We might not love the idea of short sellers, but they may help keep the auto industry on track.
The hype around electric vehicles has led to a series of startups going public through mergers with special-purpose acquisition companies, a process that is much faster and easier than a traditional stock sale.
Investors' fear of missing out is sending billions of dollars to companies that don't necessarily have the ingredients for a successful business: vehicles that have been proved safe, demonstrable manufacturing capability and a retail approach that includes ongoing service. In a SPAC merger, these startups are spared the piercing questions of skeptical bankers. Rather, they are free to make growth projections that could charitably be called stretch goals or best-case scenarios. The Wall Street Journal reported last week that three EV companies, including Fisker and Faraday Future, project reaching $10 billion in revenue within three years of going public — less than half the time it took Google.
Enter the shorts. At first blush, betting on a company's failure seems predatory. But in reality, they are more often lone rangers exposing charlatans in an otherwise lawless land. Yes, they can make a gaudy profit off of fellow investors, but there's a well-known saying about fools and their money.
Hindenburg, the short seller that made Nikola disavow inaccurate claims by its former chairman, has turned its eye on Lordstown Motors, which vehemently denied the allegations that it inflated sales projections and that the launch of its Endurance pickup is off schedule by years. While Hindenburg's profit motive is clear, so is its liability under libel laws — so its accusations merit serious consideration.
Tesla is in many ways the exception that proves the rule. The company held a traditional initial public offering, but CEO/Technoking Elon Musk has chafed at the strictures imposed on public companies. His targets for production, growth, new-model introductions and capital needs have repeatedly been off by years, making him a frequent target of short sellers, most of whom end up getting trapped when Tesla later reaches a goal and long investors double down.
Hindenburg seems to know what it's doing, and it may not be done in the auto space. This could be a good thing, especially as investors are willing to set aside critical thought in their enthusiasm for electrification.