I honestly don’t know why, but I find the Tesla short seller story to be one of the most fascinating stories in cleantech, or at least I did. We’ll see about the future.
At times in the past couple of years, Tesla [TSLA] has been the most shorted stock on the US stock market, and it seems Tesla short sellers (stock market traders betting against the company) have gotten more press than short sellers of any other company. I think that is part of why it’s been such a fascinating story — because so much money has been betting against Tesla, and those Tesla pessimists have been dominating or at least greatly shaping media coverage of the company.
Whereas there have been periods of high drama, high tension, and much debate in the past decade, though, the story is becoming increasingly meh. As one insightful CleanTechnica reader, Clara Smith, put it recently, “Prognostications of Tesla’s doom have gone from concerning, to annoying, to boring, to pathetic.”
Indeed, when Tesla critics had a “Tesla Death Watch” series running more than 11 years ago, the company was tiny and seemed to have a much lower chance of growth and survival. When a New York Times journalist screwed up a trip testing out the Tesla Supercharger network 7 years ago, it may have been critical to Tesla’s survival for Tesla to respond at length and explain why the results didn’t make much sense. Even a year and a half ago, a New York Times “billion-dollar hit piece” put Tesla shareholders on edge (if not a bit furious) because the writers and editors of the piece seemed intent on hurting the company, at least one of whom gleefully rejoiced in doing so as the stock plummeted (an odd public response from a journalist). The truly strange and misleading article may have weakened consumer demand, let alone investor confidence in the company — and for what purpose?
Journalism should come with a purpose, an aim to more broadly and deeply advance society’s understanding of a topic. It shouldn’t be too lacking in critical context and grossly misleading. It shouldn’t aim to smear a company or person simply for the thrill of doing so.
The middle of 2017 to the middle of 2018 was an intense, challenging period of time for Tesla, but many Tesla supporters and optimists who had followed the company for a long time felt confident everything would be fine and Tesla would do exactly what Musk said it would do, which is what it ended up doing. (In other words, we were right.) We thought most of the coverage of the company at that time was tremendously lacking in context and overly pessimistic due to the business media’s apparent deep alignment with Tesla short sellers, which I assume was mostly from members of the media getting duped, not from direct financial corruption. Tesla “cash burn” and “bankwuptcy” had to be part of nearly every Tesla story in major media publications and on TV talk shows, with huge portions of the real-world equation missing from that narrative. It was almost never mentioned that Tesla could easily be profitable if it wasn’t focused on large and rapid growth. All of this was frustrating, misleading, and a major stain on the business media’s reputation to those of us who followed Tesla closely. Essentially, a kind of “David vs. Goliath” story formed — or, more accurately, was strengthened, since Tesla vs. Big Auto + Big Oil was already an established concept. David vs. Goliath is quite a compelling and interesting narrative for humans — whether in classical literature, professional sports, or business — and this is one of the biggest David vs. Goliath stories of the 21st century.
In general, the tribalistic nature of humans kicked into high gear as tens of billions of dollars and countless talking heads seemed intent on deceitfully tearing down Tesla [TSLA]. Many Tesla followers saw through the manufactured FUD (fear, uncertainty, and doubt) and came to Tesla’s and Elon Musk’s defense on a daily or weekly basis. While a billionaire may not seem like a helpless mortal who needs the support of common folk, when facing a much larger billionaire network and series of smear campaigns, we can see that even billionaires sometimes need grassroots help.
Many of the critics’ claims and warnings of collapse were based around sales forecasts and assumptions about the future of Tesla. That meant they were up for debate. We could debate for hours on any day of the week 1) whether Tesla could make money, 2) how much consumer demand for Tesla products would remain or grow after hundreds of thousands of Model 3 reservation holders got their cars, and 3) Tesla’s production progress and capabilities. Tesla’s success or collapse depended on who was right about Tesla’s financial efficiency, consumer demand, Tesla production costs, and Tesla vehicle quality. It was a heated debate because the future was yet to be seen, there were very strong opinions on both sides, and there was obviously a lot of money flying around betting on both sides of the debate.
Then Tesla launched into true mass production in the middle of 2018. The company saw a sharp burst of profit, surprising much of the market despite the fact that Elon Musk had repeatedly said the company would show a profit in not just the 3rd quarter but also the 4th. Some prominent short sellers even flipped from short to long on the stock. To Tesla supporters and optimists, it seemed that would be the end of the debate, the end of the controversy over Tesla’s survivability. However, shorts and other critics claimed this was all just pent-up demand and the company would finally meet its demise when those initial orders dried up, when demand was shown to be too weak for what Tesla had invested and built, and when the gigacompany at last collapsed on itself. Of course, we’d have to wait 2 or 3 quarters for that ending.
Quarters came and went, came and went, came and went, yet consumer demand remained strong and financial concerns about this or that or XYZ withered. Nonetheless, Musk’s forecasts of almost perpetual profits, combined with some particularly tough quarters (for unique reasons), brought out the bears like never before. The stock collapsed in the middle of 2019. Bears boasted of their dreams coming true and $TSLAQ (Tesla bankruptcy) awaiting right around the corner. The stock dropped down to levels not seen since 2016. The entertainment was not over.
Again, many Tesla bulls saw nothing to actually worry about and considered those low stock prices a gift from the heavens, a great buying opportunity. As Tesla scored victory after victory, indeed, the stock climbed again. Demand was strong — extremely strong — in several foreign countries, the company’s “Gigafactory 3” went up in impressive time in China and was ready to roll out customer cars, the odd but superbly specced and priced Tesla Cybertruck pulled in hundreds of thousands of preorders, Tesla showed another quarterly profit, and there just wasn’t any real bad news. Claims of Tesla’s imminent “bankwuptcy” weren’t even fun to debate any longer, simply becoming “boring,” as Clara Smith put it.
Yes, short sellers continued to predict that competitors would crush Tesla, demand would dry up, and the TSLA sky was falling. But even the media networks and outlets that had given them the time of day almost every day in recent years seemed to start ignoring the skeptics. It was just becoming harder to give any weight to their arguments after they had been wrong for not just quarters but years. Tesla was setting production and delivery records (despite one blip in Q1 2019) and the Wall Street fairytale of its demise became less and less believable.
So, to return to Clara Smith’s full comment, anyone supporting Tesla might have been concerned about the potential validity of critics’ arguments a decade ago and found those same predictions annoying a few years ago (or even a year and a half ago), but those arguments started getting outright boring in the second half of 2019 (if not sooner). Then December arrived. …
After a series of good news announcements, especially the surprising profit of the 3rd quarter, confidence in Tesla started to really grow — beyond the fanboys and fangirls (of which there are many). The stock has especially spiked in the past week, but it was a bit before that that Clara declared prognostications of Tesla’s doom had become “pathetic.” Indeed, it was perhaps that realization that led to Tesla’s multi-billion-dollar rise in value in the couple of weeks since her comment. Perhaps more big-time investors* agreed that the TSLA-short arguments hadn’t just gotten old and boring, but had gotten pathetic. (*The rise has to have been driven in large part from major institutional investors, as us small-timers can’t move the stock so much so quickly.)
But if their arguments weren’t pathetic two weeks ago, they sure seem like it now. Tesla’s stock price has risen above $400 and seems to quickly be approaching the $420 price that Elon tweeted last year would be a buyout price if Tesla went private. Short sellers and critics have mocked $420 as a crazy and infamous figure, while many of us long-term investors still see it as a discount price considering what we expect Tesla to become. With the stock rise, ironically, if you simply look at the starting price in 2016 up to today, short sellers have a “loss” of more than $8 billion, which is more than Tesla has “burned” in the same time frame. (I put “loss” in quotation marks because individual short seller must have come and gone, and if they simply shorted the stock at times that it ended up going down and then pocketed the earnings before another drop, they could have made money — though, there’s much indication a lot of shorting happened at exactly the wrong time.) And while anyone who lost a lot of money shorting TSLA has nothing to show for it, the money Tesla has spent has led to a few factories, hundreds of thousands of electric vehicles (moving advertisements), development of several new EV models, innovative battery and self-driving technology, and more.
While the critics’ arguments seem to be rather pathetic these days, it’s interesting to speculate on what exactly led to Tesla’s stock price rise in December. However, I think any individual guess misses the point. Tesla has had numerous positive news items to share, and I think those just add on top of each other in investors’ minds and lead to new investments.
Vijay Govindan and Frugal Moogal had a couple of good pieces for us noting that no one knows exactly why Tesla stock [TSLA] has risen so much in the past few weeks but postulating on some potential reasons. In the comments of one of those, pushing the hypothesis that the rise is just from a general building up of good news and a snowball effect, commenter Gene Gross came up with a good list of accomplishments:
“Stuff that Musk has been slaving to put together for the past couple of years is now starting to succeed, like:
• Fixing the Model 3 production hell;
• Getting the Model X to market;
• Gigafactory 3 done in 8 months and now producing cars;
• Getting his solar roof/tile business ready to introduce new products;
• Expanding his car-charging network exponentially;
• Completing Tesla Stores/Service Centers internationally;
• Doing humongous installations of power grids internationally;
• Built the largest international network of car-charging locations;
• On the verge of making a million-mile car battery platform;
• Locked down a location in Germany for Gigafactory 4 to be built;
• Introduction and getting orders fleets of new the big Semi trucks;
• Introduction of and quarter-of-a-million orders for the Cybertruck;
• Forming working partnerships with community power-wall projects;
And oh yeah, in his spare time Musk also has a couple of hobbies: he sends supplies to the space station, captures and re-uses rocket parts, is building an international satellite internet service, and bores tunnels for underground transportation… so maybe that’s why stock in Tesla is rising — because he doesn’t spend his days in meetings.”
I’ll add a few more items to Gene’s list:
- 3 separate quarters of GAAP profits;
- 4 out of the past 5 quarters were record quarters for Tesla deliveries;
- reports of far more demand than supply at the end of 2019;
- the Model 3 probably scoring approximately twice as many sales as the second best selling vehicle in the Netherlands in 2019;
- seemingly early arrival of the Tesla Model Y;
- hints of significant cuts to Tesla battery costs;
- promises of full-self-driving capability;
- (inability of any other automakers to produce an EV with comparable specs for the money);
- Elon Musk holding his
tongueTwitter fingers about coming good news before it actually arrives, leading to people realizing we have much less insight these days into whether Tesla has some strongly positive news coming in the short term, which I think leads to more optimistic speculation and stock purchases;
- there’s just no one close to Tesla in the EV market, and the public is waking up to the benefits of EVs/Teslas just as they are becoming significantly less expensive than (and better than) gas and diesel vehicles.
In the end, Tesla continues to achieve what it sets out to achieve. Many of these things were deemed impossible by critics and even by highly regarded experts. In fact, Tesla has achieved nearly everything Elon Musk said it would achieve, even if a bit later than projected at times. As more and more accomplishments are checked off the list, the track record of Elon Musk versus his critics is clarifying in investors’ minds, and more and more of them are wondering what Tesla will do between now and 2021, or now and 2025, or now and 2030 if you follow Warren Buffett’s advice and think 10 years out when considering an investment.
Will the Tesla short seller vs. Tesla bull discussion get interesting again? Will the decade-plus history of very vocal critics pushing a narrative of doom & gloom continue forward in a similar fashion in the coming months and years? Or are we crossing into a period in which hyper-negative skepticism about Tesla is ignored and nearly forgotten?
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