Earlier this month, I shared my thoughts about a CNN article that stated that Tesla (TSLA) short sellers lost more than the entire US airline industry in 2020. In that piece, I also shared some thoughts from Jim Chanos, one of Tesla’s most notorious and outspoken short sellers, who happens to still believe that Tesla will fail. Chanos is the president of Kynikos Associates. He spoke in the interview about dreams, autonomous taxis, spaceflight, and tunnels — while claiming that Tesla is only a car company and that it isn’t profitable.
My friend Earl, aka @28DelaysLater on Twitter, shared something that inspired me to write this piece. Here’s his tweet.
“Chanos said. “Tesla is a canvas upon which investors’ hopes and dreams now are being painted,” he said, drawing comparisons between investor optimism for Tesla and investors’ view of AOL as “a symbol in 1999 of everything you think the future will hold.” $TSLA pic.twitter.com/Ar2wxU9Skr
— 💎🐾Esteemed Earl of Frunkpuppy🐶 (@28delayslater) December 24, 2020
Earl was referencing a quote from a Barrons article in which Chanos explained why he doesn’t like Tesla stock. Now, it’s okay for him not to like the stock. We all have our likes and dislikes. I don’t like eggplant. But I’m not hoping that the eggplant industry will fail. I’m also not trying to profit off of the failure of the potential eggplant industry.
I should probably remind you — if you haven’t yet noticed my bio — that I am an investor in Tesla. I own 4.5 shares as of today. If you want to learn more about why I invest in Tesla, read my story here. Of course, nothing here is investment advice and we do not provide investment advice.
What Did Chanos Say About Tesla and AOL?
In that article by Barrons, Chanos compared Tesla to a canvas on which investors paint their optimism and their hopes of what the future will look like. This is somewhat true. However, he is doing the same thing by shorting Tesla. Tesla is a canvas for short sellers, on which they are painting a picture of a company that has failed and where Elon Musk is actually in jail for what they believe is a fraud. I’ve actually had short sellers tell me that Elon should be in prison for fraud — mostly as random responses to some of my tweets.
Chanos compared Tesla investors to AOL investors in the late ’90s, as “a symbol in 1999 of everything you think the future will hold.”
The point he is arguing is that those of us who invest in TSLA are illogically putting our hopes and dreams for the future into our imagination of what Tesla is.
The Difference Between Tesla Today & AOL In It’s 1999 Peak
I remember 1998 very well. My mother was poor and working while I was in high school learning about the internet. Computers were something that only the rich could afford, and the internet was slow, yet expensive. This was back before we could upload photos and videos to the internet, and if you entered a chat room, you were completely anonymous. No one knew what the people they spoke with looked like.
I would often go to the library to get on the computer — just to talk to people. I was a huge fan of Ville Virtanen (Darude) and was in his forums a lot — he actually read and encouraged me to write poetry. So I would share it in the group. However, I didn’t have an AOL email address because my mother couldn’t afford the money for an account. So I used Hotmail.
Eventually, AOL phased out as Google took over and many have since compared AOL to Nokia — remember when Nokia was the big thing in cell phones? Everyone (except for me) had one. When I was finally able to afford a cell phone, I went with Motorola. Then came the Blackberry, then the iPhone did to the cell phone industry what Google and big tech did to AOL.
So, comparing Tesla with AOL is of course meant to say that Tesla is king of the hill now but will fall hard before long.
I think this is clearly the wrong comparison. I believe that if you’re going to compare the two, you should take into consideration Tesla’s achievements in the tech industry, including the automotive industry. When you do this, you can see that Tesla is the Google or Apple of the automotive industry. Tesla, Google, and Apple each disrupted industries and permanently changed how those industries operate — and continue to lead those industries.
For Tesla To Fail On AOL’s Level, Here’s What Needs To Happen
Tesla, as with AOL back in its heyday, is the hottest new trend of its industry. However, unlike AOL, Tesla is changing the way people interact with their cars. It’s not just driving a car, but it’s engaging with the customer in a unique and entertaining way. Tesla has so many features that keep its customers happily engaged — whether its Dog Mode, Romance Mode, playing video games while parked, Caraoke, or whatever’s next. Tesla makes the idea of owning a car fun in a whole different sense.
For Tesla to actually fail, however, another company will need to come and do the exact same thing Tesla has done, but better — while forever changing the path of Tesla’s industries. Yes, plural, since Tesla is also an energy company providing renewable energy such as solar and battery storage.
This Won’t Happen Because Of Wright’s Law
Tesla actually has Wright’s Law working in its favor — or as Ark Invest puts it, Tesla is sustaining Wright’s Law. If you don’t know what Wright’s Law is, you can read the article I wrote about it and how it affects Tesla here. In that article, I analyzed a video shared by Dillon Loomis on his YouTube channel Electrified. Toward the end, Dillon captured how Ark was able to successfully predict Tesla’s success in one quote.
“When you factor in the pace of innovation at Tesla at every level of the company, it becomes easy to see what’s going to happen when the cost declines hit parity with ICE cars.”
This is something Chanos and his fellow short sellers refuse to see — and I think it’s because if they see it, they will realize they are wrong and many people don’t like being wrong. In my opinion, it comes down to ego and bias against Elon Musk.
Many Short Sellers Seem To Hate Elon Musk With A Noxious Devotion
Many short sellers, and by many, I mean those I’ve interacted with on Twitter, seem to really hate Elon Musk to the point they have slandered not just him, but have made attacks against his mother, his partner, his other companies, and even his children. They’ve mocked the name of his youngest child. This list goes on.
When Chanos said, “However you might want to dream about autonomous taxis, spaceflight, tunnels underground, whatever — they are a car company, and they are an unprofitable car company,” please take note that he referenced Elon Musk’s other companies — SpaceX and The Boring Company, even though they are indeed difference companies.
Although Tesla, The Boring Company, and SpaceX all have the same CEO, they are three separate entities. Sure, they are linked by Elon Musk. Yes, NASA used Tesla Model X vehicles to drive its astronauts to the Crew Dragon mission launches to the ISS. Yes, Tesla vehicles will be used by The Boring Company. It’s perfectly legal for one entity to use the product of another entity. It does not make them all one business.
For many critics, it’s about Elon Musk, not Tesla. And this unhealthy focus on Elon is why Tesla’s critics think Tesla will ultimately fail. When you are so eaten up by hatred, it will drive you to madness, and you will be unable to see past your own hatred and bias — to the point that if you realize you are wrong, you have to admit defeat. This is where the ego part comes in.
Ross Gerber said it best:
“What the analysts do is that they are skeptical of Elon and they are skeptical of technology, so they come into everything thinking that it can’t be true, and then they just need to prove that. It’s always easy to prove something you don’t want to believe in. So many investors have missed Tesla who just wanted to come up with reasons not to believe. In fact, most of these analysts just have a personal thing against Elon and they color their understanding of things with their biases. This is a really important point where I bet on people and I bet on the future. I think I know what I want the future to look like and Elon is building a future that I see and it just makes sense to me. But I felt like it doesn’t make sense to analysts because they don’t sit in their room thinking about the future. They are looking at financial statements from last year.” — from my interview with Ross Gerber.
To recap the article, in a nutshell, Tesla critics comparing Tesla to AOL have failed to see that Tesla is in fact permanently changing industry in the same way the iPhone did for the smartphone, Nokia did for the telephone, and Google did for search engines.
Tesla is sustaining Wright’s Law, which is key to its success.
The bias of the short sellers isn’t toward Tesla, but towards Elon Musk. They are so consumed with their animosity toward Elon that they have lost focus on anything else.
As for why Tesla is so disruptive, we’ve written about that at length. Here’s a nice series by Alex Voigt for starters:
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