The prominent billionaire investor David Einhorn is sticking with his guns … that is, with his to date very costly strategy of betting against Tesla’s stock. The reasons? The same as before: he thinks that Tesla stock is overvalued and Tesla isn’t adequately capitalized to achieve its plans.
“The company is expected to burn over $2 billion this year as it begins production of its Model 3,” Einhorn stated during a recent earnings call for his reinsurance company Greenlight Capital Re. “It is currently only capitalized for the next three quarters.”
In addition to recent heavy losses as a result of bets against Tesla, Einhorn’s Greenlight Capital has experienced performance bumps as a result of bets against Amazon.com and Athenahealth — collectively part of his “bubble basket,” stocks he’s shorting.
Reuters provides more: “Tesla’s share price has surged 50 percent to $319.82 since January and Einhorn said the rise weighed on his fund’s performance between April and June. This week Tesla’s share price has dropped after Chief Executive Officer Elon Musk warned that the company would face ‘manufacturing hell’ as it ramps up production of its new mass-market Model 3 sedan.
“In July Einhorn’s Greenlight Capital performed better when a 2.1 percent gain helped wipe away almost all losses for the year. On the call Einhorn discussed only second-quarter performance. During those three months the fund lost 4 percent, leaving the firm with a 2.8 percent loss in the first half.
“Greenlight Capital, like most hedge funds, is trailing the broader stock market Standard & Poor’s index 11.6 percent gain in the first seven months of 2017. Einhorn also said the fund lost money on its bets against Amazon and Athenahealth. But he is not making changes, saying, ‘I like the composition of the portfolio.'”
That may not be the worst choice over the mid-term, as it does seem pretty likely that a recession and a large stock market correction or crash will be arriving sometime within the next year or two. Timing is (almost) everything in the stock market, though, so we’ll have to wait to see how the strategy pans out in practice.
Below is Tesla’s one-year stock price graph and its one-day (+ after hours) graph.