As of December 25, tesla’s (TSLA) shares were trading around $425.25 a share in pre-market trading, just a stone’s throw from their all-time high of $425.47 a share. The company’s shares have risen more than 64 per cent since September. It has also left many Wall Street hedge fund bosses betting on gains from Tesla’s fall.
Ihor Dusaniwsky, head of forecast analysis at S3 Partners, a financial analysis firm, admits that the recent surge in Tesla’s share price has sent short-sellers into a “winter of despair” as Tesla’s short losses amount to $2.43 billion. Among them are David Einhorn, head of Greenlight Capital, Mark Spiegel, managing partner at Stanphyl Capital Management, and Morgan Carey Capital Management. Mark Yusko, founder of Creek Capital Management, and Jim Chanos, co-founder of Kynikos Associates, the world’s largest short hedge fund, are among the biggest fund makers.
Greenlight Capital, for example, had a 24 per cent return on investment in the first three quarters of this year, but its return on investment was driven down 8-9 percentage points by the recent surge in Tesla’s share price.
David Einhorn had to admit that shorting Tesla’s position had caused significant losses to GreenLight Capital.
Elon Musk, Tesla’s founder, took the opportunity to taunt David Einhorn. He wrote directly to David Einhorn, pointing out that his previous “false allegations” against Tesla were meant to save face to investors, but that Tesla had let Green Capital’s performance slip over the past few years, sliding from $15bn to $5bn in assets under management.
On December 25th a Green Light Capital source told the 21st Century Economic Report that the decline in green-light capital management had no strong correlation with Tesla. The main reason is that the global recession has increased pressure, which has led many rich LPs and large capital managers to shift their money into more robust portfolios and are less willing to offer high returns in high-risk investments.
It’s worth noting that the sound of short Tesla has warmed as Tesla’s stock price has soared recently.
Morgan Stanley analyst Adam Jonas said in a new report that Tesla’s share price would fall back from $420 to $250 a share because tesla’s current share price is grossly overvalued for a carmaker.
“In fact, today’s tesla’s empty game has morphed into a battle of honours between a rich man (Tesla founder Musk) and a bunch of rich (many hedge fund bosses), who can’t afford to lose.” A Wall Street hedge fund manager told 21st Century Economic Stoin that if Musk loses, Tesla will face huge shorting pressure and even risk breaking the capital chain again. On the other hand, if these hedge fund bosses lose out, it means they may lose years of hard-earned market reputation, and it will be difficult to win over LPs again.
Fund bigwigs never concede to be out of the game.
Tesla has long been one of the most controversial publicly traded companies in the U.S. stock market. For years, Tesla has topped the U.S. stock market, accounting for more than 20 per cent of the market, more than 10 times higher than the dow jones average.
The reason for this is that a number of Wall Street hedge fund bosses have strongly questioned Tesla’s earnings prospects and sustainability in market demand growth, and Tesla’s high debt ratio has convinced them that the company could face “bankruptcy” at any time.
In particular, the fund’s enthusiasm for Tesla’s sell-out surged last year after Musk said he was considering privatizing Tesla for $420 a share, was investigated by the SEC for allegedly violating disclosure rules for U.S. public companies and eventually settled for a $20 million fine. Because, they think, Musk is “drawing an unlikely pie.”
There are a number of Wall Street hedge fund bosses involved in shorting Tesla, including David Einhorn, head of Greenlight Capital, and Mark, managing partner of Stanphyl Capital Management. Spiegel, Mark Yusko, founder of Morgan Creek Capital Management, and Jim Chanos, co-founder of Kynikos Associates, the world’s largest short hedge fund, each have more than $100 million in fortunes.
Tesla’s dismal performance in the first half of the year has also left the fund’s big wigs grinning. A loss of about $1.2 billion in the first half of the year, when Tesla’s new car deliveries fell short of market expectations, sent a large number of investment banks, including JPMorgan Chase, down from $215 a share to $200 a share.
21st century economic report reporter learned that at that time, a lot of domestic private equity tycoons also participated in shorting Tesla stocks, they also learn from the practice of overseas fund tycoons, forming some alternative stock price trend criteria. Before Tesla’s results, for example, they’ll see if Musk goes on vacation or stay at tesla’s plant to oversee production, which bodes well for better-than-expected results, so they’re back-to-back to chase Tesla stocks, and the latter means Tesla’s new cars are delivering less than expected, and they’re going to lose more.
To their surprise, Musk had neither vacationed nor stayed at the factory before the third-quarter results, but Tesla delivered a good result, such as a $143 million profit outside the company for the quarter, and new car deliveries continued to hit record highs. At the same time, tesla’s Shanghai Super plant is well ahead of schedule, making tesla’s China-made Model 3 on the market early, and the first electric pickup, CyberTruck, receiving orders for more than 250,000 vehicles in the month after its launch.
“This suddenly changed the impression that the capital markets were burning off Tesla’s money and losing money, and instead focused on the potentially huge earnings outlook that Tesla’s Shanghai superfactory would bring to Tesla, triggering a surge in Tesla’s share price, causing heavy losses to many fund bosses betting on Tesla’s share price decline.” The hedge fund manager told reporters.
Dusaniwsky’s latest report estimates that Tesla’s current share price is 25.46 million, but if Tesla’s share price continues to rise to $450 a share, the total number of shorted shares will fall below 20 million.
However, the fund’s big wigs did not claim to be out of the game, but firmly stayed.
Jim Chanos, founder of the world’s largest short fund, made it clear that Tesla remained one of his biggest short positions. Because Tesla’s valuation is seriously high.
In his view, Tesla is essentially a car manufacturer, not a so-called technology company, and the car manufacturing industry itself is capital-intensive and requires large upfront investments to generate returns through long-term and effective operations. As a result, Tesla’s share price of $350 reflects capital markets’ valuation of its best products.
Ihor Dusaniwsky, managing director of S3 Partners, told 21st Century Economic Sin, that he observed that while some small investors were shorting their short positions because of the recent surge in Tesla’s stock price, they included David, founder of Greenlight Capital. Hedge fund bosses such as Einhorn remain unmoved.
“In fact, they will all bet on the success or failure of Tesla’s share price decline, linked to their years of reputation in the capital markets. For them, this is a lost game. If they lose, they will not only suffer huge losses, but may also lose a lot of LP trust. He said bluntly.
The unexpected spoiler decides the success or failure of the duel.
It’s worth noting that the winner of this long-empty game may come from an unexpected spoiler.
The Government of Japan’s pension fund (GPIF) recently announced it would suspend lending of overseas shares because it believes the move is inconsistent with the management responsibilities of long-term investors and the lack of transparency in the process of lending shares.
Immediately after the decision by the Japanese government pension fund, Tesla founder Elon Musk tweeted, “That’s great, it’s right! Shorting should be illegal.”
The reason is that the Japanese government pension fund once the suspension of overseas stock loans, will lead to fund bosses “borrow” Tesla stock for short profit operation space to shrink, so that Musk in this long-short game of the winning side suddenly increased.
However, many fund bosses have not conceded it.
21st Century Economic Reporters have learned that fund bosses, including Greenlight Capital founder David Einhorn, are still actively persuading big investment banks to lend more Tesla stock to short. The reason is that the current surge in U.S. technology stocks has led to a recent surge in Tesla’s share price, but when that wave of pursuits comes to an end, investors will quickly realize that Tesla is essentially a carmaker, not a so-called technology company, and they will instead bet that Tesla’s share price will return to a “reasonable range”.
David Einhorn even thinks Tesla’s recent stock price rally is surprising, given its endless negative news and growth.
Jim Chanos, co-founder of Kynikos Associates, the world’s largest short-funded hedge fund, also went on to sing about Tesla: “Who else can be shorted if you can’t short a cyclical industry start-up with ultra-high leverage, doubting financial audits, and constant executive departures?” So Tesla is still our best short position. “
In the hedge fund manager’s view, despite Musk’s sudden rise in the gap with a host of fund bosses, it is the company’s performance that really determines Tesla’s stock price.
“At the moment, global investors, including many private equity funds in China, are eyeing the continued boost in Tesla’s profitability in new car deliveries and sales at Tesla’s Shanghai super plant, and capital markets will soon vote on Tesla’s foot if that profitability falls short of market expectations.” “At present, many hedge funds have hired high-tech companies to “detect” the electricity consumption of Tesla’s Shanghai super plant, as well as the supply of some important components within the plant, to determine whether Tesla’s future profitability can exceed expectations, according to the fund manager’s analysis. In fact, it will also affect much of Musk’s showdown with a host of fund bosses.