Jupiter’s James Clunie reveals that Tesla is the biggest short in his absolute return fund, saying estimates show the firm might only have enough money to survive the next nine months.
The Citywire+ rated manager said that despite Tesla’s status as a ‘glamour stock’, the probability is ‘low’ that its ‘shares are worth what they are worth’.
Tesla is the largest short position in Jupiter’s Absolute Return fund at around 1.2%.
Clunie claimed that on some estimates, despite two ‘chunky’ capital raisings – $2 billion (£1.53 billion) through stock issuance in May 2016 and a further $1.15 billion through stocks and convertible bonds in March this year – the firm is ‘only capitalised to survive the next three quarters.’ The company is planning an additional $1.5 billion bond issuance this week.
But Clunie said the stock rates poorly on a number of quantitative screens, and has presented potential red flags in relation to the company’s balance sheet, quality, asset growth and accounting standards.
He added that there are ‘worrying metrics’ when it comes to the stock’s valuation, such as its high price to book ratio, with the market ‘banking on near-faultless execution of its growth strategy.’
The company stated recently that it has received 400,000 orders for its Model 3 affordable electric car, and aims to increase its production rate from about 90,000 vehicles in 2016 to 500,000 in 2018 to a million cars in 2020.
Clunie said: ‘That is quite an ambitious plan for a nascent car maker, which has yet to produce a car at a profit, has serially missed more modest targets, and will need to manufacture cars at the same pace as the most efficient factories at GM and Ford.’
He added that Tesla’s growth plan does not appear to factor in rising interest in electric cars by established car manufacturers, with Volvo recently releasing a statement that all its new models would be electric or hybrid by 2019.
As an investor with a vested interest in Tesla, Clunie has been surprised by ‘how much [Tesla founder Elon] Musk seems able to influence market behaviour’, especially with his posts on social media.
He said: ‘While most of his tweets promote his business ventures, on occasion they do seem to err towards influencing behaviour in the stock market.
‘Musk taunted short-sellers in the stock when the company’s market cap eclipsed that of Ford Motors in April this year, for example, tweeting “Stormy weather in Shortville…”
‘His comments are so closely watched that there is almost inevitably a reaction on the share price. We are of course careful not to extrapolate too much from these price moves.’
The Jupiter Absolute return fund has lagged the peer group average in terms of performance over the past year to June 2017, returning 0.5% compared to the average of 6.3%.
But it has performed better over three years, up 11.9% compared to the sector average of 10.6%.