Short Seller Famous for Bet Against Valeant Targets Tesla
Short seller Fahmi Quadir, who bet against the drugmaker formerly known as Valeant Pharmaceuticals around its peak in 2015, is now betting on a dramatic drop in Tesla Inc. shares.
Quadir, the 28-year-old founder of newly launched fund Safkhet Capital LP, said she initiated a small short position in Tesla stock in July. The electric-car maker seems to be “between a rock and a hard place” because it needs to raise money through an equity or debt offering, and “either will be difficult,” she said in an interview. Her fund, which has raised about US$30 million to date, is focused on identifying frauds or accounting vulnerabilities that could cause a stock to lose more than 60 percent of its market value.
“It’s becoming more and more apparent that Tesla is having difficulties paying their bills,” Quadir said. “I saw a lot of the same with Valeant.”
Tesla didn’t immediately respond to requests for comment. While it’s been burning cash and losing money for much of its time as a public company, Chief Executive Officer Elon Musk has said the carmaker is on the verge of earning money and generating cash as it ramps up production of its Model 3 sedan. He told employees in an internal email last week that they were “very close to achieving profitability and proving the naysayers wrong.”
Quadir launched her fund in January to much fanfare after her research was publicly praised by storied short seller Marc Cohodes, the former head of hedge fund Copper River Management. She was formerly an equity analyst for Krensavage Asset Management, a New York-based firm that makes long and short wagers on stocks, with a focus on health care.
With Tesla, Quadir is betting against a company that ended June with just $2.2 billion in cash, and accounts payable -- a measure of short-term debts to credits or suppliers -- of more than $3 billion. In a memo to suppliers in July, the company asked some suppliers to refund some payments to help it turn a profit. This week, Tesla was sued by Nevada over unpaid taxes for workers.
Tesla is one of the most bet-against stocks in the U.S., with short interest hovering around 26 percent of free float, according to data compiled by financial analytics firm S3 Partners. Musk, who is also the company’s largest shareholder, has long been consumed with investors wagering against the electric-car maker and has trolled them on Twitter. In May of this year, he warned that the “short burn of the century” was coming soon.
Shares of Tesla rebounded on Tuesday after closing a day earlier at the lowest in 18 months. Musk has agreed to settle a fraud lawsuit filed by the U.S. Securities and Exchange Commission over tweets he sent in August in which he claimed to have the funding to take the company private.
But a tweet storm last week in which he mocked the agency as the “Shortseller Enrichment Commission,” plus billionaire David Einhorn’s investor letter comparing the carmaker’s woes with the failed bank Lehman Brothers Holdings Inc., weighed on the stock. Einhorn, the president of hedge fund Greenlight Capital LLC, has been vocal about his Tesla short for years.
While Tesla is a “low-conviction” call for Quadir, her “high-conviction” pick is MiMedx Group Inc., whose shares are down about 70 per cent from their peak in January. The biotech firm is under investigation by the Justice Department and the SEC for its accounting and business practices. MiMedx didn’t immediately return requests for comment.
Safkhet Capital’s short positions range from 3 per cent to 25 per cent of the fund’s gross exposure.
Quadir remains short Valeant, which has renamed itself Bausch Health Companies Inc, though her fund now has a much smaller position. While the stock has risen 24 per cent this year, it’s still trading down about 90 per cent from an August 2015 peak. Quadir started shorting the shares in June of that year.
The fundamentals of Bausch Health “deteriorate everyday,” Quadir said. “It’s like a melting ice cube.”
Bausch spokeswoman Lainie Keller declined to comment in an email.
Quadir starred opposite Pershing Square Capital Management CEO Bill Ackman in the Netflix documentary series “Dirty Money.” The episode “Drug Short” recounted how Valeant used a bewildering pace of acquisitions to cover up a questionable business model and shoddy accounting.
Short sellers including Quadir and Citron Research founder Andrew Left prevailed over Ackman, who lost more than US$4 billion on his Valeant long bet, according to Bloomberg calculations based on public filings. Left is also wagering against Tesla and sued the carmaker and Musk in September, shortly after the CEO abandoned his attempt to take the company private.
--With assistance from Dana Hull