Introduction

Hedge fund manager Dan Niles has recently revealed that he maintains a short position on Tesla’s stock, even though he holds a bullish view on the broader market. Niles, who is the co-founder and portfolio manager of the Satori Fund, shared his insights during an interview on ‘s “Squawk Box” on Tuesday.

Challenges for Tesla

Niles believes that Tesla is likely to face significant headwinds in the coming months, which could lead to a decline in its stock price. He points to several factors contributing to these challenges. Firstly, he mentions the surging interest rates, with the 10-year Treasury yield recently reaching 4.8%. This rise in rates has created a difficult environment for auto sales, as it has increased the typical new-vehicle loan interest rate to 9.62%, according to Cox Automotive data. As a result, it now takes an average of 42.1 weeks of median income to purchase a new car, compared to the pre-pandemic average of 34 weeks.

Niles’ Short Position

Niles believes that higher financing costs, combined with the significant increase in Tesla’s stock value this year, make it an attractive short opportunity. He explains that the stock’s performance is not aligned with the challenging market conditions for auto sales. Despite Tesla delivering fewer cars than expected in the third quarter, the company maintains its goal of delivering 1.8 million vehicles this year. Niles points out that these lower delivery numbers, along with price cuts for certain Tesla models, indicate continued pressure on gross margins for the company.

Niles’ Perspective on Tesla

It’s important to note that Niles’ short position on Tesla is relatively small, accounting for only about 1% of his portfolio. In contrast, he has previously made more aggressive bets of up to 15% of the fund on stocks with high conviction. Niles clarifies that he has a positive view of Tesla as a company and personally owns a Tesla Model X. He regards Elon Musk as the Thomas Edison of our generation and admires the company’s products. However, he considers the stock to be expensive given the need for lower estimates in the future.

Niles’ Overall Market Outlook

Niles discloses that he is currently “bullish” on the overall market, with less than 10% of his fund’s holdings consisting of short positions. This is significantly lower than the historical average of around 50%. His positive outlook on the market further highlights his belief that Tesla’s stock is relatively overvalued.