Short interest
Tesla currently has close to 40 million shares or over $12 billion dollars betting against it. It is easy to conflate this with the litany of Tesla bears all over social media, twitter, seeking alpha, etc. Don't. These people may be responsible for 99% of the noise, but I highly doubt if they even amount to 10% of the short interest.
Historically in the stock market, a high short interest is actually bearish and indicative that something is wrong. (there are obviously great examples to the contrary, ie AMZN) And in general short sellers are considered more sophisticated than longs, because they are mostly professional traders/fund managers vs retail investors. While there does seem to be an inordinate amount of "retail shorts" in Tesla, again, I believe the actual money amount is minimal compared to the real actors.
Over the past few years, there has been three significant spikes in short interest.
So the bear thesis ranges from Tesla is overvalued, to Tesla cannot make a profit(therefore doomed to bankruptcy), to now recently Tesla is fraudulent. So as professional, sophisticated, presumably intelligent short sellers who really believed in any of that, you would think that they would short the most when the stock is high. After all, is Tesla not most overvalued when it is highest? Reality is not the case, in fact short interest is lowest at the peaks, and the three spikes in short interest all coincide with significant market declines. Now, it is easy to scoff at this and dismiss it as "dumb shorts" buying highs and selling the lows. I am sorry, but as a trader of many years, you cannot convince me that this is $12 billion of dumb money.
Moreover, the three spikes in short interest all coincide with specific events:
1. In early 2016 there was a market downturn that stemmed from declining high yield bonds that contributed to this. But also, this coincided with the Solarcity short seller attack described before. If Solarcity was forced into bankruptcy, they would have defaulted on their solar bonds that Spacex bought previously. All Elon Musk companies are connected, and all would have been harmed. It is almost as if, it was a coordinated attack.
2. In late 2016, short interest rose to an all time high. I remember the negativity was overwhelming during this period. Constant negative media coverage and bearish articles/analyst reports. And then all of sudden, it all went away and the stock rallied. Do you remember what changed? Do you remember what those analyst reports and bearish articles were about? This was the lead up to the Solarcity/Tesla merger vote. The articles and analyst reports were about how Solarcity and its mountain of debt was about to drown Tesla. The outrage over the lack of corporate governance and how bad a deal this was. The other major narrative was that this deal would not pass. Gordon Johnson rears his head again and declares there is only a 50/50 chance of Tesla shareholders approving.
(SCTY), Tesla Motors, Inc. (NASDAQ:TSLA) - Gordon Johnson Warns Of 'Burgeoning Risk' To SolarCity/Tesla Deal Closure Jim Chanos came on CNBC, and implored Tesla shareholders to reject this deal since it would bring Tesla down with it.
And then, Nov 17, 2016 the vote passes. The stock literally bottoms three days before this, and proceeds to rally to all time highs. Media negativity is gone instantly. Analyst reports muted. Think about that for a second, and logically if it even makes sense. If this deal truly was so bad, if it was the down fall of Tesla, shouldn't the overwhelming negativity occur AFTER the deal closes? After all, now that it is official and Tesla is responsible for this huge debt burden, isn't Tesla doomed? Yet there was nothing. Almost as if, the negativity was to shut the deal down.
3. In March 2018, short interest spiked to a new all time high, to its current levels. This coincided with the Moody's downgrade, and sudden questions over liquidity. Just as Tesla's most important product, the Model 3 is about to ramp. Just as Tesla is about to take its biggest leap, become profitable and sustainable as a company, a new narrative we haven't heard before: Bankruptcy. I will talk about this more in followup post.
To reiterate my sentiments towards short selling. I have no qualms with market participants betting that a stock is overvalued. I have no problems with people betting that a stock will go bankrupt. I believe the majority of the Tesla bears on social media, with the highest visibility, fit into those groups. I believe they are misguided, but they have every right to risk their own money how they like.
However, it is my belief that the vast majority that encompass the $12 billion in short interest do not fit this. They are not chasing highs and selling lows because they are emotional retail investors. They are not shorting because they think Tesla is overvalued. They are not shorting because they think Tesla will go bankrupt. They are shorting during specific events when Tesla is most vulnerable, and covering when they fail to achieve the targeted goal.
They are shorting to bankrupt Tesla.
*more*
