As you may have seen, Tesla recently showed another quarterly profit, which apparently shocked the market enough that the Tesla [TSLA] stock price shot up. I don’t follow the stock closely, but I am a shareholder and find the whole “Tesla bull vs Tesla short” debate quite fascinating. I’ve had several thoughts on the stock and these different investment communities in the past week, but the one that shot to the front most quickly and strongly was simple: TSLA bulls warned the TSLA shorts.
I started thinking about what exactly that means, how we Tesla bulls warned Tesla shorts. I realized that it’s been extensive — not just one point or another, but a consistent debunking of their concerns and pessimistic claims. It’s not been just one warning, but many different warnings packaged together on a daily basis. The combined takeaway warning was just that, yes, Tesla can make money. It’s not going bankrupt. Stop betting it’s going to crash before you get burned. But, on a more nuanced level, there are several key factors at play that explain why exactly the company can make money and what Tesla short sellers seem to consistently get wrong about Tesla. As I started thinking about this, I figured it deserved a full article. Perhaps this once will help keep more skeptics from getting burned next time Tesla shows a quarterly profit.
1. Tesla is obsessed with improving efficiency. This may be hard to understand or believe, and is sometimes hard to see since Tesla is growing so fast and keeps taking on new challenges in the midst of that rapid growth, but Tesla is obsessed with improving efficiency. I wrote about this at length recently, so I’m not going to repeat that performance. Just read about it here: “Capital Efficiency (Tesla’s Obsession).”
2. Tesla whoops the competition, literally (not really) and objectively. I can’t tell how much Tesla short sellers understand this (and pretend not to) versus somehow never digesting it. Sure, you may wonder if Tesla currently has demand for 60,000 Model 3’s a quarter versus 100,000 a quarter, but anyone who follows the company somewhat closely has to know that the Model 3 has received rave reviews all across the auto industry — like, all across the industry — and pretty much everyone who drives a Model 3 finds it to be amazing. On acceleration, infotainment, autonomous driving, safety, design, and more the Model 3 is a new world wonder in the auto industry. It obliterates the competition in the midsize luxury car class because it’s that much better. It can also compete with the Toyota Camry and Honda Accord on total cost of ownership for many buyers. Tesla owners and fans have explained the cars advantages millions of times in countless ways, yet short sellers often insist that the Model 3 is actually a crappy car. Sorry, but unbiased humans do not agree, not at all, and if you don’t see why, at least try to pay attention to the stats and objective reviews.
3. Word of mouth is a thing. The biggest question mark to me has been how fast word of mouth (and exposure to the car in more tangential ways) would spread and lead to sales. In the long term, the Model 3 must pull in buyers, but I wondered how many it could reach in 2019. Nonetheless, anecdotal experiences, Elon Musk’s comments about new orders and vehicle demand, and various articles on CleanTechnica about ways Tesla could stimulate more demand if production looked like it would outpace orders should have given short sellers the sense that demand has been rolling strong. Instead, short sellers have been insistent that Tesla reached a demand cliff, that almost no one would want a Model 3 after initial fanboys and fangirls got their cars, and that word-of-mouth sales would be very limited.
There’s even been hype about Tesla hiding cars, having more inventory than people think, and not having any more customers in [insert location] because registrations dropped for a week or so. Tesla bulls have argued: many more people discover every day that the Model 3 is truly awesome. This will continue to be the case as more people receive the car and share it with friends, family, coworkers, and neighbors. It seems Tesla short sellers will just keep assuming that demand has finally dried up and sales are about to fall off a cliff. That’s certainly been the case in the past several quarters.
4. Elon Musk is a business genius. Probably the most common assumptions among Tesla short sellers are that Elon Musk is a fraud who doesn’t really know how to run a legitimate business, Elon is actually an idiot who can’t execute, and Elon is constantly on the verge of taking Tesla off a cliff. I don’t really understand where these assumptions come from. I don’t understand how you can listen to or watch Elon and come to such conclusions, let alone follow his companies’ progress over the past couple of decades and think that stuff. Elon has a practically unmatched track record of business success in multiple industries. I actually can’t think of someone who has proven himself a more adept and qualified business leader. Billionaires like Ron Baron and Larry Ellison say the same thing, yet short sellers assume or at least try to convince others that the opposite is the case. We Tesla longs try to explain why Baron and Ellison back Elon, but the critics call us brainless fanboys instead of being receptive to the points made.
5. Tesla has been making money on its vehicles. Some people claim that Tesla can’t produce a Tesla Model 3 for the price it sells the car for. In other words, they say the whole business is a Ponzi scheme, a fraud, a multi-year accounting trick. Supporters have explained that Tesla makes a solid gross margin on its vehicles and could be easily profitable if it focused on that instead of rapid growth. Some critics have claimed that Tesla will simply lose more money if it sells more cars, and no matter how much we’ve tried to correct the record and point out actual gross margins, logical cash flow forecasts, and the fact that Tesla can in fact produce cars for less than the company sells them for, the short sellers have ignored us and yelled, “Bankwupt! Any day now!”
Those are matters mostly focused on financials and quarter-to-quarter topics. They should be enough to warn short sellers that it’s dangerous to play with the stock and bet on the company’s valuation going to $0. However, the even bigger matters for Tesla longs are … long-term matters. Word of mouth can grow exponentially. Tesla could crack the nut on self-driving cars years before the competition. Tesla appears to have a massive lead on battery technology and production. The fruits of Tesla’s efficiency obsession will come in future years. Tesla’s software advantage may be its top advantage. Electric vehicles get more and more competitive with gasoline vehicles by the day and will be disruptive tech in time, and Tesla is far and away the brand leader and tech leader in this disruptive EV space. Oh yeah, and then there’s solar and energy storage. Also, you think there’s a rabid Tesla fan base now? You ain’t seen nothing yet. Look at what kids and young adults think of Tesla and Elon Musk!
I don’t know how many short sellers are serious when they claim Tesla is “going to $0.” I honestly have no idea when one of them really believes that or just says it in order to try to drive the price down temporarily and make a quick buck. I have no idea how many of them are hired trolls, hired by an oil company, an auto dealer association, another automaker, a biased investor, or some other vested interest in order to drive down demand for Teslas and/or Tesla’s share price. I can somewhat understand a short seller who thinks they have an opportunity in a challenging transition phase to make money betting against the company. However, I have a very hard time understanding short sellers who think the company is doomed in the long term, who don’t see those various Tesla advantages noted above. Though, one thing is clear: Tesla bulls don’t spend their days and nights trying to trick short sellers into believing the company is about to crash, so that they can make money on the company when it succeeds. Nope, we don’t try to play dirty and manipulate people into shorting the company and losing money on it when the stock price goes up. What we’ve tried to do is explain to others why it is Tesla has been seeing such strong growth, why it is expected (by us) to keep growing strong, and why it is the last company someone should bet against in the long term. We have tried to tell the story as we see it. So, when those expectations become reality and short sellers get burned, it’s hard to have sympathy for them. It’s hard to have sympathy for people who have consistently blocked out our arguments and tried to scream “fraud” or “idiot” or “stupid fanboy” in response.
The funny/sad thing is, I’m here again making the case for why I think Tesla is a solid long-term investment, yet critics will see it as delusional and keep betting against Tesla. As LeVar Burton of Reading Rainbow would say, “But don’t take my word for it!”
Disclosure: This is not investment advice. I don’t provide investment advice. If you are considering an investment move, please consult an investment professional, or at least a magic 8 ball.
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