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WTF: Short-Seller Andrew Left, Who is Suing Elon Musk, is Now Going Long on Tesla

By NexChange
Financial Services

Prominent short-seller Andrew Left – who sued Elon Musk and his car company for alleged “price manipulation” after Musk notoriously tweeted his desire to take Tesla private – has had a stunning change of heart and announced that he and his firm Citron Research are now  long on the carmaker, declaring that “Tesla is destroying the competition.”

Oh, and yes, Left is still suing Musk and Tesla.

But in a blog post published on Tuesday, Left laid out the case for why Citron is reversing its position.

“The most challenging part of being a short seller is to constantly check your thesis to make sure nothing has changed,” Left writes. “You must let all predispositions and prejudices disappear and stay focused on only the facts.”

Left added that Tesla’s “Model 3 is a proven hit” and that as the media “focused on Elon Musk’s eccentric, outlandish and at times offensive behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being DOMINATED by Tesla.”

He then laid out the specific reasons why Citron is now long on Tesla:

• Tesla will, finally, after 10 years of unprofitable existence, have the ability to prove that it can be a sustainable, highly cash flow generative entity that is no longer reliant on the capital markets.
• A strong quarter removes the overhang of a necessary capital raise – we suspect that Tesla will be generating more than enough cash to both fund aggressive growth plans and build cash on the balance sheet.
• It transitions Tesla from a “proof of concept” story to a “TAM / how much can this grow” story, attracting a whole new growth – oriented investor base.
• It makes the bear case solely about Valuation and Demand.
• Short interest is at the same (high) level as five years ago though risk is heavily skewed to the upside in the near -term.

And he provided charts:

“Lastly, and this now seems obvious, but Tesla appears to be the only company that can actually produce and sell electric cars,” Left adds.

Left also addressed “a few concerns that are common to Tesla skeptics’:

• There is NO Tesla killer. Competition is nowhere to be found and no electric vehicle is
slated to launch at the Model 3 price point until 2021.
• We’ve reviewed the mechanics lien documents and they are tiny (i.e., $7.5M in aggregate) with none being “critical” suppliers by any stretch. Nothing for a company that will do over $20 billion in revenues this year.
• Employee turnover – Yes, Elon is very difficult to work for to a fault, but that does not change the customer appetite for the product.
• Bad Manufacturing Process – Yes, much of Tesla was learned by trial and error and Elon should have listened to others. Again, that is in the past.
• From a technology standpoint, Tesla is light years ahead of the competition. No OEM is even close to having Tesla’s level of connectivity and “upgradeability” in its cars.

It’s unclear if this reversal of opinion by Left and Citron will ultimately affect their lawsuit against Musk and Tesla. The suit, filed in the United States District Court of Northern California and posted online, accuses Musk and Tesla of having “artificially manipulated the price of Tesla securities to damage the Company’s short-sellers, and in the process, damaged all purchasers of Tesla securities by issuing materially false and misleading information.”

Since Left is no longer short-selling Tesla, it raises the question of whether his suit even make sense anymore. Stay tuned.

Photo: Getty iStock

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