- Tesla's valuation is built on unrealistic hopes for Elon Musk's company, Jim Chanos said.
- The short seller noted the automaker's stock price suggests it will transform multiple industries.
Tesla can't possibly meet its fans' outsized expectations, especially when CEO Elon Musk is distracted by running Twitter and proposing peace plans to end the Russia-Ukraine war, Jim Chanos has said.
While Tesla earns the vast majority of its revenues from selling cars and related services, bullish investors and analysts treat the company as "a canvas upon which they've painted their hopes and dreams of the future," the famed short seller said in a recent RealVision interview.
"It's an energy company, it's a battery company, it's a robotics company, it's an autonomous driving company — take your pick," Chanos said, describing how Tesla's most zealous followers see its business. "On top of that, it's going to grow its automotive revenues by 40% or 50% for the next 10 years."
"It's got everything, and it's run by the smartest man in the universe," he continued. "It is a hopes-and-dreams stock."
Chanos, best known for predicting and profiting from the collapse of Enron in the early 2000s, said Tesla reminds him of past high-flying stocks such as Cisco during the dot-com era.
Tesla shares surged from a split-adjusted $30 at the start of 2020 to over $400 at their peak last November, and now trade around $224. The company's market capitalization has ballooned to $700 billion as a result.
However, Chanos warned the automaker's valuation is largely built on belief, and investors could soon face a reality check.
"The problem that Tesla has now is, not only is the CEO preoccupied with Twitter and giving away other people's territory, and things like that, but it's really, really hard to be a luxury car manufacturer and keep growing 40%, 50% units," he said, referring to Tesla's annual unit sales target.
The Chanos & Company boss also pointed out that Tesla appears to earn the lion's share of its profits in China. Yet the company's cars are very expensive for that market, there's mounting competition, and Tesla risks falling foul of the government, meaning its growth potential in China could be limited, he said.
Chanos highlighted a wider problem with companies today as well. He noted that many have faulty business models, as they did during the dot-com bubble, and need rock-bottom interest rates to make money.
The veteran investor also outlined how the speculative excess in recent years could lead to changes. He predicted a crackdown on misleading accounting practices, plus stricter regulation of cryptocurrencies and non-fungible tokens (NFTs) with the goal of preventing further losses, thefts, and scams.