Tesla Motors Inc is coming out with its cheaper and more affordable electric car – the Model 3 – next year, and the customers are eager to own it. However, even though the car has created a lot of buzz, one hedge fund manager thinks the Model 3 will end up being a total disaster for the electric maker, according to Fortune.
Tesla stock – a bubble
Mark Spiegel – the founder of hedge fund Stanphyl Capital Partners – says the Model 3 will likely put Tesla Motors Inc out of business. His price target for the stock is $0. Spiegel says the Model 3 may put the automaker on a path to bankruptcy even before it comes out.
This week, while speaking at the Robin Hood Investors Conference, Spiegel laid out his case in a 152-slide presentation on why he is betting against Tesla stock. In his November letter to the investors (obtained by Fortune), Spiegel said “I continue to believe that it’s the market’s biggest single-company stock bubble.”
That “bubble” however deflated a little after the presentation by Spiegel Tuesday morning, with Tesla’s stock declining more than 3% by the end of the day, while the broader market hiked. On Thursday, the shares of the car maker dropped another 4% after his presentation was shared publicly, says Fortune.
What could go against Tesla?
At the conference, Spiegel said the real reason why investors bought into Tesla’s stock is the prospect of an affordable Model 3, which is half of the price of other Tesla electric cars. He added “that will never happen” because at that price, the automaker would be selling the Model 3 at a huge loss.
Even though the Model 3 will be available for $35,000, CEO Elon Musk predicted that the average sales price of the vehicle will be about $43,000 once the buyers add various features and upgrades. Even at this price, the EV firm will lose atleast $5000 per car.
Others have a similar opinion
Stanphyl Capital handles funds worth $9m. It is little in comparison to other hedge funds, whose managers were also present at Robin Hood such as David Einhorn’s Greenlight Capital, Jeff Smith’s Starboard Value and more. It must be noted that Stanphyl Capital’s assets have quintupled since Spiegel released the fund five years ago. The fund has returned almost 35% through November this year, notes Fortune.
This is not the first time that a hedge fund short-seller has attacked the automaker publicly. In September, Jim Chanos, the Kynikos Associates investor who was betting against Enron before its scandalous demise, said that he is shorting Tesla Motors Inc as well. Chanos believed the automaker is doomed, specifically after its controversial merger with SolarCity. In 2016 so far, Tesla’s stock price has dropped nearly 25%.