Breakingviews - Capital Calls: Leverage adds voom to Tesla party

A man wearing a face mask following the coronavirus disease (COVID-19) outbreak walks by Tesla Model 3 sedans and Tesla Model X sport utility vehicle at a new Tesla showroom in Shanghai, China May 8, 2020.

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

LONDON (Reuters Breakingviews) - STRAP IN TIGHT. Elon Musk fans around the world have ever more ways of showing their appreciation. Leverage Shares, a creator of exchange traded products, is listing one on Paris’s Euronext that offers exposure to just Tesla, leveraged three times. Such securities are quick ways of making short-term geared punts, without needing to open a brokerage account or dabble in derivatives. The ETP buys the shares and borrows in the market, taking a 75-basis point fee plus margin costs. Leverage Shares offers the product for other companies like Alphabet, as well as “inverse” ETPs, for betting against stocks.

There are reasons to be nervous about Tesla’s valuation. Even with its sales growth slowing, Musk’s group is still valued at nearly 100 times 2023 earnings, according to Refinitiv. Traditional carmakers like Volkswagen are catching up with their own electric vehicles ranges. The Tesla leveraged ETP is up 21% in the last month. Past performance is unlikely to be a good guide. (By Neil Unmack)


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