Einhorn Says Tesla Investors ‘Hypnotized’ in Dot-Com-Like Bubble

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  • Hedge fund manager skeptical that sales will justify valuation
  • Bullish investors reject conventional approach, Einhorn says

QuickTake: Elon Musk Living on the Edge

Hedge fund manager David Einhorn said markets are too optimistic about Tesla Inc.’s prospects for expanding electric-car sales as stockholders put irrational faith in Chief Executive Officer Elon Musk.

“For the time being, investors remain hypnotized by Tesla’s CEO,” Einhorn said Wednesday in a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based insurer where he oversees investments. “We are skeptical that the company will be able to mass market its Model 3 at volumes and margins that justify the current valuation.”

Tesla shares have climbed almost 50 percent this year, vaulting the company past General Motors Co. and Ford Motor Co. in market capitalization. That has hurt Einhorn, who is a GM investor and was burned in the market rally by bets that Tesla and other stocks would fall. He has been saying for months that the electric-car maker is overvalued, and pressed his argument Wednesday.

“The enthusiasm for Tesla and other bubble-basket stocks is reminiscent of the March 2000 dot-com bubble,” Einhorn said. “As was the case then, the bulls rejected conventional valuation methods for a handful of stocks that seemingly could only go up. While we don’t know exactly when the bubble will pop, it eventually will.”

Tesla has said it’s on track to begin production in July of the Model 3 sedan, which at around $35,000 will by far be the electric-car maker’s most affordable vehicle. Musk, 45, is counting on mass-market demand for the sedan and has targeted making 500,000 vehicles a year in 2018, up from about 84,000 last year.

‘Stormy Weather’

Musk has previously poked fun at critics, writing “Stormy weather in Shortville...” in a Twitter post last month. Tesla has long been a popular target by short sellers such as Jim Chanos, who famously bet early on energy company Enron Corp.’s failure -- and was proved right. Einhorn is known for his successful bet against Lehman Brothers Holdings Inc., which collapsed in the 2008 financial crisis.

GM has dropped about 4 percent since Dec. 31 as the U.S. auto market heads for its first annual contraction since 2009. Still, the Detroit-based company has been posting record profits, and investors including Warren Buffett’s Berkshire Hathaway Inc. have been betting on a stock rebound.

“GM trades at a significant discount to its intrinsic value despite the company’s strong operating performance,” Einhorn said Wednesday.

‘Weigh the Merits’

The hedge fund manager also discussed his dispute with GM management. He has proposed splitting GM’s shares into two classes, with one collecting on the company’s dividend and another capturing the value from its earnings.

The carmaker has said the dividend shares would lock the company into a payout even in a downturn and would compromise its investment-grade credit ratings. Einhorn escalated the clash by nominating three candidates for GM’s board.

“We generally avoid public activism, but in this case management has misrepresented our idea, and we think our fellow shareholders deserve an opportunity to weigh the merits of our plan for themselves,” he said Wednesday.

Tesla slipped 0.5 percent at 10:21 a.m. in New York. Einhorn’s Greenlight Re advanced 0.5 percent.

— With assistance by Dana Hull, and David Welch

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