of the 2014 rally he's correct. Relative to the S&P 500's performance over that time frame Tesla didn't really go anywhere.
"Its been volatile but it went nowhere. When we shorted the earnings estimate for 2020 was $20 per share. Now its $4-5 per share."
End of 2019 estimates are now for about $2 per share while these were still $6.5 about a year ago.
I reviewed historical suprises and curiously, Tesla tends to surprise with better revenue and much worse earnings:
But the big problem according to Chanos is:
Porsche is coming.
Chanos is referring to the Porsche mission E. Quite an attractive high-end all electric vehicle.
"What Tesla did was make e-vehicles sexy. But the model S is 7 years old. Now the big boys are coming out with their models."
To add insult to injury Chanos says Tesla is a laggard in autopilot. It is behind General Motors (GM) and its cruise technology according to the short-seller. But it is also behind Waymo and others.
Chanos starts really digging into it when he compares Tesla to Enron and Valeant.
The only companies I’ve seen with an executive departure list like this were Enron from Houston and Valeant.
Enron collapsed and Valeant went from $250 per share to around $10.
Prodded on whether he believes Tesla is a fraud, Chanos picks his words carefully. He doesn't go that far. He sums up a number of Musk claims that he believes can be viewed as material misstatements:
- That the Roadster would available 2020 .
- That the Semi would be available 2019.
- That executives told Elon the Model 3 targets wouldn’t be hit. Elon made statements they would.
Chanos also has some problems with the accounting, in particular the way the automaker reports gross margins. Tesla apparently does it differently from all other auto companies. This inflates Tesla’s gross margins by 10 points. It also means its SG&A is higher than everybody else's. But it keeps pointing to gross margin comparisons.
Finally, Chanos believes Musk is going to leave the company as CEO. He’s going to move over to Space X. The Musk compensation package allows him to keep it if he remains chairman but not CEO.
We'll have to see how it all ends, but I haven't seen Chanos this confident about the Tesla short in a long while. With the executive departures things are looking bad and the stock has been volatile lately, I'm definitely glad not to be long.
Disclosure: Author owns Valeant.
