2017 Investor Roundtable: TSLA Market Action

[ValueAnalyst]

Great idea, and we won't have to wait as long as 2025 like our other bet to see how this plays out : )

Are you keeping a list of our bets? I already forgot that one. Could you remind me again?

I think I have over a dozen bets lingering around...

 

[SteveG3]

Are you keeping a list of our bets? I already forgot that one. Could you remind me again?

I think I have over a dozen bets lingering around...

Lols, long range EVs being over or under 25% of global vehicle sales in 2025.

Until today that was the only other bet I'd made on TMC, lols

 

[racer26]

I have every expectation that at least some fraction, and potentially a big fraction, of the short interest on TSLA comes from the industries that TSLA is looking to disrupt (chiefly, big oil, big auto, and big fossil-fuel based energy).

I don't think that changes the fact that the majority of them will have to capitulate eventually. Unlike retail shorts, and hedge fund shorts, who are shorting TSLA because they see an overvalued bubble stock that has to drop, the industrial holders are shorting TSLA to harm TSLA's ability to disrupt them, and (originally) to hopefully snuff TSLA out before its too late. That means they care less about losing money by holding the short position (as long as its slowing TSLA down). I agree with you that they will tend to want to make their way out of the position in an orderly fashion, lest they give the impression that TSLA has won.

The problem is that a short position has unlimited losses. Eventually, one of a few things happens. Either they run out of money to keep feeding the short and go bankrupt, or they decide that shorting TSLA is no longer slowing TSLA down appreciably and cover their position because its not helping them anymore. Conveniently for us longs, the point at which it stops appreciably slowing TSLA down is approximately the same time as a catalyst makes the retail and hedge fund shorts stop thinking its a bubble. Also conveniently, the nature of having their industry disrupted is that their bread-and-butter business that they're using to feed the short position will evaporate as TSLA is more successful. While I have the answer for big auto (start making compelling EVs, cannibalizing your ICE assets be damned), I don't know how big oil and big fossil-fuel energy will survive. As demand for gasoline and diesel dwindles, they'll be left trying to subsist on all the much smaller things that oil is used in. Fossil-fired energy will become completely uncompetitive against solar and wind, and with big oil fading away, their feedstock will only get more expensive.

I don't know what a sane level of short interest on a large-cap tech stock is, but I'm quite sure that 19% is too much. Seems to me around 1% is the norm? AAPL's and GOOG's are both currently around 1%, with around 2 days to cover, MSFT is around 0.6%. TWTR is around 7.5%. Hell, even SNAP is only around 10%.

I know that a short interest this high is unsustainable in a stock growing as quickly as TSLA is. Something is going to have to give, and I think its going to have to give soon. The majority of the short interest is already ~$60/shr underwater at least; some of it could be almost $200/shr underwater.

 

[SteveG3]

I have every expectation that at least some fraction, and potentially a big fraction, of the short interest on TSLA comes from the industries that TSLA is looking to disrupt (chiefly, big oil, big auto, and big fossil-fuel based energy).

I don't think that changes the fact that the majority of them will have to capitulate eventually. Unlike retail shorts, and hedge fund shorts, who are shorting TSLA because they see an overvalued bubble stock that has to drop, the industrial holders are shorting TSLA to harm TSLA's ability to disrupt them, and (originally) to hopefully snuff TSLA out before its too late. That means they care less about losing money by holding the short position (as long as its slowing TSLA down). I agree with you that they will tend to want to make their way out of the position in an orderly fashion, lest they give the impression that TSLA has won.

The problem is that a short position has unlimited losses. Eventually, one of a few things happens. Either they run out of money to keep feeding the short and go bankrupt, or they decide that shorting TSLA is no longer slowing TSLA down appreciably and cover their position because its not helping them anymore. Conveniently for us longs, the point at which it stops appreciably slowing TSLA down is approximately the same time as a catalyst makes the retail and hedge fund shorts stop thinking its a bubble. Also conveniently, the nature of having their industry disrupted is that their bread-and-butter business that they're using to feed the short position will evaporate as TSLA is more successful. While I have the answer for big auto (start making compelling EVs, cannibalizing your ICE assets be damned), I don't know how big oil and big fossil-fuel energy will survive. As demand for gasoline and diesel dwindles, they'll be left trying to subsist on all the much smaller things that oil is used in. Fossil-fired energy will become completely uncompetitive against solar and wind, and with big oil fading away, their feedstock will only get more expensive.

I don't know what a sane level of short interest on a large-cap tech stock is, but I'm quite sure that 19% is too much. Seems to me around 1% is the norm? AAPL's and GOOG's are both currently around 1%, with around 2 days to cover, MSFT is around 0.6%. TWTR is around 7.5%. Hell, even SNAP is only around 10%.

I know that a short interest this high is unsustainable in a stock growing as quickly as TSLA is. Something is going to have to give, and I think its going to have to give soon. The majority of the short interest is already ~$60/shr underwater at least; some of it could be almost $200/shr underwater.

Clearly, we very much agree about what appears to have been, and is going on, and see it differently on when it ends. Maybe you have a better sense of the timing. Timing of the game ending I'm less confident of than that the game has been played.

fwiw, I guess the main reasons I think it won't be before 2020 that such a "strategic" short position will be let go are,

Tesla will move faster if it does more cap raises (said as much on last earnings call) and the higher the stock price, very likely the lower the resistance to more raises

I doubt that the non-luxury automakers will concede that long-range EVs are the future for another 5 years or so. That's about when I think this will be quite obvious to most consumers, and gibber-jabber from those automakers trying to pull the wool over people's eyes at that point won't do any good. So I could see the "strategic" short staying in play until we get closer to when the cards are on the table, nothing left to play poker about, we're going to long range EVs.

 

[Papafox]

Funny how everyone is rejoicing over a 2-and-a-bit percent rise. "When I were yoong..." movements of 5-8% (more up than down, but lots of both) were needed to get this sort of posting.

The cool thing is that even though the percentage rise gets smaller with a higher-valued stock, every time TSLA goes up $7.50 I make the same amount, whether it's 2%, 5% or 8% of the total. Go ahead, throw me in that briar patch.

 

[ZsoZso]

...
Obviously, this is speculative, but, for several years now, I've thought there is a considerable chance that the majority of the short position is an investment by the deepest of pockets to slow Tesla and the transition from fossil fuels down, not some misguided conviction about making money betting against a stock seen as overvalued. This is similar to the fact that I believe the majority of FUD pieces from well known outlets are written or produced by people who know what they are writing or airing is false (and, fwiw, their is money in some form behind such media pieces, even if much, or even all, of it may be the relatively innocuous scenario of putting out stories that big ad buyers will like without some sort of direct payoff of writers, producers).

I would like wield Hanlon's razor against your logic:
Hanlon's razor - Wikipedia

"Never attribute to malice that which is adequately explained by stupidity"

 

[ValueAnalyst]

Lols, long range EVs being over or under 25% of global vehicle sales in 2025.

Until today that was the only other bet I'd made on TMC, lols

Oh I definitely got that one.

Global production will have dropped to less than 80m by then due to mobility services, and Tesla alone will be producing 10m+ per year with at least six Gigafactories which will be in full production.

I expect Tesla to generally have 50% market share for EV's.

20/80=25%

Easy W.

Would you like to bet on anything else?

 

[Reciprocity]

Oh I definitely got that one.

Global production will have dropped to less than 80m by then due to mobility services, and Tesla alone will be producing 10m+ per year with at least six Gigafactories which will be in full production.

I expect Tesla to generally have 50% market share for EV's.

20/80=25%

Easy W.

Would you like to bet on anything else?

I bet 34% if the market but 90% of the profits. Similar to Android vs iPhone.

 

[SteveG3]

I would like wield Hanlon's razor against your logic:
Hanlon's razor - Wikipedia

I almost quoted that in an earlier post, to explicitly state I do not think it applies here. I had in mind the FUD we've seen from Tesla. I think in the case of major financial media outlets, they know what they are saying is foolish, but want people to believe foolish things. It actually gets on my nerves a little when people just write off the kind of FUD we see as ignorance. Personally I wouldn't call it "malice", but I think in most cases these writers know what they put out is foolish.

Where tremendous amounts of money is at stake, perhaps Hanlon's Razor doesn't apply. I'm trying my best not to mention anything about politics, but, I'll falter a little and say, I don't think our political challenge is "stupid" politicians, but rather legalized bribery. Would you apply Hanlon's razor to what the bulk of our politicians are doing (not saying there isn't also some "stupidity", let's not name name's there, lols : ). Please note I'm talking about the current system, and I'm not singling out either party.

 

[geneclean55]

Something odd with Einhorn's interview the other day.
Said that his holding in TSLA was sized accordingly to endure the bubble, and was much much smaller than the GM position.
So riddle me this, why did Greenlight report awful negative results for the first quarter, and blame this on TSLA and other bubble stocks.
During this same period market novices like myself were doubling their net worth.

 

[ValueAnalyst]

@racer26 @SteveG3

I'd like to throw some cold water on the strategic short theory.

Companies, with spare cash, very very rarely invest their cash in anything other than treasuries.

The strategic short theory assumes companies with a ton of spare cash (which isn't as many as you'd think) will choose to, not only invest in another company, but SHORT it, which no board would approve. Not a single chance on earth.

The only thing they can do is MAYBE invest in a long/short fund with less than 5% of their spare cash, so not much.

The only other thing I can think of is if OPEC was investing in short hedge funds that then short TSLA, but OPEC has its own problems with dwindling reserves and low oil prices and rising social tension etc. So that's a no-go too...

Strategic short theory doesn't hold water. Long/short hedge funds are at their limit.

The end for shorts is near.

 

[ValueAnalyst]

Something odd with Einhorn's interview the other day.
Said that his holding in TSLA was sized accordingly to endure the bubble, and was much much smaller than the GM position.
So riddle me this, why did Greenlight report awful negative results for the first quarter, and blame this on TSLA and other bubble stocks.
During this same period market novices like myself were doubling their net worth.

He may have cover a large chunk of his short position in April/May.

 

[Snapdragon III]

I'm talking about a possible scenario of player(s) with a vested interest in the fossil fuel economy trying to impact Tesla's path, not some hedge funds looking to turn some money on a Tesla play.

In this scenario I'm talking about pooled massive massive wealth that would not blink at dropping $10 billion by 2020, or $25 billion to use your idea of a bullish 2020 TSLA price rather than mine.

If all of this has been going on, probably most of the downward influence below fair value has already been spent, reinforcing the false notions that Tesla is a bubble stock, cult stock, stock with no rational justification for it's stock price, etc. etc. ("one of the 3 most shorted stocks..." repeated over and over helps with that), which I find it all but certain have depressed TSLA's price both pre-2013, when Tesla very well could have gone under without more funding, and from 2014-2017 when the stock was basically sideways, and Tesla just completed a capital raise with the stock about 35% below what I considered fair value when it traded at $250.

In this hypothetical scenario, I think such players will keep that, let's say, "strategic" position a few more years, and back out of it gradually. They would want to minimize the appearance of "the shorts" capitulating, to minimize the sense that the bears were wrong, bulls right, and we've already made steps into the Tesla future. They may be fine holding such a short until it's plainly obvious to almost all that EVs are the future (likely in the early 2020s) rendering continuing the short position pointless. Don't get me wrong, even in this speculative theory, I think there are many other shorts, and they may well capitulate quite a bit soon, as is often discussed on this forum, but, the players I'm speculating about would likely want to avoid adding to the specter of such a large closing of short positions in such a small timespan reading out as "it's over, the bulls had it right."

This is all theoretical, so we could discuss this on and on, what' likely more interesting is just to watch the size of that short position. Let's see if it finds a home below 10% before 2020 or not. My sense is not, though I don't have strong conviction about that or this whole theory... my confidence is something over 50% on all this, but, not strong conviction.

For what it is worth I think there is zero chance that you are correct on this. I don't believe a public company could even do this to the tune of 10's of billions, without either disclosing it, or massive accounting fraud. And I doubt any private oil interests are big enough, and dumb enough to try it. I can totally get on board with them throwing a couple million at shady PR firms to feed FUD stories to lazy, click hungry media outlets, but no way are they forming a secret consortium of shorts.

While I am super long, and am hoping for a short squeeze as much as everyone, I think it is a mistake to operate on the premise that it is completely inevitable, no mater what, either now or later. I don't think this will happen, but there is definitely a reasonable chance that a combination of model 3 launch missteps, and possibly a macro swoon, could easily knock Tesla back into the $100's over the next year, and the shorts could all exit with fat profits, that came strait from my account. I imagine that is the bet they are making, not some Kamikaze self destruction mission into a known coming tidal wave to slow it's progress.

 

[LargeHamCollider]

Where tremendous amounts of money is at stake, perhaps Hanlon's Razor doesn't apply.

A well-considered general rule, love this.

 

[SteveG3]

Oh I definitely got that one.

Global production will have dropped to less than 80m by then due to mobility services, and Tesla alone will be producing 10m+ per year with at least six Gigafactories which will be in full production.

I expect Tesla to generally have 50% market share for EV's.

20/80=25%

Easy W.

Would you like to bet on anything else?

Well, there's one we do agree on, I think Tesla will have over 50% long range EV market share for far longer than most people realize (and quite in contrast to media "Tesla Killer" nonsense).

Re, bets, we can go for the hat trick if you like. I think Tesla will make less than the 4 million vehicles you forecast for 2020. To give you some breathing room, let's call any total between 3 and 4 million a tie on that last one.

By the way, I'll be happy to lose all three bets to you... they all make for a healthier planet and a wealthier Steve than my view of how things play out : )

 

[ValueAnalyst]

I would like wield Hanlon's razor against your logic:
Hanlon's razor - Wikipedia

I'm learning this too. I think we're giving way too much credit to bears. I think they thought there was no way Elon & team could've grown Tesla into its $30B 2013 valuation, and Elon proved them wrong, and now they're stuck.

 

[Navin]

Will tomorrow's annual meeting be streamed live? When does it start? Could effect stock price dramatically if an announcement is made during the meeting

 

[ValueAnalyst]

Well, there's one we do agree on, I think Tesla will have over 50% long range EV market share for far longer than most people realize (and quite in contrast to media "Tesla Killer" nonsense).

Re, bets, we can go for the hat trick if you like. I think Tesla will make less than the 4 million vehicles you forecast for 2020. To give you some breathing room, let's call any total between 3 and 4 million a tie on that last one.

By the way, I'll be happy to lose all three bets to you... they all make for a healthier planet and a wealthier Steve than my view of how things play out : )

Nah, I'll pass on that bet

4 million cars in 2020 is my bull case, but may quickly become my base case, if Tesla decides to accelerate the buildout of additional Gigafactories after july's final reveal event.

Less than likely, but not impossible.

I don't think even the most optimistic bulls were expecting Tesla to pull 500k target to 2018. Bears said it was impossible by 2020!

So let's touch base on that one later this year.

 

[geneclean55]

He may have cover a large chunk of his short position in April/May.

Seems the most likely answer. Although he failed to mention that while encouraging shorting of TSLA during the interview.
Wouldnt trust him with my money

 

[AlMc]

Will tomorrow's annual meeting be streamed live? When does it start? Could effect stock price dramatically if an announcement is made during the meeting

It usually streams live. Check the Tesla Investor Relations page. The last couple SH meetings have been filled with many nonsensical questions (IMO) and yielded very little relevant info for short and long term investors