Tesla Tumbles On Slowing Sales In China, But 'Valuation' Is The Real Problem

Tesla Motors Inc TSLA CEO Elon Musk revealed on Tuesday that sales of the company’s vehicles were witnessing a decline China following which the stock took a big hit.

Jim Chanos, Kynikos Associates founder, was on CNBC Friday to opine on  Tesla’s China troubles and share his concerns over the valuation of the company.

“This problem in China was foreshadowed by the fact that I believe Tesla lost the head of its China operations earlier in the year in 2014,” Chanos said. “So, that might have been a glimpse that maybe all was not going swimmingly for them in China. They have a bigger problem and it’s not unique to Tesla that is they are very, very high-end product. I mean, the car doesn’t have all the rebates that it gets here and so it’s a $100,000 plus car in dollars.”

He continued, “Remember, this is still an economy where the average per capita income is at 1/8th of what ours is. The real problem is there’s an awful lot of people who can afford a Tesla right now in China have some bigger problems on their hands that is where do they get the money and who is looking over their shoulder, the anti-corruption drive,  and the high-end  market for lots of things in China is very, very soft.”

Chanos explained the problem that he has with Tesla’s valuation, saying, “Here is a company that is valued on the basis of its 2025 earnings. The projections that the CEO and analysts, not just the CEO, confidently make -we are going to make millions of cars in 2020, whatever, but can’t tell you about the next quarter.”

Chanos also revealed that he is a “potential purchaser of the stock’.