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Tesla short sellers $2B in the red for June as shares soar (reuters.com)
86 points by antman 9 months ago | hide | past | web | favorite | 62 comments

I shorted (a very small amount) from about $320 down to about $270. That's when Elon had his very standoffish and defiant earnings call. After that I exited at a profit because I didn't think the downward reaction was severe enough.

People were asking legitimate questions about orders and finances and he told them to shut up, while directly insulting their intelligence. That was an extremely bad sign to me. When I saw that even after that, there was still support in the $270s, I declared the market too bullish for my liking and was no longer comfortable being short.

As far as I'm concerned TSLA has to turn a profit in the next couple of quarters or they're just not going to be able to be competitive enough with the additional financing they're going to require. Elon promises they won't need to raise capital. If he's right, great. But I'm not betting on it one way or the other.

GM just had their annual meeting for shareholders.

They said they'll increase production of Bolt but refused to say by how much and by when.

In contrast, Tesla lays out their future plans months, sometimes years in advance.

Tone aside, it seems to me that Tesla is being measured here by a completely different stick.

Compared to all other public companies they provide vastly more "legitimate" information.

Just for a few examples of "legitimate" questions that well known companies refuse to answer, even if politely:

* GM won't tell you any details about future plans for Bolt and other EVs. Tesla: "we'll make 10k by end of 2018". GM: we'll increase production, don't ask us when or by how much"

* Amazon only recently disclosed number of Prime subscribers, and only total number, not breaking down e.g. US from international

* Netflix won't tell shareholders viewing numbers for any of their shows

I could go on talking about information that companies don't share.

It's just bizarre that people expect Tesla will just disclose anything that's asked.

Tesla is held to a different standard is precisely because they have been so forthcoming in the past.

If a company is giving regular updates on production and targets and then gets weird about it for one meeting then you can expect a drop. It looks like they are back on track (and are again open about production), but you can bet if they get cagey about it again their stock is going to take a hit. They might be able to transition to less openness if they want to (so they only reveal what they want and don't spook investors), but not one extreme to the other in just one shareholders meeting.

I think the reason Musk and Tesla are very sensitive about production numbers right now is that they want to hit their 200k electric car production number at just the right time. The way the $7500 federal tax credit works (and I am pretty certain this is right. Happy to follow a link to the actual law) is that after a company makes 200k qualifying vehicles, for the rest of that quarter and the quarter after that people still get the tax credit. So depending on when they hit the 200,000th car, the full tax credit will last between 3 and 6 months. Tesla would like to get the Model 3 production ramped up to a high level but not hit the 200k total production until right after the start of a quarter.

It looks like they are going to do just that. Tesla is very close to 200k this month and that is probably partly why they shut down to "improve production rate". Slow down production in June to not hit 200k until after July 1. They have also been playing with exporting more cars to hit the 200k number at just the right time.

Having the maximum 6 months instead of the minimum 3 months will be a lot of extra cars/people getting the tax credit. If they average 6000 cars a week over that time (12 weeks x 6000 x $7500) that is an extra $540 million.

Then the tax credit goes in half for the next two quarters and in half again ($7500/4) for the next 2 quarters.

Seems a bit strange for the law not just to say the credit extends for 6 months after the 200,000th car is built, but who knows how such laws get crafted.

> and I am pretty certain this is right. Happy to follow a link to the actual law

it's not: https://www.irs.gov/irb/2009-48_IRB

Thanks for the link. My basic understanding is correct, I believe, but should have said "sold in the US" rather than built. Since it is a US tax credit, I just assumed it was for cars people in the US bought and didn't include the cars not sold in the US. I wonder what that fraction might be.

From a page linked on the page you gave:

"The new qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period."

I believe this somewhat convoluted language says the same thing I did. The phase out lasts a year. 50% for the first 6 months and 25% for the next 6 months. This starts after the end of the first full quarter after the quarter where the domestic sales are greater than 200k (ie, between 3 and 6 months after 200k sold).

And GM has also stated that they intend to do the same for bolt and hot the limit in quarter4. I would guess that's why they haven't scaled up yet, they just want to be a quarter away from Tesla.

Your whole premise is wrong. The credit's expiration is based on # of cars sold for use in the US. Not, in any way, on # of cars built.

It's not a direct link, but it's pretty close. You can't sell cars that aren't built, and if they're built, you want to sell them ASAP so you don't have to deal with inventory. That you can sell them to other countries helps with the inventory issue though.

With the number of preorders, can Tesla claim they are sold as soon as they are manufactured?

They are sold when they are paid for. The preorders are not paid for.

You are right. I knew that as seen in my reference to selling cars overseas. I should have said sold domestically not built.

Or we could quit making excuses given that Elon consistently over-promises.

Elon Musk does use a lot of words to express uncertainty in his estimates. If you are working on doing things that no one has done before, then the timeline to success is highly uncertain. He would have to publish some kind of probability curve estimate of when he thinks things will get finished for us to really know how good his estimations are. Also, many times you need a first deadline for people to plan to shoot for, but some parts of the system won't get done in time and that deadline will slip. So when you say you are planning to get done on X date does not mean you think you are likely to be done on X date.

Seems like a great way to make money. Train everyone to be weary if you're cagey answering questions.

1) Short your stock.

2) Hold press event.

3) Get cagey about questions.

4) Profit.

And that is a perfect example of why corporate management and other insiders are subject to all kinds of restriction on trading their company’s stock.

That's only if they give false or misleading statements or trading on non-publicly disclosed information. Does it count if you intentionally manipulate your body language or tone in intentionally misleading ways while still presenting factual and correct information?

For example giving an uncharacteristic pregnant pause when answering a straight forward question or becoming agitated when normally you're subdue?

> GM won't tell you any details about future plans for Bolt and other EVs. Tesla: "we'll make 10k by end of 2018". GM: we'll increase production, don't ask us when or by how much"

EVs are now, and for several years into the future, a small part of GMs story. They are Tesla's whole story. So, yes, GM can afford to be less specific—heck, even less certain—of exactly what they are going to do in the EV market.

> Netflix won't tell shareholders viewing numbers for any of their shows

Netflix doesn't sell individual views of shows, nor does it sell products (e.g., advertising) to customers on the basis of any show’s viewership; that's about as relevant a stat for Netflix as the number of ceiling tiles in the headquarters building is for Tesla.

Tesla sells electric cars, and a very small number of models of them.

> EVs are now, and for several years into the future, a small part of GMs story. They are Tesla's whole story. So, yes, GM can afford to be less specific—heck, even less certain—of exactly what they are going to do in the EV market.

Not sure I understand your logic. Every business bar none likes to be seen as forward looking, future proof. The fact that GM keeps mum about their sole EV offering means they are behind Tesla, and likely others such as Nissan on this front. If they weren't I don't see why they couldn't say they'd make 500K of it by end of 2020, for example.

Because then you’d find out the Bolt is a compliance car and they’re unable to scale their EV production in any appreciable manner in the short term.

Standards are different in many ways.

The marketing surrounding Tesla's autopilot is borderline false to the point of illegal and when it does things like crashes into lane obstructions at full speed it's the user's fault for using it wrong.

GM got rakes over the coals because a handful of people (most of whom were not wearing seatbelts) died when the airbags failed to go off because of an ignition switch malfunction.

> GM got rakes over the coal

After many years of the incident.

At the same time, how much of the information that Musk gives out is wrong (especially on time frame?)

They were already supposed to be at 10k cars a week. Live by the prediction, die by the prediction.

> They said they'll increase production of Bolt but refused to say by how much and by when.

> Tone aside, it seems to me that Tesla is being measured here by a completely different stick.

And if Elon Musk had made this argument during that earnings call, it would have been far better received than “We’re going to YouTube. These questions are so dry. They’re killing me.”

Tesla’s numbers have been largely complete bullshit so I don’t see how it’s helpful.

Tesla is held to a different standard because they whine like children when they're held to the same safety, financial, or operational standard as other automakers.

They don't get to have their cake and eat it too until they prove they've earned it, and thus far they haven't by the metrics that matter to analysts or the public in general.

The book "The Seven Signs of Ethical Collapse" tells the stories of companies that suddenly collapsed due to hidden issues, like Enron and Worldcom. Tesla fits every sign: larger-than-life CEO with massive executive turnover, board of directors very deferential to the CEO, conflicts of interest (Solarcity acquistion), "innovation like no other", attempts to silence criticism, pressure to maintain numbers (Model 3 production and resulting problems with factory workers, firing employees and contractors to reach profitability).

I find the fact that they have an executive departure rate on par with what Enron and Valeant had most concerning - when large numbers of senior people don't vest their stock grants, it's normally because they know there's very something wrong that's not yet public.

It's especially suggestive that the VP of finance and chief accounting officer left in March, at the same time as the Fremont factory was put up for collateral and a "special purpose entity" was created to hold $546m in car sales, presumably to make the company appear more creditworthy.

Enron is not remotely comparable to Tesla. Tesla makes first class products, products the world didn't know could be made. Everything else follows that. It may bear superficial resemblance to chosen points of Enron, but that is just pattern matching mammalian brain at work.

You're telling two stories. One is, that you have antipathies to the CEO because he behaves badly. Well, thats market-effecting, so its information you can (and did) use to inform your investment decisions. But, its a short-term investment process. This doesn't really inform deliverables in the medium to long term, or the fundamentals of the company.

The second story is structural debt burden and the effect on profitability. I am not an economist, but I think you may have over-stated this. I think it would be a mistake to make investment decisions based on your information, absent clear signals from people who ARE economists about the effect on short, medium and longterm investment outcomes. If (as I suspect) you are looking for short term profits, well and good, you can use this rationally to say "dispationately I don't think I can see a return on my investment by value gain or dividend, so I won't invest" But if somebody is a non-dispassionate investor, in for the medium to long term because of a belief building the EV market has wider outcomes which WILL raise their stock value, or return dividends, then this debt burden is a risk-side decision: Is the risk of a problem sufficient to outweigh the chance of the upside in the longer term?

> I shorted (a very small amount) from about $320 down to about $270. That's when Elon had his very standoffish and defiant earnings call.

It's pretty dangerous to short high flying stocks like TSLA in a major bull market. Especially when most of the shares are owned by Musk and his institutional backers. It's not intuitive, but highly shorted stocks like TSLA in a bull market is a recipe for a significant price rise to burn the shorts and steal their money.

> Elon promises they won't need to raise capital

He's been saying that for a while and he keeps raising capital and diluting the shareholders.

> If he's right, great.

I suspect TSLA's recent layoffs are to work some accounting magic and show "profits" in the coming quarters. If so, it'll get big pops come earnings.

> But I'm not betting on it one way or the other.

In the long term, I'd watch oil prices and FED rates. If energy prices stay relatively low, if governments end subsidies and of course the FED decides to pop this bubble, I could see TSLA bankrupt in 5 - 10 years ( like it was in 2008 before the bailout ).

Maybe after a big price spike flushes the shorts, then it might be time to start averaging in short positions. But either way, it's a gamble.

I was considering buying Tesla after that, but didn't. A decision I now obviously regret. Dips like that are always a great time to buy, but I got caught in the fear of the moment I guess.

I almost never short. The only time I ever shorted was when earlier this year some bad -- and to a techie, obviously false -- news about AMD hit. Expecting panic from non-tech investors, I bought short turbos for a day, sold them later that day, and would have bought long if it had dropped far enough. But most of the time, I find shorting way to speculative and risky.

That's not how shorting works. Most short positions are pairs trade to offset a long position elsewhere, and TSLA is a favorite punch bag for the wall street (crappy financials).

Worth noting that Elon just purchased 72,000 TSLA shares worth $24,000,000 (purchased June 12 & 13).

Not an expert but this amount is pretty much nothing for a guy like him. This can easily be a pure PR move.

since Elon does not really have a lot of actual cash I would say it is more than a PR move depending on where he got the cash from

How do you know how much cash Elon has?

Preferred or common shares because those are two different signals.

Common stock bought on the open market.

Common, I believe.

With money borrowed using Tesla stock as collateral. There’s going to be a bloodbath if the stock dips too low.


Let's hope Elon has been completely forthcoming about Tesla's next few months, because if not this purchase could be treated as insider trading.

No, it wouldn't. Trade windows exist for a reason.

I know it's not the most pristine new organisation there is, but this was a rather interesting and unsettling read: https://www.zerohedge.com/news/2018-06-13/after-taunting-sho...

If the article is correct, that he bought those shares specifically to burn the shorts, then good for him. It's no coincidence to me that in a time where TSLA has the largest short position on the planet that there seems to be daily front page negative press. Having the CEO flip the bird to nay-sayers and triple down is a good sign. That kind of tenacity is what I believe makes him successful, "Screw you, I'm gonna make a Trillion dollars here!"

Disclosure: I have a small TSLA position, but I do consider it a high risk venture that has just as good a chance to buy me a house in 20 years as to go to 0.

TSLA isn’t the largest short, but have you considered the possibility that it’s a popular short at least in part because of all the negative reports?

What Elon could do to really stick it to the shorts is make the amount of cars he said he will and do so with the profits he claimed he’d have. Otherwise no amount of shares is going to be enoug.

It's at least the biggest short in the US. Or at least it was at the time this article was written back in April.


I think Elon's image as a person/CEO is almost as important as his ability to execute and build the cars. Part of the value he brings as CEO is the cult of personality around him. I'm not suggesting that's right or wrong, good or bad investing, good or bad reason to buy products, etc. That's just what I believe is true.

I get the sentiment, but what it tells, to me at least, is that it's an impulse-driven CEO and I'd rather stay away from business like that. Might as well go to a casino.

There is no precision if these short positions are offset by other positions (ie: options). The trader might be arbitraging spot/derivatives and so is not losing $2bn but rather making money.

It is not even clear if the entity collecting this data can have such depth and knowledge of individual positions. Also my understanding is that unless you put capital, your position will margin called. It means the losses are not just on paper. The players have already engaged money.

That's a lot if they're talking about truly naked shorts. The only way I can see a number like this and think it's not a complete disaster is that these aren't really naked shorts. I can certainly see a situation where the natural longs that TSLA employees have via options and RSUs can get hedged secretly though a bank, and that shows up as a short in the market.

It's a pretty typical provision in employment contracts that you aren't allowed to bet against the stock of your employer. I'd be surprised if any meaningful percentage of Tesla employees were shorting their own company.

Hence my use of the word 'secretly'.

Also, it would only take one particular rich/narcissistic employee to make up all of it if he wanted to secure a few billion dollars of his net worth for the future.

Most companies that I know of have a policy preventing employees from shorting/hedging their company's stock. I imagine virtually none of the shorts belong to current Tesla employees.

A lot of the shorts are probably long the broader market (which vastly overperformed compared to TSLA over the last few years), which makes these kind of fluctuations much easier to stomach.

Elon did warn everyone during that conference call where he supposedly went "nuts" that the biggest short burn of the century was coming.

I listened and man was that overblown. He was simply bored of shitty questions.

If it goes much higher I’m planning to open a substantial short position, I don’t see TSLA getting into the 400s.

This whole current moment rhymes too well with 2000 and 2008. Who are the Ken Lays, the Bernie Ebbers's, and the Madoffs? I suspect Bezos and Musk are going to fall hard.

eventually everything goes down. amazon has gone so high, bezos has so much money, he'll be fin even if it goes down by half. he'd only have 60 billion. musk has much less but plenty too. space x and teslas are incredibly inventive and creative companies. they are also companies with only a limited monetary product stream. so they are vulnerable to having a few problems in a row. Even if they get problems fixed eventually it could hurt them. but my feeling is both companies will continue to generally succeed, even if they don't always make their schedules.

You’re dead wrong about Bezos and Amazon. Expect to see AMZN in the 2000s in the next years.

If you are so sure about your prediction then you should invest a substantial amount of money in AMZN.

I have.

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