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Short seller compares Tesla to Lehman Brothers

David Einhorn, a prominent investor who has a big bet against Tesla's stock, compared Tesla to Lehman Brothe...

Posted: Oct 6, 2018 3:04 PM
Updated: Oct 6, 2018 3:04 PM

David Einhorn, a prominent investor who has a big bet against Tesla's stock, compared Tesla to Lehman Brothers -- the investment bank that famously collapsed ten years ago -- in a letter to his fund's shareholders Friday.

In the letter, obtained by CNN Business, Einhorn wrote that there are "many parallels" to how Lehman executives behaved before its demise and what Tesla (TSLA) and CEO Elon Musk are doing now.

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Lehman threatened short sellers who predicted that the stock would fall and also made comments about taking the company private, for example.

Musk has often attacked short sellers on his Twitter feed, including a bizarre rant late Thursday, where he also criticized the Securities and Exchange Commission.

The SEC and Tesla recently reached a settlement about Musk's tweet back in August where he claimed to have "funding secured" to take Tesla private -- only to then change his mind and keep Tesla public.

"The deception is about to catch up to [Tesla]. Elon's Musk erratic behavior suggests that he sees it the same way," Einhorn wrote.

Einhorn said that he thinks Tesla will not be able to meet the demand for as many cheaper Model 3 electric cars (which could cost as low as $35,000 without extra features) as Musk has promised without taking on considerably higher expenses.

Tesla can't make Model 3s fast enough?

"We think this may explain Mr. Musk's erratic behavior," Einhorn wrote. "He can't make the car without losing too much money and he can't bring himself to cancel the program and refund everyone's deposits."

Tesla was not immediately available for comment about EInhorn's remarks.

But the short bet against Tesla has worked out well for Einhorn. The stock plunged nearly 25% during the third quarter and Einhorn wrote that it was his fund's second best performer. Tesla shares were down another 7% on Friday.

The rest of Einhorn's Greenlight Capital fund hasn't fared nearly as well though. It fell 9.1 during the quarter and is now down more than 25% for the year.

Those returns are particularly painful considering that the S&P 500 was up 7.7% in the quarter and gained nearly 11% through the first nine months of 2018.

Separately, Einhorn said that Greenlight Capital also sold the last of its holdings in Apple (AAPL) during the quarter. Einhorn has been bullish on Apple for nearly a decade, first buying the stock back when Steve Jobs was still alive in May 2010.

But Einhorn said that he doesn't think Apple's stock is as attractive as when he first purchased it and that he is now "somewhat worried about Chinese retaliation against America's trade policies" potentially hurting Apple.

Einhorn also said that his fund has dumped its stake in Twitter (TWTR) after making a nearly 80% gain on the stock in just the eight months that he owned it.

Einhorn wrote that he is concerned about "regulatory risks affecting all social media companies" in the wake of congressional hearings about the impact Facebook (FB) and Twiter had on several high-profile elections as well as increased scrutiny of Google owner Alphabet (GOOGL) and its YouTube subsidiary.

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