By CCN: Short seller Jim Chanos has criticized the quality of the cars leaving Tesla plants, reportedly saying they are "poorly made." The Tesla bear, who profited handsomely from shorting Enron in 2001, also claimed the electric vehicle company's products are mainly popular with those living on the U.S. coasts, according to Yahoo Finance.
In Chanos’ view, Tesla’s direct sales model could be taking the focus of the company away from its core business. Turning away from the model employed by traditional carmakers has not worked out well. Chanos stated:
"Tesla’s idea was to tear all that up and start from scratch...but sales and services are coming back in a hard way."
Chanos: No Chance Elon Musk Will Leave
Despite the spate of negative news that Tesla has been experiencing, including executive departures, missed targets, and a falling stock, Chanos doesn’t see CEO Elon Musk resigning.
"I don’t think he can...He’s the brand...it’s all about Elon Musk. I think a lot of people buy the car because he’s the brand."
The short seller also poured cold water on Musk’s plans to launch an insurance product for customers. Chanos claimed that the reason insurance rates for Tesla cars are rising is the poor quality of the vehicles. But the electric car company is unlikely to succeed in the insurance business, per Chanos:
"[The] free market has woken up to the poor quality of Tesla’s vehicles, and insurance rates are going up. Tesla must be trying to get in front of the problem. It’s not going to happen and if it does, it won’t be what people think."
Are Tesla’s Insurance Plans Doomed From the Start?
Besides Chanos, billionaire Warren Buffett last month warned that Tesla’s insurance venture is likely to fail. At the time the Berkshire Hathaway CEO warned that the insurance sector was ‘not an easy business’:
"The success of the auto companies getting into the insurance business is probably as likely as the success of the insurance companies getting into the auto business.
Chanos’ criticism of Tesla coincides with the stock making a recovery from a yearly low of slightly below $180. On Thursday, the stock rose by nearly 5%. This was after reports that Tesla had increased U.S. sales in May by 73% year-over-year. In pre-market trading Friday, the stock rose by nearly half a percentage point to hit $206.95.