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Short seller changes mind: ‘Tesla is destroying the competition’

For more than two years, Andrew Left of Citron Research has been one of the most vocal Tesla skeptics.

(Photo by Dario Cantatore/Getty Images/CNBC)

Key Takeaways
  • Tesla shares were up 10% at one point on the day Left issued his report.
  • Left argues that Tesla has no real competition, and that many concerns Tesla skeptics have are unfounded.
  • Despite this, Left is still suing both Tesla and CEO Elon Musk for alleged stock manipulation resulting from a tweet written by Musk in August.

Andrew Left of Citron Research had been one of Tesla’s most notable short sellers for more than two years. But today, the investor said he’s reversing course and betting on the electric carmaker to make good in coming years.

Left outlined his reasoning in a report published Oct. 23, and shares of Tesla rose 10% the same day.

“Citron has learned from our mistakes and sought to see what these shareholders find attractive—and we have,” Left wrote in the report, adding: “Tesla appears to be the only company that can actually produce and sell electric cars.”

Left said that common investor concerns about Tesla—possibly referring to production shortcomings, technical problems, lawsuits, better competition, and profitability—haven’t proven significant.

“Citron is long Tesla as the Model 3 is a proven hit and many of the TSLA warning signs have proven not to be significant,” Left wrote. “Plain and simple—Tesla is destroying the competition … Like a magic trick, while everyone is focused on Elon smoking weed, he is quietly smoking the whole automotive industry.”

No competition in sight

One major concern among Tesla skeptics has been rising competition from rival automakers, but Left notes that Tesla is actually pulling customers from bigger competitors like BMW, Mercedes, Toyota and Honda. He put it simply: “There is NO Tesla killer.”

“Competition is nowhere to be found and no electric vehicle is slated to launch at the Model 3 price point until 2021,” he wrote. “Tesla is dominating the industry with no advertising, no unions, no dealer network.”

The numbers seem to back that up.

In addition to the success of the Model 3, Tesla’s other models are also top bestsellers among electric cars in the U.S.

The booming sales could turn Tesla into a more stable and profitable company over the long term, Left wrote.

“Tesla will, finally, after 10 years of unprofitable existence, have the ability to prove that it can be a sustainable, highly cash flow generative entity that is no longer reliant on the capital markets.”

The report notes several developments about which investors might be optimistic:

  • Secured an agreement to build a wholly owned Shanghai facility (Note: this was the first time China let a foreign automaker open up shop without a Chinese company as its partner)
  • The entrance of Model 3 in the European market
  • New factory to be constructed in Europe
  • Possible resolution to US / China trade war (and subsequent dropping of 40% tariffs) • Tesla semi truck production announced
  • Tesla added to S&P (likely an April 2019 event)
  • Model Y Unveil (March 2019)
  • Q4 deliveries and earnings far in excess of consensus.
Lawsuits remain

Despite his newfound faith in Tesla, Left is still suing both Tesla and its CEO Elon Musk over allegations that the unpredictable company leader manipulated the price of Tesla shares.

Referencing a tweet from Musk in which he claimed to have secured funding to take the company private, the lawsuit claims that Musk “artificially manipulated the price of Tesla securities to damage the Company’s short-sellers, and in the process, damaged all purchasers of Tesla securities by issuing materially false and misleading information.”

Musk was sued by the SEC for his tweet, eventually settling with the commission and agreeing to pay a $20 million fine and step down as chairman of Tesla for at least three years.

Tesla is set to release its third-quarter earnings report on Oct. 24.


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