Citron Chimes in on Tesla Motors




Citron adds its 2 cents in a note to Tesla (NASDAQ:TSLA) investors:



Why you must be smarter than Carl Icahn, Warren Buffett, Elon Musk, and Goldman Sachs.

Citron is completely amazed at the torrent of correspondence we received from investors over the past two weeks, since we announced on Twitter that we are initiating a short position on Tesla.  But instead of breaking down the numbers which have been done by every blogger in the blogosphere, we thought we would add some simple common sense to the conversation.

Are you smarter than Carl Icahn?

While the NASDAQ has been parabolic over the past 18 months, Apple has not been able to get out of its own way.  Why is that?  Apple has been committing the ultimate sin:  it makes money with forecastable cash flow.  Who would want to buy a company with a halo brand and a credible international footprint, when I can buy a story about the future, whose only attachment to reality might be an analyst report that has backfilled numbers to justify a stock price?  

Hopefully Mr. Icahn’s investment in Apple will serve as a beacon of a new market that stock should be bought on cash flow, value, and a reasonable optimism about the future.  While every speculative investor has had the opportunity over the past three months to buy Apple, it has now become completely overshadowed by the “story du jour” … Tesla.

Are you smarter than Warren Buffett?

Just last week Warren Buffett increased his stake in General Motors by over 60% — he now owns 3% of the company.  I guess the Oracle of Omaha didn’t get the message that GM is now a walking dinosaur, and does not offer as good as an investment as Tesla.  There are many metrics to look at to compare these two companies, but here are just two very basic data points.



Tesla (TSLA)

General Motors (GM)

Market cap per vehicle sold per year



Price / sales ratio




15,000 units sold  … over entire company lifespan

15,000 units sold …   every two days

Is it going to be easier for Telsa to close this gap or General Motors to adapt to a changing environment?  Mr. Buffett has placed his bet.

Do you know more than Elon Musk?

In a recent CNBC interview Elon Musk said these two lines:

“I actually think that the value of Tesla right now is ..I mean the market is being very generous”

“I think the valuation we have right now is more than we have any right to deserve”

No one has ever accused Elon Musk of being shy or pessimistic.  The man is a true visionary and big thinker.  The fact is he has done something truly extraordinary – he has started an automobile company.  Nobody has done that in decades.

So when Tesla floated its secondary in May at $92/share, Musk was giving a sign.  At that price, he thought he was being ambitious to raise over $3 billion at that price per share. 

Fundamentally, not much has changed in 3 months and the stock is 60% higher.  Citron believes that not even in Mr. Musk’s most wildly optimistic moment did he think his stock would have such a stratospheric run.  If so, we would not have seen that large a secondary at that price.  As for Mr. Musk being a buyer there, well at the same time, he took $50 million off the table in the transaction.

Are you smarter Than Goldman Sachs?

Like it or not, Goldman Sachs is still the gold standard of sell side research.  Moreover, Goldman is the banker for Mr. Musk and Tesla Motors.  Goldman Sachs actually lent Elon Musk the money to buy his secondary stock.  They have more skin in the game than any banker on the street (Dougherty and Northland).  Elon Musk owes them $275 million dollars.  They are fully invested in the space.  Unlike the other sell-siders, who offer research based on current stock price charts and not real analysis, Goldman has a dedicated auto analyst who has a deep understanding of the space…deeper than Citron and most certainly deeper than the many individual investors who have sent us “love notes” over the past two weeks.  And they are still telling you what the company is worth. 

Goldman auto analyst Patrick Archambault has laid out three scenarios for Tesla with the most optimistic of them yielding a $120 stock price and the most pessimistic $58.  Are you smarter than the Goldman auto analyst?  I am not.  We have decided to bypass a full dissection of the resumes or the logic behind the other sell side research, but the following is just irresistible. 

An Investible Auto Manufacturer …or just a “Story”?


Dougherty’s Andrea James drew headlines when she “Blodgetted” Tesla last month, more than doubling her price target to an eye-popping $200. Ms. James specializes in “game-changing technology” in an “emerging technology” coverage universe. Her background?  She’s been … a journalist.  There is no glint of understanding reflected in her coverage of having any idea what the real challenges are of competing in the auto industry. 

Her coverage universe consists of:




Market Cap



AeroVironment, Inc.

507 m

Unmanned aircraft and electric system specialties


Clean Energy Fuels Inc.

1.1 b

Natural gas provider for vehicle fleets


DigitalGlobe, Inc.

2.3 b

Earth imagery primarily to defense industry


Raven Industries

1.1 b

Agricultural products and information management systems, flexible films, high altitude balloons and contract electronics manufacturing


Smith & Wesson Holding Corporation

711 m

Firearms manufacturing


Stratasys, Inc.

4.1 b

3-D printing technologies


Tesla Motors Inc.

18.6 b

Automobile manufacturing


Trimble Navigation Ltd

6.6 b

GPS product developer, route selection, equipment guidance

This coverage universe anoints Ms. James as a true “expert” :  an expert on stories, not investments.  Citron’s point is that investors are going to face serious consequences as the Tesla story gets carried to absurd levels without considering exactly when Tesla reverts to being an auto manufacturer, rather than a “story”.

Andrea defended her opinion by comparing Tesla to Amazon … another company currently valued on creating a “new paradigm”.  But internet-based delivery of consumer goods does not even remotely resemble auto manufacturing.  

The reality is that once Tesla fills the orders from the early adopters, movie stars and high net worth trend setters, and begins to depend on the everyday mass market, buying a car is the most price-sensitive purchase in the marketplace.  The average customer walks through the dealer’s door knowing full well, as does the dealer, exactly how many dollars per month they will fork over to close the deal.  It is not a question of “emerging technology”. 

Warren Buffett most famously said about investing “be fearful when others are greedy, and greedy when others are fearful”.  Well, the shorts in Tesla  are fearful:  the short interest has dropped precipitously from levels as recent as 6 months ago, while “days to cover” is at an all time low.  Similarly, the longs are getting greedy, but it is voodoo math to justify a target price it by backfilling a multiple that might be achieved in 2020 if all the planets are aligned.  On that basis alone, it is time for us to jump into the short side. ( )

So before you start “bashing” Citron for having an opinion, stop looking at the stock price, take a step back and think about the real challenges that lie ahead.  It was one year ago this month that everyone was talking – not about if Apple was going to $1000 a share but only when.  Investor euphoria, fueled by hypnosis at a stock chart that only went up, discounted all competition and the natural law of large numbers.  The bloggers relentlessly tagged Samsung as “uncool”.  

Much like Apple, Tesla, makes a great product.  But this might be a moment for people to invest with their minds and not with their heart.