Major Hedge Fund Capitulates On Tesla Short As David Einhorn Accuses Musk Of “Significant Fraud”

After Tesla stock soared following its unexpectedly, inexplicably strong Q3 earnings, spiking as much as $80/share in late October amid a violent short squeeze which pared the company’s year-to-date slide, even some of the most hardened Tesla shorts have had no choice but to throw in the towel after the EV-maker’s third-quarter results allayed some investor concerns about the demand for its electric cars and the company’s ability to churn out vehicles while maintaining strong margins.

Among them is one of Brazil’s largest hedge-fund managers.

According to Bloomberg, Brazil’s Adam Capital scrapped its short position in Tesla’s shares, saying in its latest letter to clients that Tesla’s improving operating efficiency has hurt its investment thesis.

Adam Capital, which manages about $5.9 billion, was founded in 2016 by Marcio Appel and Andre Salgado, who according to Bloomberg were hedge fund veterans from Banco Safra SA and Banco Santander’s Brazilian unit.

The firm quickly became one of the nation’s biggest independent hedge-fund managers, with its flagship fund crossing 10 billion reais under management in less than year after its launch.

To be sure, the Brazilian hedge fund manager may not be alone, with various smaller portfolio managers taken a break on their bearish position.

One stubborn bear who refuses to capitulate, however, is Elon Musk’s old nemesis, David Einhorn, who a year ago received a shipment of short shorts from the California billionaire…

I want to thank @elonmusk for the shorts. He is a man of his word! They did come with some manufacturing defects. #tesla pic.twitter.com/qsYfO8cbkp

— David Einhorn (@davidein) August 10, 2018

… and who in his latest letter wrote that his Tesla short was a “material loser”, and proceeded to accuse Elon Musk of orchestrating “significant fraud,” as the following excerpt from Greenlight’s latest investor letter reveals:

TSLA appears to continue to spin positive PR ahead of the safety and fair treatment of its customers. For example, in August Walmart sued TSLA because its solar panels were catching on fire. Rather than warn its solar customers when TSLA became aware of the fire risk, TSLA allegedly created Project Titan – a covert program to replace the defective components while staying out of the news. Similarly, in response to a series of car battery fires, instead of recalling the batteries, TSLA appears to have quietly issued a “software update” to the battery management system that has a side effect of reducing battery range. TSLA has chosen not to warn or compensate its customers for the decreased performance.

Finally, to the surprise of nobody, documents in TSLA’s SolarCity litigation unsealed in September showed that Elon Musk knowingly orchestrated a significant fraud by arranging the $2.6 billion acquisition at a time when SolarCity was insolvent. Musk and his family had a huge conflict of interest, but rather than properly recusing himself, Musk initiated the transaction and drove the process. SolarCity was so cash-strapped, it was trying to delay payments to vendors after parts were delivered and the vendors had recognized the revenue; SolarCity could not raise any funds at reasonable rates from third parties; and Musk engineered the unveiling of the Solar Roof tile to convince TSLA’s shareholders to approve the deal, even though the product did not exist at the time.

As was the case with Musk’s extraordinary “funding secured” tweet last year, we believe this level of trampling of standard processes of corporate governance, ignoring methods to deal with related party transactions and self-dealing should lead to substantial consequences. For now, the accepted reality appears to be that Elon Musk is above the law.

Full letter below: