Will the Tesla Model 3 Hit Its Price Range?
Elon Musk had a bit of a rough last week. First, there’s the fact that Tesla Motors Inc (NASDAQ:TSLA) stock fell over seven percent last week. On top of that, there are those who are predicting that President-elect Donald Trump and Elon Musk are headed for a showdown over the next few years.
And now, there are hedge fund managers who believe that Tesla is headed for bankruptcy due to the Tesla “Model 3.”
The manager in question is Mark Spiegel, founder of hedge fund Stanphyl Capital Partners LP, who believes that the Tesla Model 3 will not be able to sell for its $35,000 per unit price in 2018. This failure, Spiegel says, will result in TSLA stock hitting $0.00 in value. (Source: “Why A Hedge Fund Manager Thinks Tesla’s Model 3 May Put Elon Musk Out of Business,” Fortune, December 2, 2016.)
Spiegel spoke at the Robin Hood Investors Conference last week detailing why he was shorting. Once his presentation went public on Tuesday morning, TSLA stock took a three-percent hit by the end of the day while the broader market rose.
“I continue to believe that it’s the market’s biggest single-company stock bubble,” Spiegel elaborated in his November letter to investors, obtained by Fortune.
And Spiegel is hardly along. While Jim Chanos, the Kynikos Associates LP investor famous for shorting Enron before its fall, didn’t mention the Tesla Model 3 specifically, he did say in September that he is also shorting TSLA stock, believing the company headed for disaster especially following its merger with SolarCity Corp (NASDAQ:SCTY).
Spiegel’s theory for why Tesla is doomed relies on calculations he’s made regarding production costs. Spiegel estimates that the lowest production cost the Tesla Model 3 can reach is $50,000, meaning selling the car for $35,000 would mean operating at a $15,000 per unit loss.
The hedge fund manager believes that the Tesla Model 3 will never sell for anything close to $35,000 and this will sink the business.
Tesla has in the past offered their vehicles for prices lower than the vehicle ended up costing down the road, most famously with the “Model S” electric sedan. Less than a year after its release, the car experienced a 20% price hike than what it was originally offered at.
One thing is certain: all eyes will be on the Tesla Model 3 when the car is slated to be released in 2018.