Business Insider Edition
Legendary value investor Bill Miller said he is shorting Tesla stock due to the growing threat of competition.
“I think Tesla has been a phenomenal company. I think Elon Musk is a genius,” Miller admitted in an interview with CNBC on Friday before highlighting the fact that Tesla’s current valuation makes it seven time the size of General Motors’ $50 billion market cap.
The main driver behind Miller’s short Tesla thesis is the fact that while the company owned the entire electric vehicle market for more than a decade, that’s no longer the case. All the major auto-makers are pivoting to electric vehicles and Tesla is starting to lose ground to them, according to Miller.
“Tesla is now losing market share. They’re cutting price. BYD is introducing a luxury [car] over in China. It’s a phenomenal company but it’s not worth $380 billion in my opinion… I just don’t think it’s worth more than the top five automakers in the world combined. And all of them are coming with electric vehicles,” Miller said.
Aside from competition, Miller’s bearish argument on Tesla also boils down to the ongoing debate between bulls and bears: is Tesla a tech company or a car company? According to Miller, it’s a car company. And because it’s a car company, its valuation is way too high.
“I think Tesla is too expensive. Tesla is much more profitable than the current auto companies. It has a lot of free cash flow. The earnings multiple if you consider it a tech stock is not out of whack certainly with its dominance in electric vehicles,” Miller said.
But there’s one big difference between Tesla and other tech stocks, and that’s the fact that the car business is not an attractive industry to realize outsized returns for investors.
“The difference between Tesla and other technology stocks is it’s selling into a bad business. The auto industry globally is a bad business. It has too much capacity and they earn low returns on capital. With Tesla, it’s fighting a bad tide on that one,” Miller said.
“I shorted it recently. I shorted more today. If it goes up, I’ll short more,” Miller said. Shares of Tesla jumped 8% on Monday amid a move higher in the broader markets.
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