The last time Cathie Wood and ARK Investment Management found themselves on the opposite side of a call made by Grizzly Research, they lost tens of millions of dollars. It’s not stopping them from facing down the activist short seller once again.
Wood’s firm has been scooping up shares in a developer of air taxis named Archer Aviation Inc., boosting an existing stake in the venture to around 10% across several ETFs. The holding is part of a broader wager on “urban air mobility,” which seeks to use small aircraft to revolutionize the transport of both passengers and cargo — exactly the kind of disruptive bet beloved by the innovation-focused money manager.
But Archer is also a target of Grizzly, a New York-based firm that published a report on the company in August, alleging the health of the business and readiness of its product are misrepresented. Archer described aspects of the report as “ridiculous,” and said that it’s at the forefront of a potentially trillion-dollar business so expects to face doubters.
It’s the second showdown between ARK and Grizzly, who took opposing positions in TuSimple Holdings, another business focused on the future of transportation. The creator of self-driving tech for the trucking industry delisted from the US stock exchange in February after a string of difficulties, saying it is undergoing a transformation it can “better navigate as a private company.”
ARK was holding a stake in TuSimple worth about $220 million when Grizzly released a report on the company in August 2021, according to Bloomberg calculations. The money manager even added shares as the price declined following the attack, helping support the stock. But ARK eventually abandoned the holding, selling most of its position in late 2022 at around $2 per share. TuSimple had been trading above $34 just before Grizzly published its research.
Cheng Lu, chief executive officer of TuSimple, said in an interview that the company’s problems stemmed from a mix of managerial issues and the sheer difficulty of developing autonomous technology. After TuSimple’s voluntary delisting it now plans to refocus on markets in the Asia-Pacific region, he said.
As for Archer, shares are down about 30% since Grizzly’s report following a period of volatile trading in which they also climbed as much as around 14%. ARK funds bought about 5.9 million shares in the past month, according to an analysis of its daily trading reports, which represent the active decisions taken by the firm’s portfolio managers. That’s roughly $25 million worth at Thursday’s closing price.
“There are many parallels between the Archer and TuSimple situation,” Siegfried Eggert, CEO of Grizzly, said by email. “We were somewhat surprised to see how aggressive the buying was. We felt it looked very much as if ARK’s intention was to support the share price, rather than get as many shares as possible at a cheap price.”
ARK didn’t respond to several requests for comment made via the company’s external spokesperson.
Archer Attack
Missteps like TuSimple could be considered an unavoidable risk of Wood’s speculative approach, which often involves investing early in tech-based companies with the potential to disrupt whole industries.
While ARK assets have slumped since the height of its popularity in 2021, famously successful bets on the likes of Tesla Inc. mean it still boasts more than $16 billion under management. Wood retains a huge following of individual investors looking for the next big thing, with 1.7 million followers on the social-media platform X.
ARK expects the urban-air mobility industry to make significant strides in the near future, and is also buying shares in companies like Joby Aviation Inc., another developer of air taxis that is also the target of a short seller. Kerrisdale Capital says Joby may never make a profit, while the company has said the activist has a “vested interest” in lowering its share price. ARK’s stake is considerably smaller than its Archer position at around 0.5%, according to data compiled by Bloomberg.
Archer is developing vertical takeoff and landing aircraft and says it wants to bring its flagship vehicle, dubbed Midnight, into commercial service next year. Powered by a dozen electric motors running from six battery packs, Midnight is capable of carrying a pilot and four passengers for distances of up to 50 miles and at speeds of as high as 150 miles per hour, according to Archer. The company has to complete a lengthy certification process with the Federal Aviation Administration before it can begin commercial flights.
In its August report on the firm, Grizzly said it sent investigators to the company’s facilities and believed it was making far fewer test flights than claimed, and that videos of its aircraft had been heavily edited to portray longer flight performance. Eggert said by email that while he hopes that one day flying taxis will be a reality, “the value proposition of the entire industry seems overstated, and forecasts are generally too optimistic.”
Tom Muniz, Archer’s chief operating officer, speculated Grizzly had visited one facility under construction and another on non-flying days. He said the firm’s aircraft had flown more than 50 times in the last quarter, and that the company prefers to ignore the noise of critics as “you’ll always have those when you’re trying to change the status quo.”
“Obviously we take all these things seriously, but at the same time, some of the points in this report were just so ridiculous and lacked any factual standing,” Muniz said by phone from San Jose, California. “We’re quite well-capitalized as a business. We’re hitting our milestones. We’re just keeping our heads down, doing work.”
A class action lawsuit filed against Archer in the wake of Grizzly’s report was voluntarily dismissed by the plaintiff.
Grizzly isn’t alone in betting against the air-taxi company. About 20.6% of Archer’s floating stock is currently sold short, according to data from analytics firm S3 Partners. Joby is experiencing a similar level of bearish interest at 19.9%, the S3 data show. S&P Global puts the short interest in each company at 18% and 12.9% of shares outstanding, respectively.
The high pessimism has echoes of the electric-vehicle sector — another capital-intensive, challenging industry where many companies are counting on technical breakthroughs and societal shifts to grow their profitability and the market.
“This is not a low-risk, conservative-type business or mission,” said Archer’s Muniz. “Obviously that means it’s hard work and there are going to be plenty of pessimists or people that don’t believe in what we’re doing, and that’s totally fine. What we’re doing as a business is keeping our heads down, building airplanes, certifying them, and just moving ahead and building the future.”
A spokesperson for Joby declined to comment.
Doubling Down
ARK has developed a reputation for its high-conviction bets, and frequently uses dips to boost its position in favored stocks. The money manager is also no stranger to short sellers — and has faced them down with success before.
It snapped up extra shares of Block Inc. last year after Nate Anderson’s Hindenburg Research said it was betting against the Jack Dorsey-led digital-assets firm, alleging that it facilitates fraud. Block vowed to fight the “factually inaccurate” report, and — although highly volatile — shares are up around 27% since the days following the attack. When cryptocurrency exchange-operator Coinbase Global Inc. dropped after Jim Chanos said he was short the stock in March 2022, ARK swooped to boost an already large holding. Shares are now about 30% higher than the day Chanos revealed his bearish bet, and surging amid a crypto revival.
“Good luck to the short seller trying to get Cathie to bail,” said Eric Balchunas, senior ETF analyst with Bloomberg Intelligence. “Doubling down is second nature to Cathie, which is part of what makes ARK stand out so much.”
The flagship ARK Innovation ETF (ARKK) had lost about 4% in 2024 through Thursday, compared with a return of 8.4% for the S&P 500 Index. That’s partly because the firm has eschewed the big winners from the artificial intelligence boom in favor of smaller companies it thinks will benefit in future.
The money manager’s own speculative strategies have often drawn the interest of investors betting on declines, with short interest in ARKK as high as 22% of outstanding shares a year ago, according to data from S&P Global. That figure is currently around 9% after most of the ARK funds rode a strong year for tech stocks to post double-digit returns in 2023, with ARKK delivering 68%.
Even Eggert says that, while he would consider betting against the fund, “there are some sizable positions in ARK’s portfolio that I just do not want to be short.”
This article was provided by Bloomberg News.