Elon Musk Offers Short Sellers An Overlooked Argument Against Tesla

Elon Musk is surprised. For as thorough and aggressive as Tesla Inc TSLA short sellers are, they’ve overlooked what he considers the most compelling argument against Tesla’s potential.

Musk offered this position during a recent podcast appearance with Third Row Tesla:

“Incumbent car companies make most of their money from selling spare parts to their existing fleet at high margins, and they’ll sell the new cars at a de facto zero margin or even at a loss...If you are a new company, you do not have a fleet, so you have no fleet with which to subsidize the sale of your new cars. This is the primary reason there has not been a successful car company startup in the United States.”

Musk estimates about 10% of Tesla vehicles are currently out of warranty compared to 80% of Ford Motor Company F or General Motors Company GM vehicles. The few Teslas that are out of warranty need less servicing because of their electric nature.

Carpe Diem

“This [fleet-model inertia] is a very difficult thing to overcome,” Musk said. “In order to overcome it, a car has to be significantly more compelling than other vehicles such that people are willing to pay a premium… otherwise, there is no chance.”

Tesla is seizing its chance by crafting a role within two key industry themes.

“In order for a car company to be successful, it has to succeed on two fundamental technology discontinuities: one being electrification, the other being autonomy,” Musk said, noting that electrification alone is not enough. “The combination of those two is the only opening for a new car company to make it.”

Tesla shares have been on a tear in recent months, moving from the $255 level in late October to the $860 level today. The stock started 2020 trading around $430.

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