One month ago, we got an email from IHS Markit. The market analysis firm had a totally unsurprising yet also shocking story to share — Tesla [TSLA] was a dramatically shorted stock. It’s unsurprising because this has been TSLA’s fate for years — it’s a favorite of stock shorters. However, it’s shocking because 1) people and companies shorting TSLA have gotten absolutely burned in recent years and even months, and 2) Model 3 production is ramping up. Model 3 production is certainly not at full speed and there have indeed been delays, which I presume is how the shorters justify staying on the negative end of the stock, but I think it’s clear production is ramping up if you look at it in an objective manner.
We didn’t get around to covering the IHS Markit story, but then there was one piece of big news after another about Tesla, which led to the stock actually going on a mini roller-coaster ride. Here’s a view of the stock price over the past month followed by a view of the stock over the past year:
Factors probably influencing the stock price in one direction or another in the past month included Tesla CEO Elon Musk’s new compensation package, a class action lawsuit against the Tesla board regarding the SolarCity acquisition, a single Tesla Model X crash & fatality (which happened with Autopilot on), the up & down swing of Bloomberg’s Model 3 tracking tool (and other such estimates), leaks about Model 3 production (and coming production plans), Tesla’s actual Q1 production and delivery figures (which put it at #1 in the US electric car market and soon also the small & midsize luxury car categories, presumably), a CBS inside look at the factory and Model 3 production challenges, a recall for 123,000 early Model S’s, more big Tesla Semi reservations from notable companies, Trump’s proposed steel tariffs, Tesla Model Y production rumors, and Tesla Model 3 winning the 2018 CleanTechnica Car of the Year Award (of course).
There’s one more story in there that I think deserves special recognition. Elon Musk noted (on Twitter, of course) that Tesla would show profit in the 3rd or 4th quarter of the year without raising more cash from the financial markets. This is notable in the context of this story about Tesla shorts for a few reasons.
First of all, it heavily, strongly, dramatically opposes the common viewpoints or at least talking points of shorts that 1) Tesla can’t show a profit, 2) Tesla is about to crash and burn, and 3) at the very least, Tesla needs to raise more cash very soon.
Hmm, something’s not right in Aberdeen, Samuel. Either shorts are horribly off target or Elon Musk is horribly off target.
Another reason I think it’s notable concerns TSLA history. It was a profitable quarter several years ago that helped Tesla stock to skyrocket from $30–40 a share to $100+/share and eventually $300+/share (now $290/share). Elon actually warned people back then that shorts were going to be in for a tsunami — that they’d get squeezed like lemons betting against Tesla. They ignored the warnings, acted like Elon was crazy, and then got absolutely squashed. There are certain investors/short sellers who routinely get burned by assuming Elon Musk is wrong or lying. But I find it exceptionally striking when he says something like “Tesla is going to show a profit soon” and such people continue to short the stock. Of course, we’re not approaching Q3 or Q4 at the moment, but I’m curious to see what happens with this mountain of shorts as we do get close to those quarters and potential temporary profit.
One more thing: If Tesla does get Model 3 production up above 5,000 cars/week, or even 10,000 cars/week (a deeper target), that will put the company on very different footing than it’s ever been on. It will be producing a few electric vehicle models steadily and one of them at a genuinely mass market rate. It will be turning a profit. It will basically fulfill its original Secret Master Plan. It will demonstrate that it can indeed play with the big boys … er, it can do something they haven’t yet been able to do. Presumably, that would put a long-term crater in the Tesla shorts market.
Oh yeah, that brings me to the CleanTechnica exclusive noted in the headline — which I almost forgot about. Since that initial IHS Markit data was a month old, I asked what the current data looked like. I was quite curious if short sellers took the collapse in Tesla stock to get out of this game, or if they more or less continued with the assumption that “it’s always a good day to short Tesla.” Not only have they not retired and moved on to shorting some other company, but they are now doubling down and have totally jacked up the number of shares that are short.
Well, they’ve been forewarned. We’ll see which side of the scales ends up getting rich and which side gets creamed in the coming months.
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