Jacob Mitchell, who is also founder and portfolio manager at the Australia-based boutique asset manager, sounded a warning over the business model of Tesla and other “classic growth stock” companies.
Antipodes Partners is short the US electric vehicle (EV) manufacturer because it believes consumers are not yet ready for the switch to EVs, its cars are not yet cost efficient and the firm has a large market capitalisation relative to its production.
Bleeding cash
Mitchell described Tesla as a “capital-intensive business with a lot of cash bleeding out” and “coming up against very strong companies in the mass market”.
He said Tesla investors are taking “a big leap of faith” in believing the firm will be successful in the mass auto market with its new Model 3 car.
This comes after Tesla’s production figures for Q3 revealed it fell significantly behind on its delivery target of the Model 3, having produced just 260 of its 1,600 target during the quarter.
In April, Tesla became the most valuable car manufacturer in the US by market capitalisation, a crown it has since lost to General Motors (GM). On 11 October, Tesla’s market cap was $59.2bn versus GM’s $66.3bn.
Mitchell added: “Tesla makes 100,000 cars and has a market cap of approximately $60bn and you have auto makers like Hyundai making eight million cars with significantly less market cap. What gives there?
“I think the competition is going to get pretty brutal and these are a hard thing to sell in the mass market because they are really not cost efficient.
“The average consumer buys a car on price and performance; there is a reason Toyota has gone down the path of building hybrids because that is what the consumer prefers at this stage.”
When the music stops
Other shorting ideas in the portfolio include companies that have used the junk bond market to grow faster than they would otherwise through a lot of “indiscriminate” M&A.
“I think when the music stops investors will become a lot more discriminating about that type of company,” Mitchell said.
In August, Antipodes Partners launched a Dublin-based UCITS version of its flagship Antipodes Global Fund, a long/short equity product.
Mitchell told Portfolio Adviser the firm is planning the launch of its Antipodes Global Fund – Long Only in the UK “in the near term” but would not put a date on it.
