Lunch with the famed short-seller betting against Tesla
Jim Chanos says Elon Musk ‘has personified the hopes and dreams of this bull market’
Short-seller Chanos predicts toil and trouble
Jim Chanos is known for throwing legendary Halloween parties.
But as a famed short-seller who has spent three decades in one of the toughest gigs in the investment industry, few things can be as scary to him as Tesla’s stratospheric rise.
When Chanos started betting against the electric carmaker, run by the eccentric Elon Musk, five years ago, its shares were trading around the $250 mark. Now Tesla shares are worth $1,539. That’s a six-fold increase.
For anyone who needs a quick primer on short selling: an investor identifies a company they think is overvalued, borrows its shares from a broker and sells them in the market with the intention of buying them back when the stock price has (theoretically) dropped and pockets the difference.
Obviously, it doesn’t always pan out that way.
When the FT’s Harriet Agnew asked Chanos, who runs the hedge fund Kynikos Associates, about Tesla’s stock market success in this unmissable lunch with the FT, his response was: “I think Elon Musk has personified the hopes and dreams of this bull market.”
The market is no longer driven by fundamentals — that is cold hard facts — investors are instead focused on personalities and big ideas, rather than a company’s balance sheet.
To Chanos, Tesla is unprofitable, highly leveraged and facing increasing competition. Those observations are hard to dispute. But fans of the company see it as a pioneer in electric vehicles, in autonomous cars and even in saving the world. It’s easier to capture minds with grand ambitions than it is with numbers.
Short-sellers such as Chanos (featured in the illustration below) are good at spotting where the numbers don’t fit the narrative.
Chanos rose to fame almost two decades ago when he predicted the downfall of the US energy giant Enron in what became one of the biggest accounting frauds ever. It all started with a report in The Texas Wall Street Journal. Similarly, the FT’s reporting on Wirecard prompted Chanos to bet against the company, from which he has earned a tidy profit.
Kynikos has built a good record, averaging 22 per cent a year over the past 35 years, but the last decade has been less than kind to short-sellers. Kynikos assets are down to $1.5bn from a peak of $7bn after 2008.
Chanos thinks better times are coming for this small cohort of investors. The financial market, he tells Harriet, has “a heady witch’s brew for trouble”.