This kind of move is invariably a short squeeze, as each move higher triggers incremental buying demand. It goes until it stops.
The strongest part of the short thesis was that the Model 3 would flop. Well... it hasn't. Model 3 production is up over 40% year-on-year.
Short interest has come down considerably, but there are still 24 million shares on loan.
At least $16 billion has been lost on these very shares since the lows last year.
These losses are sitting on the PnLs of various hedge funds around the world. Given that much of the move happened since December 31, these results have not been released.
This is many multiples of the $6 billion or so that Musk has spent building a world-changing business.
The true losses of this multi-year short position are far higher. You would have to include the borrow cost, and the enormous amounts of put premia that have been spent by the bears monthly. Each of these may also run into the billions.
Tesla share price (blue, LHS) vs shares short (black, RHS)
What a waste of capital.
One of the reasons we don't short any more is that there's something about it that deeply affects your psychology, in a very unpleasant way. "The world is wrong, it just can't see what I can see!"
The twitter hashtag #teslaq (q is added to bankrupt companies) is case in point. Amidst all the bullying, spying and taunting, many of those who thought they were the next Jim Chanos have put their followers, investors, and likely personal balance sheets into quite a tight spot.
I'd guess that those that can survive the next few weeks will be able to buy back their short at much lower prices than $800. Then again, the price may never go lower.
Which brings us to another reason not to short: sooner or later you're going to get caught in something like this. We've certainly had far more luck buying heavily shorted stocks, like Carvana, Alteryx and Afterpay.
Noone's perfect
Musk is very publicly all too human.
The Model S was described by some as the best car ever made. The logical next step was to build a slightly cheaper riff on the same theme - ie the Model 3. Instead Musk went down the rabbit hole of producing a very odd looking SUV with gull wings. This was confusing and a multi-year setback.
The decision only makes sense once you realise Elon had young kids at the time, and needed an SUV.
Loading up Tesla with debt after the purchase of SolarCity was also a risky move.
Perhaps he did need to keep his reputation intact and make the acquisition. But he could also have sold $7b of stock, diluted maybe 15%, and launched the Model 3 on a bulletproof net-cash balance sheet.
But with the share price rocketing, even this 'mistake' seems to have paid off handsomely.
Tesla balance sheet evolution
High growth companies that are losing money can pay employees with stock, and actually accumulate cash. Generally, straying from this recipe leads to disaster. As of today, this is a clear exception.
Live and Learn
We owned Tesla from ~$80 but sold years ago. Maybe we were a little too self-congratulatory.
As per usual, with a fast-growing, innovative company, selling unique and widely loved products, we should have just sat on our hands.
The lengthy short theses flying around the internet all talk about competition. But who is going to pay up for a Tesla copycat from Toyota? As with therest of the industry, everyone else is going to fight it out for zero net margin, while the companies with genuine customer love will charge a premium, and the only industry profits. (True customer love is very different to being a well known brand)
The smartphone industry is perhaps a good guide to what happens next. The one luxury producer took almost all the industry profits. At times, when the rest of the industry was running at a loss, Apple took even more. Often Apple was selling every product it could make, which is the situation Tesla was in with the Model S years ago.
I can't see anyone camping outside a store to buy a Honda plugin.
The hard part in business is finding customers to buy your products, and Tesla has always had this in spades. This is one of the few companies in the world that can get deposits on hundreds of thousands of preorders for new products.
So we have had our own lesson to learn... and learned it well.
Henry Kaye
Is this parody? Much of the short positioning is offsetting the massive convertible debt hedges. Shorts do trade you realise - the board of this company were slamming out their personal holdings under $200. The 'we dont short' crowd has a commonality with this author of being in school last time we had a bear market. Model 3 YOY 40% growth is a nonsense number - it has been delivering into a backlog and sales like those into the Netherlands reflect this company's addiction to government subsidies and will not be repeated It is so popular the average price point has collapsed along with demand as people realise it is a garbage car. Lets talk about the collapsing sales of X and S - the only cars Tesla has remotely come close to making money producing. Securities fraud and rampant lying is waved away as "all too human" - you manage people's money and this is your take? The smartphone comparison is ridiculous. What other stonks do you like?
Michael Frazis
Henry Kaye has provided a timely example here of the 'bullying, spying and taunting' of TeslaQ. The correct move was to own Tesla stock from the day they started selling out of the Model S.
Patrick Fresne
I find it a little puzzling how short-selling a stock you don't like seems to be perceived by many investors as some humdrum everyday transaction, like opening a bank account. Surely, if you dislike a stock such as Tesla, the sensible course of action would be to invest in a competitor, rather than opting for the high-risk course of opening up a short position. There are investable (and probably more viable) alternatives to Tesla out there, for those who are willing to take the time to seek them out.
Peter Ralph
Only time will tell. 'Warren Buffett to Apple: Don't Invest in Tesla. It would be a “very poor idea” for Apple Inc. to invest in Tesla Inc., Berkshire Hathaway Inc. Chief Executive and legendary investor Warren Buffett told Fox Business. If memory serves me, Charlie Munger said Google's car division and technology are far superior to Tesla's. This was about a year ago and Charlie valued Google's car division at $200 billion which made it the world's largest auto company. I too shorted for a long time but have ceased to but when the inevitable downturn occurs, it will be hard to keep my finger off the Afterpay sell button :-).
Chris K
They went with the Model X because battery costs were too expensive at the time to produce a cheap Ev, ie Model 3. Tesla are availing of all options they can (subsidy driven sales, government incentives, targeting wealthy countries etc) to buy themselves time until further battery cost reductions come into play and/or a big battery breakthrough (Maxwell acquisition), amongst other initiatives at which point I expect they will very profitable and miles ahead of the competition. I want Tesla to succeed because it’s bold and it’s innovative and it’s disruption of one of the most corrupt sectors globally. I don’t really care if Musk makes $1T along the way. Whether you believe in global warming or not, EVs at scale will lower pollution so how can that be a bad thing? Saying they will increase pollution is false, including all the mining needed for the materials as opposed to ICE and that will only get better as economies of scale come into play. Current valuation is insane though and It’s not something I’d have my money in.
Trevor Best
An innovative company selling unique products? ? I will certainly buy a Honda or Toyota EV before Tesla, due to likely better price, long-term proven value and great engineering. Anyone can make an EV - you just need a body with wheels, steering battery and electric motor. Not BS and hysterical sentiment.
Ian
One thing in common with most critics of Tesla is that they have NEVER driven one! One long-distance drive is enough to silence most of their arguments (especially range anxiety), so if you are going to criticize them (or compare to Toyota), don't do so from ignorance!