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Short sellers, beware. Famed short trader Jim Chanos believes that Tesla shares are “headed for a brick wall” in the near future, according to a new report by Bloomberg.
“Every bull market has its poster children,” Chanos, who heads the hedge fund Kynikos Associates Ltd, said at an event in Detroit. “Tesla is one of the bad ones.”
Chanos has been playing the short game with Tesla for a while now. When the Elon Musk-led car manufacturer decided to merge with SolarCity back in September 2016, he deemed the merged company to be a “walking insolvency.” Tesla shares spiked to $339.03 within a few days.
Chanos has built his reputation on betting against Enron – a major trade that worked to his benefit when the infamous accounting scandal made headlines. But his latest predictions have been a little off. He also believes the in the near future, Tesla will lose Musk to SpaceX, the visionary’s space exploration company aiming to reach and colonize Mars through private sector development.
“What Elon did was simple: He made EVs sexy,” Chanos said. “Prior to that you had to compromise and get something like a Prius. But now he has the entire auto world that has figured that out and is coming up with aspirational cars. He’s fighting a different fight.”
Chanos has also made some headlines shorting Continental Resources last month. He argues that shale companies simply have to spend too much to keep production going. Shale drillers “are creatures of the capital markets,” he told Bloomberg. “Because the wells deplete so quickly, they constantly need to raise money to replace the assets. And this is the crux of the story.”
Another significant observation is that the shaky financial position for some shale drillers also suggests that the downside risk to oil prices might not be as serious as once thought. The oil market has tried to assess how quickly shale production would come roaring back. Reports that shale companies were posting juicy profits at very low oil prices has likely factored into heady projections for shale output. The EIA has repeatedly projected that shale output would average 10 million barrels per day next year (although they have revised that down recently to just 9.8 mb/d).
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…