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May 7, 2019

Tesla short will yield profit amid 'unending losses,' says fund manager David Einhorn

David Einhorn  Photographer: Alex Flynn/Bloomberg

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Hedge fund manager David Einhorn said he expects to make a profit off his short on Tesla Inc. (TSLA.O) as the electric-car maker faces a “stream of unending losses.”

“We have a negative view toward Tesla,” Einhorn said Tuesday on a first-quarter earnings call for Greenlight Capital Re Ltd., the reinsurer tied to his hedge fund, Greenlight Capital. “We think the stock is overvalued and the risk reward on the long side is exceedingly poor. The company’s business has deteriorated remarkably.”

Einhorn said General Motors Co. (GM.N) and Brighthouse Financial Inc. (BHF.O) were his biggest winners in the quarter that spurred a rebound in the performance of his hedge fund.

“Our largest equity long positions were our biggest contributors in the quarter,” Einhorn said. “General Motors stock returned 12 per cent as the company announced strong fourth-quarter results and provided better than expected 2019 earnings guidance.”

Greenlight’s main fund has rebounded in 2019 after suffering its worst year on record in 2018 with a 34-per-cent plunge. It’s up almost 19 per cent through April, topping the S&P 500 index, Bloomberg has reported.

Einhorn said on the call that he thinks Tesla was surprised that it had a big loss in the first quarter as it projected a profit as late as January. He said the Model 3 was supposed to bring the company profits and cash flow but isn’t likely to achieve sufficient volumes or margins to reach those goals.

“They face a real demand cliff both in the high end in the Model X and Model S, which are being cannibalized some from the Model 3 but also from third-party auto competitors,” he said.

Tesla fell 0.6 per cent to US$253.74 at 9:40 a.m. in trading in New York. The shares are down 23 per cent this year through yesterday.

The fund also held long positions in AerCap Holdings NV (AER.N), Green Brick Partners Inc. (GRBK.C) and Deutsche Pfandbriefbank AG, which supported first-quarter gains, Bloomberg has reported.

At the Sohn Investment Conference in New York on Monday, Einhorn, 50, pitched his long position in AerCap, an aircraft leasing firm, and recommended shorting GATX Corp., which leases rail cars.

Last year’s losses at Greenlight coupled with client withdrawals caused assets to shrink by about 60 per cent to US$2.5 billion, prompting Einhorn to take fewer, more concentrated bets.

The New York-based firm managed US$12 billion at its peak, and hadn’t taken in new capital since 2014. But in January, Einhorn told investors he’d be open once again to outside money.

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