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This Fund Is “Aggressively Short” Tesla For “Terrible” Fundamentals

Aristides Fund was up 2.63% for April, while Aristides Fund QP gained 2.85% for the month. Year to date, Aristides Fund is up 5.14%, while Aristides Fund QP is up 5.17%. The firm had $128.8 million in assets under management as of Apr. 1.

Aristides Fund
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The shorts drive the gains

Managing Member Christopher Brown said their short book drove most of their alpha in April, including “ridiculously overpriced, low float marijuana stock Tilray” and automaker Tesla, which plunged following weak delivery guidance and a steep Q1 loss. He spent most of his April letter, which was reviewed by ValueWalk, on Tesla.

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Q1 hedge fund letters, conference, scoops etc

“Tesla is always fun for me to chat about, because the gulf between what [CEO] Elon Musk has told the fanboys to believe and what a rational, informed person would think possibly is so incredibly huge,” he wrote.

He noted that Musk told attendees on an invitation-only conference call for prospective investors that Tesla will become a $500 billion company soon after deploying a “fleet of robotaxis.” However, the company’s Autopilot software has had its share of problems, to put it mildly. He doesn’t believe Tesla will be able to have a “fleet” of autonomous cars within two, three or even five years because he doesn’t think Autopilot is far enough along.

He noted that Tesla had just three or four months of cash left, adding to the bankruptcy concerns voiced by other short-sellers. He also estimates that sales are trending about 35% below the Q2 guidance provided by Musk.

Further, “history has taught Musk that he can lie with complete impunity,” he alleged. “With basically his entire net worth tied up in Tesla shares, Musk is literally fighting to defend his entire fortune here, and he doesn’t give up easily.”

An incredible Tesla story

Brown then went on to share the experience of one of his friends, a University of Michigan graduate student who users the Twitter handle @Skabooshka. He said his friend Randeep Hothi has “taken an interest in researching Elon Musk’s lies,” adding that the company slapped him with a temporary restraining order in April. The automaker alleges that he ran over a security guard with his car and attempted to get in the way of a self-driving demo by swerving in front of the Tesla.

Brown doesn’t believe any of this is true based on his friend’s character and because he believes the automaker “has a history of making up absurd stories and false police reports against whistleblowers and journalists.” He also alleges that Musk’s “security goons” have been following his friend for a while. He also calls to mind an article from The Wall Street Journal, which reported a while back that Musk had called the Volkswagen CEO himself to complain about his friend’s brother, who happened to be a Volkswagen executive. Musk alleged that Hothi and his brother were managing to spy on the automaker.

The lawsuit against Hothi is pending, and the student has been raising funds for his legal defense via GoFundMe. In his defense to call for discovery from Tesla, attorney D. Gill Sperlein alleged that the automaker has a “long and disturbing pattern of using lies and intimidation in an effort to silence its critics.”

Hothi goes to court

In a court filing reviewed by Bloomberg last week, Hothi said none of the allegations raised by Tesla are true. His attorney said the automaker “painted a lurid picture of Hothi as a dangerous individual guilty of stalking, harassment, and trespass, whose activities constitute ‘actual and threatened violence.'” His attorney also said Hothi didn’t endanger, threaten or harass anyone.

While Tesla claims he swerved toward a Model 3 taken for a spin on the highway by three of its employees, Hothi said he had been on the highway when he happened upon a Tesla vehicle undergoing performance testing. He claims he “took the opportunity to observe and briefly record the car’s actions” and said the videos captured by the cameras mounted on the Tesla he was observing will show he wasn’t being aggressive in his observations.

It will certainly be interesting to see how this story plays out.

Bearish bet against Tesla is 6% of portfolio

After the most recent capital raise, Brown estimates that Tesla has enough cash to last for about another four quarters, which he said “gives the company a slim chance to turn things around.” In order to do that, Tesla will have to “dramatically improve sales and/or margins,” he added.

However, he still believes the automaker is “massively overvalued for a car company,” and he believes the $6.2 billion in revenue analysts are expecting for Q2 is far too high. He estimates that Tesla is on track for $4.5 billion to $4.8 billion in Q2 revenue. As a result, he remains “aggressively short while the fundamentals remain terrible yet so many people are still in denial.”

After the decline in value of the fund’s puts, Aristides’ effective short position in Tesla was about 6% of its portfolio.

Other positions

Brown also said the fund’s broad index positions did well in April. Aristides’ best-performing position was its short in Tilray, while the Tesla short was in second place. The long SPDR S&P 500 ETF and bullish options were the third-best position, while the long position in Hingham Institution for Savings was their fourth-best position. The fifth-best position in April was a long in Vanguard’s FTSE Europe ETF.

On the losing side, the worst position for Aristides was a long in Bank of Utica. The second-worst position was its cryptocurrency arbitrage strategy. Other weak positions in April were a short in Carvana and long positions in Atlas Financial Holdings and AutoWeb.

This article first appeared on ValueWalk Premium

The post This Fund Is “Aggressively Short” Tesla For “Terrible” Fundamentals appeared first on ValueWalk.


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