Is Tesla Stock The 'Largest Single Bubble' In History?

Tesla Inc TSLA gained another 6.4% to hit new all-time highs on Wednesday, once again without any major news from the company.

Tesla has plenty of skeptics with the stock up 900% in the past year despite reporting a 4.9% drop in revenue last quarter. Seabreeze Partners Management president and Tesla short seller Doug Kass says Tesla has transitioned beyond the status of overvalued and may now be the biggest stock market bubble of all time.

Tesla Bubble Argument: Kass said he avoided shorting Tesla for years, but he finally caved and took an initial short position at $1,642 back in late July. Since that time, Kass has presumably taken a big hit on that initial short, with Tesla’s price now at $2,111.

This week, Kass said Tesla’s underlying business fundamentals simply do not support anything close to its current valuation.

“It can now be argued that Tesla's shares represent not only a good short-term short but, at current prices, the stock may represent the largest single bubble – as measured by market capitalization of nearly $400 billion – in history,” Kass said.

Kass said Tesla’s business compares unfavorably to those of legacy automakers such as Ford Motor Company F, General Motors Company GM and Fiat Chrysler Automobiles NV FCAU.

“Faced with an onslaught of competition, Tesla's market cap is now nearly 4x that of Ford, General Motors and Fiat Chrysler combined – despite selling only about 400k cars/year, compared to the ‘big three's’ sales of 17 million units,” Kass said.

Kass also said Tesla has utilized “aggressive accounting” and has yet to prove a consistently profitable business model without heavily relying on regulatory credit sales.

Massive Short Position: According to S3 Partners analyst Ihor Dusaniwsky, Kass is far from alone in his bearish bets on Tesla.

Tesla has by far the largest outstanding short position of any stock in the world at around $21.7 billion, according to S3. Tesla has roughly 50% more short interest than Apple, Inc. AAPL, which is a distant second at $14.3 billion.

But while Kass is seemingly digging in his heels, other Tesla short sellers are throwing in the towel. Tesla has experienced nearly $2.7 billion in net short covering in August, more than three times as much short covering as any other stock.

Benzinga’s Take: Regardless of whether you fall in the Tesla bull or Tesla bear camp, it’s difficult to deny the stock doesn’t behave like any other large-cap stock in the market in terms of its valuation and price action. Given the extreme amount of uncertainty associated with Tesla and the dynamics driving the strange price action in its stock, traders should be extremely cautious going both long or short at current levels.

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