In a recent commentary, Gary Black, managing partner of The Future Fund LLC, shared his rationale for avoiding short positions in Tesla Inc. (NASDAQ:TSLA), despite the electric vehicle manufacturer’s elevated valuation multiples. Highlighting the complexities of short selling, Black emphasized that such investment strategies are far from straightforward.
Discussing ideal short candidates, Black outlined that companies undergoing long-term decreases in demand or facing permanent erosion of market share—without possessing the technological prowess, brand strength, distribution networks, or management expertise to reverse these trends—are more suitable targets for short selling. In this context, he expressed no intention to short Tesla simply because it appears expensive.
"We won’t engage in short selling just because a stock looks pricey," Black remarked. Instead, he noted, expensive stocks are often filtered out of portfolios without pursuing short exposure. He indicated that stocks with short interest exceeding 10% are more likely to be considered for short selling, a threshold Tesla does not meet.
Black elaborated that even with Tesla trading at a lofty price-to-2026 adjusted earnings ratio of approximately 198, he would refrain from shorting. "It’s too good a company within a flourishing industry," he explained. The dynamics contributing to this position include the accelerating global adoption of electric vehicles and Tesla's operational characteristics.
Furthermore, Black acknowledged certain challenges the company faces. Notably, he pointed to Tesla’s marketing approach, describing it as reliant heavily on word-of-mouth and the cultural relevance of CEO Elon Musk, rather than traditional marketing techniques. He suggested that these marketing shortcomings could impede Tesla’s ability to keep pace with competitors developing robotaxi services, emphasizing that enhancing marketing efforts remains an area requiring address.
On technology prospects, Black expressed optimism regarding Tesla’s ability to resolve unsupervised autonomous driving — a development that could drive increased sales volumes.
The discourse around Tesla’s valuation extends beyond Black. Former Fidelity Overseas Fund manager George Noble voiced his worry over the company’s share price, citing concerns about promoted narratives that may inflate momentum investing. Michael Burry, noted for his role in 'The Big Short,' has also characterized Tesla’s valuation as "ridiculously overvalued" and criticized the "Elon cult" phenomenon associated with the company. Nevertheless, Burry confirmed that he does not maintain a short position on Tesla.
From a metrics standpoint, Tesla scores positively on momentum and quality indicators but ranks poorly on value metrics. Its price trend has remained favorable over short, medium, and long-term horizons, underscoring persistent market confidence despite valuation debates.
As of Wednesday pre-market trading, Tesla shares showed a modest gain of 0.46%, according to Benzinga Pro data, reflecting ongoing investor interest.
In summary, while Tesla's valuation invites scrutiny, Gary Black’s analysis emphasizes the company's strengths and growth prospects as deterrents to short selling. The firm’s dominant positioning in the growing EV sector, coupled with its innovation pipeline, underpins this assessment, even as marketing weaknesses and valuation concerns persist among certain market participants.