Published on August 3rd, 2018 | by Zachary Shahan0
The Tesla Short Thesis Just Collapsed — CNN, CNBC, Forbes, & Business Insider Are Still Lost In Shortsville
August 3rd, 2018 by Zachary Shahan
We’ve covered the wild world of Tesla short sellers for a while. When the most shorted company on the stock market is a major cleantech company, CleanTechnica just has to dig into this stuff. To much better understand what short sellers are, who shorts Tesla, what the Tesla short thesis has been, and why we’ve largely thought that shorting Tesla is idiotic, check out the last 10 stories linked at the bottom of this article. I’ll just touch on that stuff in this piece.
Additionally, I’m not going to dive deeply into the latest financials and what Tesla’s Q2 shareholder letter and conference call told us — Maarten’s going to be doing that for the spreadsheet nerds among us who love getting lost in numbers.
Instead, let’s just start with the simple and now obvious point: The obsession with “Tesla cash burn” has landed in a big puddle. Yes, Tesla was spending money to get Model 3 production lines built, running, fixed, running again, etc. Yes, if the production ramp was too difficult and slow, Tesla might have needed more cash from outside sources. However, while it’s true the production ramp wasn’t exponential, it was quite steady over the past several months. It seemed clear that Tesla was slowly building up to a production rate of 5,000 Model 3s a week. Somewhere around that figure, the Model 3 would become a profitable product and Tesla’s risk of running out of cash anytime soon would drop to around 0%. (See our “Tesla Bankwuptcy” articles for more explanation of this matter.)
It’s fair to say we can’t always trust a corporate CEO to give us the complete lowdown on struggles his or her company is facing, but Tesla CEO Elon Musk has shown on many occasions that he’s willing to say things that make him or his company look bad if it’s the honest, right, useful thing to say. When Tesla was entering a difficult period of production, Musk warned that he and his team were entering “production hell.” When he gave forecasts for production and deliveries in coming quarters, he cautioned that they couldn’t be certain about their forecasts because an unexpected problem with one part could slow the whole thing down, and they didn’t know what problems might pop up (that’s the whole point of them being unexpected). He also expounded on specific problems as they arose, admitting that they were having production bottlenecks because of certain things going wrong. These notes about his admission of problems are all a preface to more positive comments he made in recent months. Musk all but guaranteed that Tesla would hit certain production milestones in Q2 and Q3. Most striking of all, he told the world that Tesla would show a profit in the second half of this year. He also warned short sellers that they were going to get squeezed by all the good news and they’d be smart to get out of their short positions sooner than later.
Many on Wall Street and many in the media who seemingly just absorbed the talking points of their favorite Wall Streeters or automotive cynics more or less ignored what Musk said. They hyped and hyped and hyped scary sounding “cash burn.” They foretold of Tesla’s potential collapse over and over, questioned Musk’s sanity and honesty, and peddled a large variety of attacks on the company and the dude in what seemed like one of the most biased, misleading, surreal media shitstorms I’ve ever witnessed. (Sorry, I can’t think of a better label than “shitstorm” for this.)
Tesla bulls dreaded the Q2 shareholder letter and conference call because they knew it was likely to look like one of Tesla’s worst moments in history on paper. We had a strong sense that Tesla had turned a corner and Q3 would be a wonderful quarter with rosy news, but how would the media shitstorm respond to unflattering figures and Elon Musk’s responses to misleading or bait-filled questions on the conference call?
Tesla bears were giddy. They could smell the sweat and the potential collapse of an American success story, and that somehow made them cheerful.
When Tesla rolled out its shareholder letter, we learned that Tesla ended Q2 with $2.2 billion in cash and cash equivalents (which was more than the large majority of us expected). The letter stated that Tesla expected that figure to grow in Q3 and Q4 as Model 3 production continued to increase. The company expected to go from 18,449 Model 3s produced in Q2 to 50,000–55,000 produced in Q3. On the conference call, Musk showed some touching humility by apologizing to analysts he had criticized and interrupted on the last call. In other words, even though it seems they had been searching for troll feed via boneheaded questions, he honored them with an earnest apology for all to hear. He also calmly indicated that he expected Tesla to show quarterly profits more or less indefinitely from here on out.
Again, we could get into much more detail on these topics, but there’s no need to for the point of this story. The first key takeaway is that Tesla’s financials were better than expected, its projections for future quarters were superb, and Musk showed an honorable level of humility, calm, and kindness. Overall, the story was good — very good.
The share price responded very well over the course of the next 24 hours. It rose by approximately $50 — from $300 to $350.
I was curious how the media would respond. How would all of these outlets, journalists, and analysts who had been implying that Tesla was on the verge of a financial crisis report on this news? I figured they’d have a sharp turnaround. Perhaps they’d even admit they had been far off the mark in previous coverage. Unfortunately, I was disappointed to see that many headlines tried to spin a negative story! The made an extremely positive report and conference call seem like a net negative. Some reports were good, of course, but I was so struck by the negative headlines over the past ~24 hours that I took several screenshots of them for this story.
Before getting to those headlines, let me just jump in first and say that I think major media outlets do a superb job of covering topics where they have excellent journalists and vast resources deployed. These large media outlets are important pillars in our democracy. However, cleantech is apparently an area where they have invested few resources, and their coverage of Tesla in particular misses the narrative by far too great a distance far too often. Also, it seems that many of them just try to play two sides of the coin — for more clicks, I presume — rather than digging into the details and more cohesively working to convey the most accurate narrative possible. It’s a form of “false balance” that I find supremely annoying. “Balance” is not giving equal time to false or misleading messages as you give to true and informative messages.
Now, with that long intro out of the way, if you’re brave enough, let’s jump into the headlines.
And here’s perhaps the worst of all, again from CNBC: Tesla just had a horrible earnings report, but the stock is higher.
What narrative did those various headlines convey?
It seems several large media outlets are still lost in Shortsville. Furthermore, it seems they’re more interested in sideshows than in the actual business of Tesla. It’s too bad — this is probably one of the easiest topics and companies for them to pick up credibility and citizen approval covering. Tesla fans, followers, and consumers know the company well. They listen to the conference calls. They experience the superior products. They’ve watched Elon Musk Q&As countless times. They read sites like CleanTechnica to dig in and get the relevant facts and the most useful context. All they really have to do is get one person on staff who understands Tesla well and can oversee Tesla coverage to ensure that it’s not misleading, that it’s useful, and that it includes sensible context. That shouldn’t be too hard for major outlets like CNN, CNBC, NBC, Forbes, Fox News, Business Insider, etc., right?
Maybe they just need more time to shift gears — or to transition from cars that need gears to electric cars that don’t. Maybe they were fooled by talented spinmeisters and were genuinely lost after the conference call. Maybe I could have asked some questions on the call that better helped them to understand the relevance of the fresh numbers Tesla released. Or maybe they just don’t care, don’t have time for serious Tesla coverage, or have some sort of odd bias against an America-grown, record-shattering, highly loved company and its candid, innovative CEO.
- Our Tesla Bankwuptcy archives
- Tesla Model 3 — 7th/8th Best Selling Car In USA — In A Class Of Its Own
- Tesla Executes
- How I Learned To Stop Worrying About My Tesla Shares & Love The Short Sellers (Part 1)
- How I Learned To Stop Worrying About My Tesla Shares & Love The Short Sellers (Part 2)
- The Fascinating Tesla Short Story
- Stormy Weather In Shortville Will Soon Look Like A Day On The Beach — Epic TSLA Tsunami Coming
- Coming Tesla Short Squeeze? Will Stock Go “Supernova” In 3 Weeks? Elon Implies It Will
- A Sinister Cellar Of The TSLA Short Story?
- Jim Chanos’s Anti-Tesla Short Seller Arguments Debunked (Video)
- Is The Possibility Of Perception Perversion The Real Reason Jim Chanos Is Short Tesla?
- Elon Musk vs TSLA Shorts Is Personal, Not Business
- Tesla [TSLA] Short Sellers Have Lost $1 Billion In 2018