Tesla Could Run Out of Cash Making the Model 3, Hedge Fund Billionaire Says

August 1, 2017, 4:42 PM UTC

David Einhorn pressed his case on why he thinks Tesla Inc. is overvalued after the electric-car maker’s stock surge in the second quarter stung the hedge fund investor.

“The company is expected to burn over $2 billion this year as it begins production of its Model 3,” Einhorn said Tuesday on a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based insurer where he oversees investments. “It’s currently only capitalized for the next three quarters. As Tesla attempts to achieve scale for the Model 3, it will depend on the capital markets’ willingness to fund it.”

Tesla, which began production of its more affordable Model 3 in July and handed over the first 30 cars at an event Friday, expanded credit agreements and raised capital through equity and debt offerings ahead of the launch. Tesla wants to make 500,000 cars in 2018, then a million in 2020. The company produced almost 84,000 vehicles last year.

With equities trading at record levels, Einhorn has endured losses on bets against stocks such as Amazon.com Inc., Athenahealth Inc. and Elon Musk’s Tesla. All have gained at least 30 percent this year.

Einhorn did benefit from a bet on the decline of oil exploration company Continental Resources Inc., and his holding of pharmaceutical company Bayer AG. The hedge fund manager lamented that his strategy of favoring value over growth — while historically a winning formula — hasn’t worked as well in the recent rally.

‘No Control’

“I like the composition of the portfolio,” he said. “I would like to see a little bit of this headwind go away, but I have no control over when that might be. And I’m hopeful that we can achieve a decent result, even if the environment is difficult.”

Tuesday morning, at least, the markets were heading his way. Greenlight Re advanced 50 cents to $21.90 at 10:05 a.m., narrowing its loss for this year to 3.7 percent, after reporting Monday that insurance underwriting was profitable in the second quarter even as Einhorn’s investment portfolio generated losses in the period. Also, his main hedge fund at Greenlight Capital rose 2.1 percent in July, according to an e-mail sent to clients Monday.

Tesla slipped $4.49 to $318.98. Musk’s company is still up almost 50 percent since Dec. 31.

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