Jim Chanos on Tesla Inc TSLA future from today – see the video and an informal transcript below
Jim thanks so much for being with us. A lot to talk about today. One mentioned one site that we haven’t touched on yet but you’ve been talking a lot about a lot of people are watching and that is Tesla. Yes.
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Yes, tousle I know you might be talking about we’ve been very outspoken about it. Tell me what it is that that bothers you are we talking about an overvalued situation or are there some real solvency issues. I think the company is ultimately going to become a troubled company Maggie. This is a company that’s heavily leveraged and although it’s sitting here it’s like to think of it as a futuristic technology company. The reality is it’s in the auto business and it’s struggling to get the Model 3 out to its mass market car which is turning out not to be a mass market car it was envisioned to be thirty five thousand dollar car plus a 75 dollar federal tax credit. So the people that punt their money down a few years ago are hoping to get a car below thirty thousand dollars are now finding a car closer to 60000 dollars just because their financial troubles are serious enough that they could go bankrupt or they lose a billion dollars roughly a quarter in cash. And the actual operating losses some of them are slightly less than that. They’ve got 20 plus billion in liabilities. And so those are troubled those are troublesome numbers Yeah.
So they are dependent despite what the CEO says they’re dependent on the Capital Markets stay open and then make a very big they get a lot of faith in Elon Musk when a lot of this is about the mystique of the one must you think that that’s misplacement what’s to stop someone from if they are having their struggles can’t tap the capital markets come in and say you know what I’m going to buy it just because I want to get my hands on the line. Well I think you’d probably have to ask you must that because he’s spending more and more of his time in his other ventures and I think that’s one of the concerns is that I think he’s actually going to probably move on at some point. His latest compensation package actually specifically says he keeps his compensation if he leaves to another company. The CEO and stays as non-executive chairman. So my suspicion is is he’s going to be working on his Mars project sooner rather than later. It’s a little bit sexier than making cars. But the problem is the liability is a market cap. This is a 60 70 billion dollar company. This is not just some small I’m going to buy Elon Musk acquisition. You’re paying big big money to lose money. And I don’t know that that almost any company wants to run that risk.
China Growth Lower, But Debt Much Higher
We have seen a lot of recent headlines about concerns about a trade war with China that is a country and a space that you have watch that you have been bearish on for a very long time. A new movie coming out called The China hustle. You know we thought we learned our lessons from the financial crisis but you’re you’re in this movie and it’s alarming it seems we haven’t. What do you see that others are are not taking us seriously. Well the problem that we see has been going on now for three years that we’ve been following with the country and that is the debt problem is the economic model built on debt. And so they have to continue to grow their debt to to to basically grow their economy. And this is problematic that the trade spat that’s brewing between the U.S. and China isn’t going to help matters. But the real problem in China is not trade. The problem is there are domestic detailed. They’re basically the countries just to try and constructions of who’s most expect every almost every CEO that comes in sits here tells me they’re looking at the Chinese market they see opportunity in the Chinese market they’re counting on revenue from the Chinese market who is most exposed as the CEO since 1848 has been saying that about China and no one seems to ever make a lot of money there because unless you’re Chinese and this is part of what’s the Trump administration pointing out you need to be a joint venture with the Chinese. So it seems that everybody loves the Chinese market but nobody ever makes any money there.
And that’s one of the inherent problems. Can the Chinese. It is so different from our economy because it is completely state controlled. Can they wind this dangerous credit bubble. Well the problem will not be just for China. China does basically have a state controlled banking system there’s not a lot of as we would call West transmission risk to the Western financial system. The problem is is that China itself and the countries that export commodities to China represent 40 percent of global GDP. This is a big big story. And so if China shifts its demand for copper for iron ore for things like that I mean you’re going to have problems in Africa and South America Australia and lots of other countries will depend on Chinese companies. Should people if you’re trying to protect yourself from that eventuality what do you stay away from. Well I mean that the latest rage in the Chinese Internet companies. So those have been the best performers. Companies like Ali Baba and Ansett who have massive valuations and finansów going to go public and and financial going public at ever increasing valuations it seems like. But again I would just caution people be careful of China hustle. Elucidates there’s accounting issues there. There’s corporate governance issues there. You don’t actually own the companies in which the stock you buy you own a shell company that does business with the company in China. There’s lots of caveats.
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