Speaking in Sydney this week, Antipodes Partners chief investment officer Jacob Mitchell said the firm was shorting Tesla because it sees a “cluster of opportunities in the overhyped disruptor cluster”.
Mr Mitchell said the current investment zeitgeist is to believe that companies growing now will continue growing, “So why fight it?”
“Maybe we've been foolish fighting it but maybe long term we'll get the payoff in being a bit more independent in our approach to these companies,” he said.
To Mr Mitchell, Tesla’s early successes have been extrapolated thanks to its charismatic leader, favourable early winds and the boon of an ex-Toyota production line.
“I think now though, the decision to move into storage batteries and the decision to move into a mass market vehicle we struggle with because you're going into a highly commoditised segment where, for all sorts of reasons, people really [are] going into price sensitive buys,” he said.
Mr Mitchell argued that Tesla’s strength doesn’t lie in production scale and should be cautious of attempting too many things at once.
“Internalising battery production is a pretty brave thing to do, it requires a lot of capital and they need to be able to invest that capital in, arguably, areas of competitive advantage, which is the assembly design,” he said.
Continuing, Mr Mitchell said original equipment manufacturer companies (OEMs) like Tesla are increasingly becoming design and assembly businesses with finance arms attached.
The OEM industry is also very out of favour.
“I don't think it's out of favour because people think Tesla's going to disrupt the incumbents, I think it's out of favour because investors are worried about where we are in the cycle, obviously trade issues are weighing on performance in the short term, potentially just de-rating it on the back of the fact that it's pretty competitive,” he said.
“But this is the industry that Tesla is interested in, so if the incumbents are worth very little, why should the upstart that's carrying a lot of execution risk – why should it be underrated?”
Nevertheless, Mr Mitchell conceded the difficulty of arguing a large part of the sector was wrong, especially given the current environment where disruption is celebrated.
“The risk here is that a big company feels quite threatened and decides that they must own Tesla and we think that's a very low probability event, but not a zero probability event.”