January 27, 2023

The recent Tesla bulls vs. bears debate

Tesla’s stock has remained a polarizing topic, especially as the company reaped significant losses throughout the last year. Bears and bulls alike will have to address Tesla’s incredible growth and industry disruptions over the past few years, but an argument between the two in recent weeks is pointing to the company’s margins, overall valuation and, unsurprisingly, its car business.

A recent debate between Tesla bulls and bears broke out during a Wall Street Journal online Q&A event featuring Tesla bull Ross Gerber, bear Jim Chanos and live markets writer Gunjan Banerji (via Barron’s). The unique 30-minute event was broadcast live on WSJ’s website, featuring live chat questions from viewers with Gerber and Chanos answering, while Banerji moderated between the two.

In short, the debate came down to Chanos believing Tesla is essentially just an automotive company, adding that the automaker is overvalued and that its high margins will eventually fall to meet industry averages. Gerber argues that Tesla’s many focal points beyond the automotive make its extra margins justifiable, including its software, service and energy businesses, and its continued expansion of both EV and battery manufacturing.

“As the world transitions to a clean energy and transportation future, there’s only been one company that’s driven this amazing innovation in electric vehicles, and now in energy storage.” Gerber said. “And Tesla is this company.”

Gerber is the CEO of Kawasaki Wealth and Investment Management, while Chanos is the founder of Kynikos Associates. Gerber owns shares in Tesla, though Chanos is short the company’s stock — effectively meaning that he benefits from its shares dropping in trading price.

During the conversation, Chanos claimed that Tesla performs like a car company on the market, rather than like a software or tech company.

“[Tesla] looks exactly like a car company,” Chanos said. “It does not have software margins; it has auto OEM margins, and that’s just a fact.”

Gerber pointed out in response that the vehicle is a driving tech product, with an ecosystem not unlike Apple’s ecosystem.

Barron’s argues that neither Chanos nor Gerber got it quite right, saying that each of them focused on old news. Chanos didn’t acknowledge the financial benefits of the Tesla Supercharger network, or its margin benefits from bypassing a dealership model altogether.

Other topics deliberated upon during the session included Tesla’s Full Self-Driving and the automaker’s role in the Chinese market.

Although it isn’t possible to predict how Tesla’s stock or will perform, current analyst consensus puts Tesla at roughly 1.8 million auto deliveries in 2023. And Tesla's earnings call this week confirmed these high expectations. Either way, it’s likely to be an exciting year for Tesla’s EVs with the coming Cybertruck, and continued expansion of its energy, charging and auto production businesses.