Chanos: Tesla 'Structurally Unprofitable' And Will Face Increasing Competition

Sep 29 2017 | 7:45pm ET

Famed short-seller Jim Chanos believes Elon Musk’s Tesla is “structurally unprofitable” and about to face serious competition from well-financed traditional automakers unwilling to cede the electric car niche to the company.

Chanos, head of hedge fund Kynikos Associates, has long been short Tesla, decrying its negative cash flow, unprofitability and overleveraged capital structure while simultaneously admitting its visionary approach and disruptive potential.  At the 2017 SALT conference in May, Chanos described Telsa as a “poster child” of the current market environment.

Chanos’ comments came during an interview yesterday on Bloomberg. “Three years ago, this company was supposed to be making money [by 2017]…now it’s supposed to be making money by 2020. And I’m guessing by 2019, we’ll hear about 2025,” he said.

Chanos also said he believed the company’s new, lower-priced Model 3 had been rushed into production to appease an impatient market and that Tesla’s autonomous driving technology was behind rivals. Meanwhile, Musk’s curious $2.6 billion purchase of beleaguered Solar City, run by his cousins and in which he was the largest shareholder, is expected to be a $1 billion drain on Tesla shareholders, Chanos estimated. 

Also concerning to Chanos: real competition looming from well-financed, profitable car manufacturers with money to spend. And they are all laser-focused on catching up to Tesla both in terms of cachet as well as in battery and autonomous driving technology.

Tesla is perennially one of the more popular short plays in the U.S. equity market, with approximately 19% of its freely floating shares sold short, Bloomberg noted. However, the stock has gained nearly 60% so far this year, squeezing those shorts and undoubtedly forcing some to cover.

Valuing the company has become a divisive exercise among Wall Street analysts as the company’s cash burn as a public company approaches a cumulative $10 billion, with targets ranging from a low of $170 and a high of $464 per share. Tesla closed Friday at $341.

Chanos founded New York-based Kynikos – Greek for cynic – in 1985 and has since successfully sold short a number of household names that became legendary financial wipeouts, including Boston Chicken, Sunbeam, Tyco International and Enron. 

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