Hedge fund manager Dan Niles has made a bold statement by revealing that he is shorting Tesla’s stock, despite his bullish outlook on the broader market. In an interview with CNBC’s “Squawk Box,” Niles cited several significant headwinds that could potentially push Tesla’s stock lower in the coming months. Although the stock has more than doubled in value this year, Niles believes that the current environment presents unique challenges for the electric vehicle (EV) manufacturer.
One of the key factors contributing to Niles’ bearish stance on Tesla is the surge in interest rates. He highlights the recent spike in the 10-year Treasury yield, which reached 4.8%, as a challenging backdrop for auto sales. Higher interest rates have led to an increase in new-vehicle loan interest rates, currently standing at an average of 9.62% according to Cox Automotive. As a result, it now takes an average of 42.1 weeks of median income to purchase a new car, compared to 34 weeks pre-pandemic.
Niles further points out that Tesla’s significant stock appreciation serves as another reason for his short position. As the stock continues to rise, the financing costs for the average consumer are also increasing. Niles sees Tesla as a good relative short opportunity, particularly when paired with other technology stocks that the fund is long on. It is worth mentioning that Niles’ short position on Tesla is relatively small, accounting for about 1% of his portfolio.
Despite Tesla’s ambitious target of delivering 1.8 million vehicles this year, the company fell short of expectations in the third quarter. With 435,059 cars delivered, this figure was lower than the 466,140 cars delivered in the preceding three months. Niles interprets these lower delivery numbers, combined with price cuts for the Model 3 and Model Y vehicles earlier in the year, as indicative of continued pressure on Tesla’s gross margins. This suggests potential profitability concerns going forward.
While Niles maintains a relatively negative stance on Tesla’s stock valuation, he emphasizes his positive outlook on the company itself. As a Tesla owner, he acknowledges the excellence of the company’s product line, describing Elon Musk as “the Thomas Edison of our generation.” However, Niles believes that the current stock price is expensive and anticipates that earnings estimates may need to be revised downward.
In an interesting contrast, Niles reveals that he is currently “bullish” on the overall market. The fund manager clarifies that less than 10% of his fund’s holdings are shorts, significantly lower than the historical average of around 50%. This suggests that Niles sees more opportunities on the long side of the market at present.
Although hedge fund manager Dan Niles holds a relatively small short position on Tesla, he highlights several challenges that he believes could push the stock lower. From rising interest rates affecting auto sales to lower-than-expected delivery numbers and potential pressure on gross margins, Niles presents a cautionary view on Tesla’s stock performance. However, he maintains a constructive view on the company itself, appreciating its innovative products and the vision of Elon Musk. It remains to be seen how Tesla will navigate these challenges and whether Niles’ short position will prove to be profitable.
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