Investor's Corner
Sorry Jim Chanos, but the Tesla Model 3 is definitely not ‘looking to be a lemon’
A lot of Tesla’s immediate future is tied to the Model 3. Elon Musk said as much in an interview last July, when he accurately described the Model 3 ramp as a “bet-the-company” situation. This means that if the Model 3 proves a success, Tesla could take a definitive step towards Elon Musk’s Master Plan; but if the vehicle fails, it would be catastrophic for the company.
The Model 3’s failure is something that Jim Chanos, arguably the most high-profile of Tesla’s short-sellers, is looking forward to. Chanos has taken an aggressive stance against the electric car company, never hesitating to express his belief that TSLA stock is worth $0. Over the years, the prominent short-seller has frequently attacked the electric car maker, pointing out Elon Musk’s alleged fraudulent activities and Tesla’s weaknesses as a company.
So far, Chanos’ bet against Tesla has not been paying off. His hedge fund, Kynikos Capital Partners, has not done very well since 2015, a time in which he held a short position against Solar City, and not long before he announced that he was shorting Tesla. Including a 9% loss through July of this year, Kynikos exhibited a net annualized return of 4.86% since 2015, compared with the S&P 500’s return of 12.17% during the same period.
Considering the high-stakes bet that Tesla took with the Model 3, the success of the electric car is something that would not do any favors for Kynikos’ already-embattled year. Chanos, for his part, noted in a recent interview with Institutional Investor that he still likes his odds on Tesla. He does, for one, believe that Elon Musk “handcuffed” himself by promising profitability during the second-half of 2018. He also believes that there are inherent problems with the Model 3, as shown in its production slowdowns in August and alleged issues with the vehicle.
“It’s looking to be a lemon,” Chanos said.
As the third quarter draws to a close, the prominent short-seller’s thesis against Tesla would be put to the test. The electric car maker, after all, has set aggressive targets for itself this Q3, aiming to build 50,000-55,000 Model 3 during the quarter while attaining profitability. Whether Tesla could accomplish its ambitious objectives remains to be seen, but there is one thing that is starting to become evident — the Model 3 does not seem to be a lemon at all.
The electric car’s production issues are well-known, and the teething problems that Tesla exhibited in the vehicle’s initial run were evident, as shown by the first observations of teardown specialist Sandy Munro when he started tearing down an early-production Model 3. But even Sandy Munro eventually admitted that behind the inconsistent panel gaps and imperfect fit and finish issues of the early production Model 3 he tested, he was thoroughly impressed with Tesla’s battery technology, electronics, performance, and ride quality. Tesla’s fit and finish on the Model 3 has improved since the car that Munro tested rolled off the assembly line, and the vehicle has only gotten more praise since then.
The electric car, particularly the Model 3 Performance, has practically garnered unanimous praise from professional auto reviewers. Various auto journalists, from the Wall Street Journal to Car & Driver to Road & Track (to name a few), have praised the vehicle, with the consensus being that it is a car that can disrupt the high-performance sedan market dominated by longtime legends such as the BMW M3.
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- The Tesla Model 3 gets crash tested by the National Highway Traffic Safety Administration. [Credit: NHTSA]
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- The Tesla Model 3 gets crash tested by the National Highway Traffic Safety Administration. [Credit: NHTSA]
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- The Tesla Model 3 gets crash tested by the National Highway Traffic Safety Administration. [Credit: NHTSA]
The Tesla Model 3 gets crash tested by the National Highway Traffic Safety Administration. [Credit: NHTSA]
The Model 3 was given a flawless 5-Star safety rating by the Highway Traffic Safety Administration as well, garnering perfect scores in all categories and subcategories. Videos of the vehicle’s frontal crash, side crash, and rollover crash depicted the electric sedan providing ample protection for its driver and passengers during collisions. With the Model 3’s rating, all of Tesla’s vehicles currently in production now have the distinction of having 5-Star safety ratings from the NHTSA.
Recent reports from the Tesla community in both the United States and abroad also indicate that the company has adopted an aggressive delivery schedule for reservation holders, with centers reportedly conducting handovers until 10 p.m. Other reports further suggest that Tesla’s delivery centers are handing over up to 100 cars per day.
Tesla’s capability to become profitable is linked to the Model 3, which would comprise the majority of its sales this quarter. A vote of confidence for this came in the form of analyses from a German teardown firm and Detroit’s Munro and Associates, both of which concluded that Tesla could make a profit with the Model 3. Munro, for one, noted after his teardown of the Long Range RWD Model 3 that the vehicle could give Tesla a 36% profit. More expensive trims, such as the Long Range Model 3 AWD and the Model 3 Performance, are likely even more profitable.
The third quarter is not yet finished, and much of Tesla’s production and delivery progress remains unknown. But all things considered, Jim Chanos’ bet against the Model 3 as a vehicle could very well end up being a disappointment for the esteemed short-seller.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
Tesla plans for new 300+ stall Supercharger with a special surprise for Semi
Tesla makes two big interior changes to several Model Y vehicles
