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Elon Musk Versus the Haters

Before jumping on a plane to London later this evening this article popped into my feed – Elon Musk Versus The Haters

Mark Spiegel likes to think of himself as a car guy. That’s why he began shorting the stock of Tesla Inc., the electric-car maker that is part of CEO Elon Musk’s mission to save the planet, starting with the auto industry. “I’m a total car nut; cars fascinate me,” says Spiegel. That said, he has never driven a Tesla. It just doesn’t interest him. “I’m more into sports cars,” he explains. As for the environmental benefits Tesla promises, he says, “I am agnostic on that.”

But the 56-year-old hedge fund manager has an opinion on Tesla’s high-flying stock — and it’s bad. Dressed in khakis and a baby-blue polo shirt when we met recently for drinks at the Pierre hotel’s art deco cocktail lounge in midtown Manhattan, Spiegel is a wiry ball of energy who explains how selling commercial real estate to guys running garbage and garment companies in the Bronx and Queens taught him that business is “sharklike.” He’s jazzed up on two Diet Cokes and talks almost nonstop about Tesla’s financial woes, ranting about what he calls the deceptiveness of Musk, the man whose supporters believe is the reigning visionary of Silicon Valley following the death of Apple co-founder Steve Jobs.

“Tesla is a zero,” Spiegel declares, reiterating the theme of his short presentation at the Robin Hood investment conference last November — a thesis that boils down to the fact that Tesla has been burning through cash and losing hundreds of millions of dollars a quarter, and will face a slew of electric-car competitors over the next few years. These include rivals like Porsche, which is what he drives. “Tesla is losing a massive amount of money with no competition, and yet massive competition is coming,” he says.

Spiegel has become something of a zealot on Tesla. His small hedge fund, Stanphyl Capital Management, runs a mere $8.5 million, given that it was down 20 percent this year through August. That’s largely due to his short of Tesla, which had gained 74 percent this year, making it the worst-performing short of the year through September 20, according to S3 Analytics, a firm that tracks short sales. Tesla is also the biggest short in the U.S. market; about 27 percent of Tesla’ free float is short, for a value as high as $10 billion. Even so, Spiegel says he has gotten a “lot shorter” as the stock has soared; it’s now 25 percent of his fund. “The bigger the position gets, especially when it’s going against you, the more it tends to focus your mind,” he says.

This first section is extremely instructive and a terrific lesson in what not to do. My first comment would be a rather churlish one – $8.5M is not a hedge fund, its a personal  account and given that the fund has a concentration bet on TSLA going down one could say it is perhaps not the most savvy fund going around. Nor is it surprising that it is only $8.5M. However, what is interesting is the degree of obsessiveness displayed by Speigel with regard to TSLA and particularly Elon Musk. Musk is a polarising figure – particularly for short sells of all sizes who seem to be fixated on him. This fixation is intriguing because it is a form of displacement – this displacement to an external agent is used to generally allay anxiety in the face of some form of calamity. In simple terms it is easier to blame someone else than to take responsibility for your own actions.

…..Einhorn, too, is losing money shorting Tesla as part of what he calls his “bubble basket,” as is renowned short-seller James Chanos of Kynikos Associates, who has been railing against Tesla for at least two years on CNBC and at numerous conferences. He has gone so far as to call Tesla a cult.

“If you wouldn’t short a $65 billion company with negative free cash flow, questionable accounting, an executive exodus, in a soon-to-be-competitive industry, what would you short?” Chanos said in a September 20 interview with Institutional Investor, telescoping a litany of the short sellers’ complaints.

Tesla may have briefly surpassed General Motors Co. in terms of market capitalization, but it is swimming in red ink. Its cumulative losses have hit $3.7 billion, and negative free cash flow was $1.8 billion as of June 30. Both numbers are expected to get worse before they get better. Negative free cash flow could hit $4.7 billion this year, for an unprecedented total cash burn of $10.6 billion, says Sanford C. Bernstein analyst Toni Sacconaghi.

Small wonder everyone who’s anyone in Wall Street’s small and clubby world of short sellers has been short Tesla at one point or another. Citron Research’s Andrew Left, famous for his bomb-throwing short research, was one of the first to publicly attack Tesla, in September 2013, three years after it went public, when it was trading around $180. He warned investors that “the stock is perched at a level of extreme unsustainability.” He reiterated his short arguments this summer, when it was trading at $327. Another Tesla basher is retired short-seller David Rocker, who says Tesla “is one of the most incredulous divorces between facts and dreams” he’s seen in a 50-year career of investing. Rocker has 2 percent of his net worth short Tesla, and he also has become an investor in Stanphyl Capital……

As they say misery loves company – what is interesting is that traders with the same narrative tend to cluster around. Confirmation bias is a large problem in trading because traders dont want to hear a differing opinion they want to hear their opinion mirrored back to them as if it were correct. Such traders will keep asking people for their opinion until they get the same opinion as theirs. All other opinions are discarded and then their own opinion is reinforced.

You notice to how the narrative is simply a story that someone has created and the more desperate the situation becomes the more the narrative is clung to as fact. Poor traders never realise that their narrative is simply a story it is not fact – the fact is that TSLA is up 72% this year and in the first half of the year made a continual series of new 52 week highs. These are the facts and you they do not alter whether they are believed or not. Price has no capacity at all to absorb anyone’s narrative, therefore it doesn’t care because there is no way to enforce a narrative on price. You may get lucky and price and narrative may briefly align but then this is just luck it has nothing to do with idiosyncratic notions of personal ability. With regard to the future of TSLA – I have no idea and nor does anyone else. It may go to zero or it may go to the moon.


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