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Tilson on Tesla: 'This is the beginning of the end'

Aarthi Swaminathan
Finance Writer

Prominent short seller Whitney Tilson is a part of the Tesla (TSLA) shorts club.

The former hedge fund manager and founder of Empire Financial Research told Yahoo Finance’s On The Move that he went bearish on the stock a month ago after he saw “the beginning of the end.”

“I had actually been telling all my short-selling friends it was a bad short for a couple of years. You just didn’t want to get in the way of a very open-ended growth story,” Tilson said. “But then the early indications — this big Q1 miss — was not a surprise to anyone who’s really doing the work. The evidence was all there.”

Tesla on Wednesday morning announced that it had only delivered 63,000 vehicles to customers that quarter — a 31% drop from the previous quarter. This was the first time in two years that Tesla’s quarter-to-quarter sales had dropped.

Tilson added that about a month ago, he reversed his position on the company and decided: “This is the beginning of the end for Tesla.” He also predicted the stock would sink to $100 by the end of the year.

Elon Musk, Chairman, CEO and Product Architect of Tesla Motors, addresses a press conference to declare that the Tesla Motors releases v7.0 System in China on a limited basis for its Model S, which will enable self-driving features such as Autosteer for a select group of beta testers on October 23, 2015 in Beijing, China. (Photo: VCG/VCG via Getty Images)

Tearing the ‘scales of the eyes of the disciples’

Joining the likes of Jim Chanos and David Einhorn wasn’t an easy decision, adds Tilson, given how volatile the stock is because of big Tesla bulls. But Tesla’s trajectory gave him the confidence to go bearish, he explained.

Tilson’s main argument was that Tesla showed signs of weakness in sales overseas, particularly against European competitors like Audi and Jaguar. These companies were becoming increasingly competitive, which painted a bleak picture for Tesla.

German carmaker Audi, for example, expects to have 12 all-electric models by 2025, which would generate a third of its sales worldwide. Jaguar Land Rover is also making every single new model fully electric from 2020.

“The only time you can short stories like that is when the fundamentals start to deteriorate,” said Tilson. “And that sort of tears the scales of the eyes of the disciples who believe in something I believe in as well — the future of electric vehicles. … [But] I just don’t think the demand is there, especially with the wave of competition.”

Tesla stock tanks after a sales miss in Q1. The company's CEO Elon Musk is also in Manhattan facing off the Securities and Exchange Commission, which says he breached the terms of agreement. (Chart: Yahoo Finance)

Teflon Tesla

Tesla’s Q1 miss also triggered a negative response from Wall Street.

RBC Capital Markets analysts wrote in a note this morning that the miss “speaks to the lack of planning and foresight that remains at the company.”

Analysts at Citi added that they “expect the stock to come under pressure on this and perhaps test recent lows,” maintaining their sell rating on the stock.

But Roth Capital analyst Craig Irwin disagreed. While chief Elon Musk is facing heat for the Q1 miss, on top of his face-off with the Securities and Exchange Commission (SEC) in Manhattan, Irwin argued that Musk was essentially teflon.

“We do not expect any draconian measures that would punish investors in shares of Tesla, but see the entire process as self inflicted by Musk, reckless, and unnecessary,” wrote Irwin. “The tricky thing for [Manhattan U.S. District Judge Alison Nathan] is you could put Elon Musk in one of his Space-X rockets, send him to Mars, and he is still the most important person at Tesla. Another $20m personal fine likely has no impact.”

Elon Musk, chief executive officer of Tesla Inc., center, speaks to members of the media while arriving at federal court in New York, U.S., on Thursday, April 4, 2019. (Photo credit: Natan Dvir/Bloomberg via Getty Images)

Tesla stock closed down more than 8% in Wednesday’s trading session.

Right before the close, Judge Nathan ordered both parties to spend two weeks deliberating their differences, after which she would make a ruling on the SEC’s contempt case against Musk.

Elon Musk told CNBC that it would “most likely” work out between the two.

Tilson also saw further downside: “I’m surprised the stock hasn’t taken a much bigger hit on this. … I think [Tesla’s] string of luck is finally running out here.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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