E Tesla: Short Squeeze Of The Century

Tesla: Short Squeeze Of The Century

Tesla (TSLA) is often referred to as the “short of the century”. However, little credence is given to the possibility of Tesla becoming the short squeeze of the century instead. And despite being one of the best performing stocks in America over the last 8 years Tesla remains the most heavily shorted company in the U.S. today.

Source: MarketWatch.com

Tesla’s share price has increased by 1,665% since the company’s stock IPOed at $17 in 2010. Yet, the amount of money actively betting against this company seems to grow in perpetuity over time. Currently, there are over 38 million shares sold short in Tesla’s stock out of 170 million shares outstanding. This means that roughly 22% of all outstanding shares are sold short right now. Moreover, out of the 125 million float (shares available for trade) a staggering 30% are short positions. This means that short sellers are currently wagering an unprecedented $11.5 billion against the controversial company right now.


TSLA Short Interest data by YCharts

But what if Tesla demonstrates to investors that it can indeed operate as a profitable enterprise on a global scale? In this case, a combination of increased buy interest coupled with a frenzy to close out short positions could create a significant short squeeze that would likely catapult Tesla’s stock much higher from here.

What the Bearish Argument is Predicated On

The bearish argument is predicated on several assumptions, without which the negative thesis effectively falls apart.

1. Tesla has never been profitable and it never will be profitable– Not to pick threads but Tesla had produced 2 quarterly profits throughout its relatively short history as a publically traded company. More importantly, just because the company has not shown strong profit potential in recent years does not mean it will remain unprofitable indefinitely. 

In fact, many market participants, and company insiders believe the company will be profitable relatively soon, possibly as soon as next quarter by some accounts. Personally, I believe mid-2019 is a more realistic timeline.

2. Elon Musk cannot be trusted – Many people negative on Tesla despise the company’s CEO, despite Elon arguably being one of the greatest visionaries of our time. This could be because despite over promising and under delivering many times Tesla’s stock remains highly valued.

3. The Model 3 will never be produced at a profit– With negative gross margins once again this quarter I understand why some people think the Model 3 is a manufacturing disaster. However, most people are aware of the various bottlenecks, setbacks, mistakes, and other issues that have continued to plague the Model 3 segment. 

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Disclosure: I am long Tesla.

Disclaimer: This article expresses solely my opinions, is produced for informational purposes only, and is not a recommendation to buy or sell any ...

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Com Ment 8 months ago Member's comment

Very feeble argumentation, such as #Tesla has been profitable for 2 quarters or Tesla is a Silicon Valley startup, so it has" the potential to do things much better than the status quo dictates"

The truest of your statement, is that yes, there is a possibility of a short squeeze, which would be advantageous to shareholders in the short term and would certainly hurt the short side. But it wouldn’t, in any case, invalidate skeptics’ worries about the company, nor would it suddenly improve Tesla’s dire financial situation, nor improve its amazingly unproductive factory.

Your analysis is based on hubris, not facts and certainly not numbers, such as the debt level of Tesla, the losses every quarter, and their implication on Tesla’s potential to invest in a new factory or simply not go broke.

When you mention a number, such as 25 % gross margin, you do not for a moment question it, or compare the way Tesla calculates gross margin vs the rest of the car industry.

You base your projections on nothing, such as “I believe Tesla will be profitable in mid-2019”. Care to share your simulation model?

Elon Musk cannot be trusted. Absolutely. He refuses to rename Autopilot, a misleading brand and false advertising claim. Almost all his financial & production numbers projections end up being wrong. The $TSLA Shareholder's newsletter is a lie vs 10-Q. He already said in 2012 that Tesla would never need to ever raise another funding round, and we know what happened since. He has a board which is composed of friends and family. He had Tesla purchase SolarCity, a great deal for him and his cousins, a horrible deal for Tesla shareholders.

A few facts:

-Tesla is hemorrhaging money on 45+k Model 3;

- Tesla is hemorrhaging senior executives;

- Tesla is losing money at a fast pace;

-Tesla has no superiority in “extensively automated production”, contrary to what you write, against all facts: productions numbers almost always come up short, Musk himself acknowledging too much automation, loss per can, need to move from 5x2 shifts per week to 7x3 shifts per week, and so forth;

- ZEV credit will end within 2 years, which will be a huge competitive advantage for new entrants, unless laws are changed;

- The demand for S and X is low;

- It is strictly impossible for Tesla to begin producing Y & trucks soon.

- Anecdotal evidence, which would need to be checked, is that Tesla is totally overwhelmed by support, can’t sell its customer base spare parts as needed, and even loses service requests. That’s a great way to alienate Tesla supporters or champions in the course of a few years.

- The automobile industry is not a pure tech industry. Yes, Tesla benefits from a first mover advantage. But it’s probably not that significant since an electric car is much simpler to build than a traditional car, since most of the competition has decades of experience building vehicles, and since Tesla has not built a competitive advantage with a superior battery technology.

Victor Dergunov 8 months ago Author's comment

This is an article about an upcoming short squeeze in TSLA, not about all the material you mentioned. Remember, I write about what I want to cover, not about what you would like me to. Also, I write articles on specific topics not decorations about "everything"...

Having said that, feel free to visit my page on SA, seekingalpha.com/.../articles#regular_articles I have covered just about all the points you made extensively in past articles. And I will release 2019 model earnings soon, thanks for the idea.

You seem to only focus on present and past events, with little to no insight into the future, like most other bears. This is the main reason behind continuous loss of money from your camp.

Anastasija Janevska 8 months ago Member's comment

Impressive comments.