Carson Block Goes In On Musk's 'Bulls**t,' Why Tesla Shorts Were 'Right And Wrong The Whole Time'

Short seller Carson Block of Muddy Waters Capital just sent out his first letter to shareholders, and he devoted a large portion of the letter to discussing Tesla Inc TSLA.

Elon Musk’s Strengths: Block said he identified early on in Tesla’s history that Elon Musk was too good at “pulling rabbits out of the hat” to ever short Tesla. However, Block was long Tesla bonds at one point and had used the coupons to buy long-dated deep out-of-the-money puts against Tesla, contracts that became tantalizingly close to paying off in a big way in 2019.

Of course, Tesla traders know Musk once again pulled a rabbit out of a hat and saved the company, later admitting that Tesla was “about a month” from bankruptcy.

Block said Musk’s innovation and marketing have always impressed him, but he has been turned off by Musk’s “incessant bulls**t,” which Block called an “unnecessary stain on his legacy.”

“In my view, the Tesla shorts have been right and wrong all along about Tesla’s problem,” Block wrote.

Related Link: Tesla's Stock Pulls Back After Q2 Earnings: What Do Analysts Think?

What Short Sellers Missed: Block said Tesla shorts were right that Tesla was woefully unequipped to compete with legacy automakers in terms of production scale. However, they were wrong in failing to appreciate Musk’s ability to raise seemingly unlimited capital by controlling the public Tesla narrative.

“All those years of lying (e.g., ‘funding secured’), wars with short sellers that we assumed were driven only by his pathological narcissism, and trampling rules he found inconvenient have given Tesla capital base scale. With Tesla having an enterprise value of ~$700 billion, it has far more capital scale than any competitor,” Block wrote.

Block said even if the market eventually prices Tesla’s core business at a valuation more in line with reality, the company will have already raised billions of dollars of capital needed to scale its business. Block said Musk could still ultimately fail, but he warned short sellers to think twice about betting against him.

“It just requires Elon to continue setting his audience’s receptivity level of bulls**t to Absurdly – if not Adoringly – Accepting,” he wrote.

Benzinga’s Take: Regardless of what you think about Tesla’s valuation and its ability to fend off a tidal wave of new EV competition in coming years, it’s hard to bet against a company with a seemingly unlimited supply of new capital. Since the beginning of 2019, Tesla has raised $14.5 billion in new capital over five different fundraising rounds, and its stock price is up 963% in that time.

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