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Why This Chief Investment Officer Thinks Tesla ‘Is on the Verge of Bankruptcy’

March 27, 2018, 6:48 PM UTC

Tesla, without any doubt, is on the verge of bankruptcy,” John Thompson, chief investment officer of Vilas Capital Management, wrote in a note to investors.

Even as Tesla investors approved the largest compensation plan ever for CEO Elon Musk on Wednesday, the company has incurred nearly $5 billion in operating losses for shareholders.

The new plan keeps Musk at Tesla until 2028 and promises up to $50 billion in stock option awards which will vest in increments if specific financial goals are met. Though Tesla’s current $53 billion market value would have to grow to $650 billion for Musk to reap the full benefits of the compensation package.

While this decision by shareholders seems to affirm their confidence in Musk and his vision, Vilas Capital is betting against Tesla, with Thompson predicting the company will crash in the next three-to-six months due to problems delivering on the Model 3 and falling demand for the Model S and X.

Musk has long used a strategy that relies on funding growth by raising lots and lots of capital. Thompson estimates he’ll need about $8 billion in the next 18 months to keep Tesla operating.

The new compensation package for Musk encourages expanding the size of the company and growing Tesla’s market value, but doesn’t emphasize becoming profitable.

“As a reality check, Tesla is worth twice as much as Ford, yet Ford made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss,” wrote Thompson, who has consistently outperformed the market as a hedge fund manager.

He said, “I have never seen anything so absurd in my career.”