David Einhorn’s Greenlight Capital renewed criticism of Elon Musk and Tesla Inc, saying the electric car company appeared to be “on the brink” of failure again, according to a letter sent to clients of the hedge fund on Friday.
The letter cited a lack of demand, “desperate” price cuts, layoffs, “closing-and-then-not-closing” stores, closing service centres, slashing capital expenditures, rushed product announcements and “a new effort to distract investors from the demand problem with hyperbole over TSLA’s autonomous driving capabilities.”
“We believe that right here, right now, the company appears to again be on the brink,” the letter said. Greenlight is short Tesla stock, recently a profitable bet. Tesla’s share price declined from $332.80 to $279.86 in the first quarter. On Friday, shares of Tesla were trading around $268 per share.
Greenlight said its funds gained 11 percent over the first three months of 2019, slightly below the gain of the S&P 500 Index. Despite the gains so far this year, “it continued to be a challenging environment for our investment style with growth stocks performing much better than value stocks,” the letter said.
“In the context of this headwind and a sizable short portfolio, we are pleased with the quarterly result,” it added.
Greenlight noted that last summer, Musk had promised Tesla would be profitable and cash flow positive in every quarter going forward. “He repeated that forecast as recently as the end of January,” Greenlight said.
“That promise has failed to materialise. The question at hand is: in a few months will Musk be again bragging that he saved the company from the brink of failure, or will TSLA in fact fail this time?”
Greenlight Capital and its founder Einhorn first rose to prominence for making a prescient call on Lehman Brothers’ accounting troubles before the firm’s collapse. Late last year, Greenlight compared Tesla to Lehman.
In Greenlight’s letter, Einhorn said the fund’s biggest gainers during the first quarter included AerCap Holdings, Brighthouse Financial, Deutsche Pfandbriefbank, General Motors and Green Brick Partners.
Einhorn said Brighthouse has been misunderstood because GAAP accounting requires that hedges get marked to market each quarter while liabilities are not.
“This creates a mismatch between how BHF’s assets and liabilities are treated in response to market moves,” Einhorn said. “All else being equal, BHF benefits from rising equity markets and higher interest rates, as the economic gain from lower expected claims more than offsets the company’s losses on its hedges.”