During the earnings conference call of Greenlight Capital Re Ltd (GLRE) on Tuesday, hedge fund manager and revered investor David Einhorn once again reiterated his bearish outlook towards Tesla Motors (TSLA), where he has been holding a short position for over a year.
Tesla’s 11% stock price increase in the past 52 weeks – especially the 18% rally since the market-beating quarterly results on October 24 – has deeply pained Einhorn’s short position. But he continues to be critical of the company, which he believes is at its peak and can no longer grow.
“We believe they’ve exhausted most of the demand from customers who can afford the highest-priced versions of the Model 3,” Einhorn said during the Greenlight Capital earnings conference call. “Tesla is contending with a litany of competitive, regulatory, human-resources, vehicle-quality and capital-structure issues.”
Who is David Einhorn?
The 49-year-old investor earned global fame after he famously shorted Lehman Brothers before its bankruptcy, which ultimately led to the 2008 financial meltdown. He publicly disclosed Lehman’s real estate investments that were improperly accounted, besides the company’s questionable accounting practices.
Later in 2011, Einhorn held a short position in Green Mountain Coffee Roasters, questioning the company’s accounting practices and expressing doubts over the market for its single-cup coffee brewer. Green Mountain missed street expectations in the next quarterly results, sending shares tumbling. The company was eventually sold to an investor group led by JAB Holding Company in 2015.
Einhorn is also a vocal critic of the practice of fracking, claiming that the business is not worth anything. He holds a short position in Texas-based energy company Pioneer Natural Resources (PXD).
Why is he shorting Tesla?
David Einhorn is probably Tesla’s most prominent bear and Elon Musk’s biggest nemesis. When Greenlight reported losses during the second quarter due to the increase in Tesla stock price, Musk, in a sly retort, sent him a box of short shorts.
Sometimes short positions hurt, but Einhorn is known for making concentrated bets. In fact, he has stated that his short position in Tesla is a winner in the third quarter despite it being costly. And he has his reasons.
In a recent quarterly investor letter, he likened Tesla to Lehman Brothers, stating “Lehman threatened short sellers, refused to raise capital (it even bought back stock), and management publicly suggested it would go private.”
“Months later, shareholders, creditors, employee, and the global economy paid a big price when management’s reckless behavior led to bankruptcy,” the letter added.
Einhorn has predicted a huge top and bottom line disappointment as Tesla reports fourth-quarter results, speculating that backlog for Model 3 has almost exhausted by Q3. He claims that it would be difficult to drive demand once the current backlog is completely done with.
He reminded investors that Model 3 production strategy was based on increased automation to improve productivity and reduce manufacturing expenses. However, once production was underway, Tesla managed to manufacture only 2,425 units a week, instead of the targeted 5,000. This forced Musk to employ more humans in the factories, which in turn, contradicts the original production strategy it was based on.
However, Einhorn’s speculations have not so far had much of an impact on Tesla as it did on Lehman a decade ago. Tesla shares were trading 2.3% up on Wednesday at 12:30 PM ET.