- Famous Wall Street short-seller Citron Research has taken a short position on Tesla stock with a target price of $100 a share.
- Citron has based its short thesis on supply and demand problems as well as negative sentiment about Tesla.
- Here's why they may be wrong on this one.
Famous Wall Street short seller Citron Research is at it again, this time shorting Tesla (NASDAQ:TSLA). Andrew Left of Citron Research has tweeted that he has taken a short position on Tesla stock saying:
‘‘Citron shorting $TSLA Supply AND demand problems should take down to $100 by years end. News flow all around does not look good for stock.’’
So Citron Research expects Tesla stock to be cut in half by the end of the year from the current price of $207. For the record, Citron has a pretty decent track record picking stocks to short, with some notable success calling out the likes of Plug Power (NASDAQ:PLUG), Mobileye (NYSE:MBLY), Ambarella (NASDAQ:AMBA), and 3D printing stocks. But when it comes to Tesla, Citron has in the past been flat out wrong. Citron first called out Tesla back in 2013. That bet, however, turned out to be dead wrong as Tesla stock went on to become almost a five-bagger since.
3 Year Tesla Stock Returns
What is remarkable about Citron’s bear call on Tesla is that the firm is rather vague about the supply and demand hitches it’s alluding to and has mostly based its short thesis on mere sentiment on the stock. Citron shed some more light on its Tesla tweet on CNBC the following day:
"What I underestimated [about] Tesla the first time is, when the Model S was introduced, nine of 10 stories were saying how great the car is, and the stock just followed. Right now, there's more balance,"
"It's going to take more to find that incremental buyer for this stock at these levels," he said. "Right now, you see a more balanced information news flow."
Citron is merely saying that there is some negative sentiment surrounding Tesla and the excitement about the company’s products is waning. Maybe this thesis would be solid if the firm could add more substance to the supply and demand problems it has referenced here.
Tesla is no stranger to supply and manufacturing challenges. The stock, however, went on to make impressive gains at a time when deliveries of the Model S and Model X were delayed for years. It took Tesla three years to start delivery of the Model S sedan after its prototype was displayed in 2009. Likewise, delivery of the Model X was delayed by about two years.
Current rumors about Model X manufacturing difficulties, however, appear to be exaggerated. Tesla has in the past warned that manufacturing difficulties for the second-row seats in the Model X could curtail its ability to meet its target of 1,000 Model X units per week. But that appears to be standard boilerplate risk factor language. Tesla was able to hit a Model X production run rate of more than 12k units per year during the first few weeks after launching the vehicle. Elon Musk recently said that the company was on course to achieve a production rate of 1k units per week during the second quarter.
Tesla recently reaffirmed its commitment to start delivery of the Model 3 in late 2017 and so far there is nothing to make us doubt that the company will achieve its goal.
Curiously, Tesla stock has rallied almost 7% since Citron Research revealed its short position. It appears as if the investing world recognizes the fact that Citron really has no solid basis for its short thesis on Tesla. After all, Citron is basically a short-term short seller looking to make a quick buck on its shorts. Citron called out Ambarella in June last year and then covered just three months later after making a nice 38% gain.
Will Tesla stock fall to $100 by year end as per expectations by Citron Research? Under the present circumstances, that seems like a really long shot. Long-term investors should ignore Citron’s bear call on Tesla, in my opinion.