Famed short seller Carson Block has a new revelation on Tesla and Elon Musk: He’s bullish on them.
Last week, Block awoke from a dream about Chamath Palihapitiya to a new insight about Musk, whom in the past he has called a “liar,” according to an investor letter detailing the short seller’s new world view, which Institutional Investor has obtained.
“The reality is that a certain amount of bullshit is necessary — even desirable — in life,” Block wrote in the letter dated August 11 from his new home in Austin, Texas, where he has relocated after more than a decade in the San Francisco Bay area.
Maybe the Texas heat has gotten to him, but the Muddy Waters Capital CEO is now is embracing Musk as a brilliant tactician. “Jedi Mastery is being able to set your audience’s acceptance level for the amount of bullshit you want to deliver. Nobody embodies this better than Elon,” he continued.
The short seller admitted that he has always admired Musk’s demonstration of the “viability of electric vehicles with the Model S.” But like other short sellers, he “disdained his incessant bullshit.”
Block was never one of the biggest, or most vociferous ,Tesla shorts, but in the letter he explained that his put options came close to paying off in 2019. “But Elon pulled the requisite habit out of the hat, the Fed loosened in response to Covid, and our puts went to Put Heaven.”
What he realizes now, he wrote, is that while Tesla doesn’t have the scale to compete with major automakers like GM, Ford and VW, it has something just as important: a huge capital base.
“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,” Block wrote. “With Tesla having an enterprise value of ~$700 billion, it has far more capital scale than any competitor.”
In an interview with II, Block explained that “the only way Elon was going to be able to disrupt the industry” was to create the massive capital scale he has now even though “he got there on the back of lies, a lot of exaggeration, and bullshit.”
In the interview, Block also applauded Musk for “dragging” other automakers “into a future of electrification.”
That’s important because of another theme of Block’s letter: the urgent need to decarbonize the economy, which he believes will keep interest rates “at ridiculously low levels” for decades “to stimulate investment in technologies to decarbonize.”
“Our way of life isn’t sustainable,” he wrote, after admitting he is “no environmentalist” since his “two-driver household owns 30 cylinders of ICE collectively producing almost 1,400 horsepower.”
To be sure, Block still believes there’s plenty of room for short sellers to pound on would-be electric vehicle makers.
“There will be a torrent of charlatans who come out of the woodwork to cheat people out of their money based on false promises of disruptive technologies,” he wrote in the letter, mentioning Lordstown Motors, Nikola, and XL Fleet, one that Muddy Waters shorted earlier this year.
“We excel at playing the man – not the ball,” he added. “And that’s what’s needed to ferret out the shysters from the Elon Musks.”
In other news, Block reported that his new Domino fund, which launched on February 16 and uses artificial intelligence to figure out when to close short positions, is off to a good start.
The fund has returned 10.9 percent on a net basis through August 6, outdoing his flagship Global Opportunities Onshore Fund. That fund is up 7.4 percent during the same time period.