Tesla Short Says Automaker's 'Hyper-Growth Story' is Over

January 2, 2019

By Chloe Aiello

Tesla's latest production miss proves it is no longer a "hyper growth story," Tesla short Mark Spiegel told Cheddar on Wednesday.

"Right now Tesla ($TSLA) is just an egregiously overvalued automaker, it's no longer a hyper growth story," said Spiegel, whose hedge fund Stanphyl Capital has launched an aggressive bet against the carmaker.

Tesla shares tumbled close to 7 percent on Wednesday after the company missed expectations on car deliveries and broadly discounted its vehicles to offset subsidy cuts. In a note to investors, Tesla ($TSLA) reported it delivered 90,700 total vehicles ー Wall Street was expecting 91,310. Of those, 27,550 were Model S and Model X, although analysts surveyed were expecting 27,800. Tesla delivered 63,150 Model 3s, falling below the Street's expectation of 65,300.

Tesla on Wednesday also announced that it is cutting the price of all three models by $2,000 in an effort to absorb some of the cost associated with a reduction in federal tax credits for electric vehicle owners. As of Jan. 1, Tesla's $7,500 federal tax credit was cut in half to $3,750. Tesla was down about 6.3 percent in intraday trading at about $311 per share.

Sean O'Hara, president of Pacer ETF Distributors, agreed with Spiegel that Tesla's growth may have topped out. O'Hara's company Pacer Financial neither owns Tesla stock nor includes the shares in its ETFs.

"There are from time to time disruptive technologies that you would invest in because they have such huge growth potential, but what I think what you are seeing with Tesla here, based on their production numbers, is their growth potential may be peaking out at this point," O'Hara told Cheddar on Wednesday.

Concerning the electric vehicle subsidy cut, Spiegel said it foreshadows a plunge in demand for the Model 3.

"The huge backlog of orders that Tesla claimed in the hundreds of thousands, that was for a car that was fictional that will never exist. It was for a $35,000 Model 3 with a $7,500 tax credit," Spiegel said.

Dan Ives and Strecker Backe of Wedbush were less pessimistic in a Wednesday morning note, calling the price cut "a potential positive for demand but not what the bulls wanted to hear on the impact to profitability and ultimately the bottom line." The firm remains bullish on Tesla, maintaining a $440 12-month price target on the stock and an "outperform" rating.

The electric vehicles subsidy cuts will of course impact other automakers, too, but according to O'Hara, it is unlikely more traditional players in the space will implement across-the-board discounts on vehicles. These more established competitors, like Porsche and BMW, present a rising challenge to Tesla as they push deeper into the electric vehicle space.

"My opinion on Tesla is that sooner or later the major auto manufacturers are going to figure out how to squeeze them out," O'Hara said. "For a while they were a glamorous name in an uncrowded marketplace and they were a first mover, but I think they've got very very stiff competition with entrenched distribution networks already in place."

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