Hi, I’m a short seller

[jbcarioca]

OK I’ll bite. I’m quite certain at least a one short seller has driven a Tesla. The driving experience has nothing to do with our investment thesis.

Ah, but it would affect your judgements were you to understand the appeal of the product. Since the short thesis is predicted on not only delays in delivery of products it also depends on some degree of disbelief in the product itself.

To that it extent it is also directly analogous to the historical short thesis for Apple. The negative there was often based on the certainty that MacOS and IOS were inferior, but the "eco-system", consistency and the App Store were pretty much ignored.

In the Tesla case the long thesis depends on product superiority and an established "eco-system", Tesla support over-the-air updates and compelling vehicles dynamics plus Tesla Energy.

In both Apple and Tesla cases the financial performance was for an extended period quite poor when seen in static 10q GAAP terms. Bluntly, @ShortSeller, despite your stated Big 4 background your understanding of the accounting intricacies (that so easily explain Tesla funding success) blinds you to the failure fallacy.

If you're serious in becoming educated about the risks you run as a short you might want to do your homework on:
1. Accounting impact of owning all stores and servicer centres;
2. Accounting impact of recognising revenue only on final purchaser title transfer. Hint: To see this as all other auto manufacturers do it look up 'floor planning';
3. Accounting impact of Supercharger network (this one is a big more complex than you might imagine. Hint: Look how Supercharger revenue is dealt with for Model S and X with lifetime Supercharging;
4. Compare R&D and Capex accounting treatment for Tesla vs other manufacturers;
5. Since you're fond of NUMMI vs Tesla. Look up the actual manufacturing, model diversity and vertical integration for NUMMI vs Tesla plus for GM Fremont prior to NUMMI.

All of those require work. All of them quite easily end out explaining quite a lot.

There's more, but nobody who understands those five components is likely to feel confident holding a short position for much time. Of course, serious chartists and TA people will trade on volatility. That is a different situation, about which I make zero comment. All of my comments are based on people who short on purported fundamental weaknesses in Tesla.

 

[Uncle Paul]

The shorts do not realize the effect they have on Elon.

He will never let them take down a company. There is too much riding on the success, and he will use all his power, skills, energy and talents to make his companies successful.

They inspire him, and he will never let them succeed. Too much good is being done to allow that to happen.

It reminds me of the warlord dictators in poor countries that keep out United Nations food and medical supplies meant for their people. In order to stay in power they steal those supplies for themselves and their soldiers, while the poor starve in front of their eyes. Just as the shorts do, they justify their evil intentions with platitudes, but they are still all about inducing suffering.

 

[mongo]

The shorts do not realize the effect they have on Elon.

He will never let them take down a company. There is too much riding on the success, and he will use all his power, skills, energy and talents to make his companies successful.

Why am I reminded of Ender's Game? I almost feel sorry for them...

 

[SebastianR]

My post may sit a bit funny in this thread but I believe it may explain what is going on and why both Short Sellers & Longs believe in their side so vigorously:
Shorts (often) think that Tesla needs to make money (since it is a company and every company is there to make money, it is not a non-profit). Naive / "super-bull" longs (often) think that Tesla will make a ton of money once Model [whatever] will sell [whatever]...

In reality, the secret master plan of Tesla does not include "and make a ton of money" - it includes product goals. And these products are sold to change the world, not primarily to make money (only).

tl;dr: I believe that Tesla will always be managed to be as close to the (financial) breaking point as possible without sinking the company. Only that way it can keep expanding and pushing the rest of the industry towards ditching the carbon economy. Tesla making money but not compelling VW and Toyota to produce EVs is a failed endeavour in my eyes. So if Tesla turns a profit / generates cash in Q3/Q4 in my eyes that's only since there would not be any other money for Tesla to access. If Tesla can issue more equity or get more (cheap) dept, I doubt we will see cash flow positive / profitable quarters any time soon. (Which in turn will keep both bulls & bears occupied and busy for many years to come). Having said this, let me buy a few more shares

 

[BornToFly]

OK I’ll bite. I’m quite certain at least a one short seller has driven a Tesla. The driving experience has nothing to do with our investment thesis.

BIG MISTAKE. It is obvious to anyone that has used a Blackberry and an I-phone why the I-phone is now king. But if you were an Apple short seller than just heard about I-phone and didn't understand the difference between it and a Blackberry, you were screwed. I used to have a Porsche 911S that I raced at PCA events at Miller Speedway. Then I test drove a Model S, ordered one, and sold the Porsche. The reason Tesla has dominated the luxury market in such a short amount of time is that a quality EV is so much better than any ICE vehicle. That is why the demand is so high, and the Model 3 will take over the $35-60k auto market. To compete with Tesla, the other automakers will have to produce cars that are far superior to their current offerings, making it impossible for them to sell their ICE vehicles any longer, which will destroy their profits (their battery costs will continue to be significantly higher than Tesla's for a long time, and they won't be able to suddenly make EVs in enough volume to instantly replace all the ICE vehicles they can no longer sell at the old price). I wouldn't be surprised if half the current auto makers go bankrupt because of Tesla in the next 10 years.

 

[ShortSeller]

My post may sit a bit funny in this thread but I believe it may explain what is going on and why both Short Sellers & Longs believe in their side so vigorously:
Shorts (often) think that Tesla needs to make money (since it is a company and every company is there to make money, it is not a non-profit). Naive / "super-bull" longs (often) think that Tesla will make a ton of money once Model [whatever] will sell [whatever]...

In reality, the secret master plan of Tesla does not include "and make a ton of money" - it includes product goals. And these products are sold to change the world, not primarily to make money (only).

tl;dr: I believe that Tesla will always be managed to be as close to the (financial) breaking point as possible without sinking the company. Only that way it can keep expanding and pushing the rest of the industry towards ditching the carbon economy. Tesla making money but not compelling VW and Toyota to produce EVs is a failed endeavour in my eyes. So if Tesla turns a profit / generates cash in Q3/Q4 in my eyes that's only since there would not be any other money for Tesla to access. If Tesla can issue more equity or get more (cheap) dept, I doubt we will see cash flow positive / profitable quarters any time soon. (Which in turn will keep both bulls & bears occupied and busy for many years to come). Having said this, let me buy a few more shares

That is a very interesting thesis. However, say Tesla continues negative cash flow for another quarter or two and requires more capital. Do you believe the new capital investors would be OK with this?

 

[ggr]

My post may sit a bit funny in this thread but I believe it may explain what is going on and why both Short Sellers & Longs believe in their side so vigorously:
Shorts (often) think that Tesla needs to make money (since it is a company and every company is there to make money, it is not a non-profit). Naive / "super-bull" longs (often) think that Tesla will make a ton of money once Model [whatever] will sell [whatever]...

In reality, the secret master plan of Tesla does not include "and make a ton of money" - it includes product goals. And these products are sold to change the world, not primarily to make money (only).

tl;dr: I believe that Tesla will always be managed to be as close to the (financial) breaking point as possible without sinking the company. Only that way it can keep expanding and pushing the rest of the industry towards ditching the carbon economy. Tesla making money but not compelling VW and Toyota to produce EVs is a failed endeavour in my eyes. So if Tesla turns a profit / generates cash in Q3/Q4 in my eyes that's only since there would not be any other money for Tesla to access. If Tesla can issue more equity or get more (cheap) dept, I doubt we will see cash flow positive / profitable quarters any time soon. (Which in turn will keep both bulls & bears occupied and busy for many years to come). Having said this, let me buy a few more shares

I agree. But to clarify my own thinking a bit, how's this? There's making money to give dividend return to investors. This means taking profits and giving them out rather than re-investing. Then, there's making money to fund expansion, which brings long term extra value. Fortunately for us, Elon's view of making money is that it's a means to an end, not the end itself. By taking the long view we'll probably end up making more anyway. However, it's worth noticing that either way, he can't achieve his goal without making money along the way (as he's said himself many times). So he's absolutely focused on cash flow, because lack of it is the thing that actually sinks companies.

The bear argument is that he'll run out of cash. My bull argument is that that won't happen while people like us are around.

 

[mongo]

My post may sit a bit funny in this thread but I believe it may explain what is going on and why both Short Sellers & Longs believe in their side so vigorously:
Shorts (often) think that Tesla needs to make money (since it is a company and every company is there to make money, it is not a non-profit). Naive / "super-bull" longs (often) think that Tesla will make a ton of money once Model [whatever] will sell [whatever]...

In reality, the secret master plan of Tesla does not include "and make a ton of money" - it includes product goals. And these products are sold to change the world, not primarily to make money (only).

tl;dr: I believe that Tesla will always be managed to be as close to the (financial) breaking point as possible without sinking the company. Only that way it can keep expanding and pushing the rest of the industry towards ditching the carbon economy. Tesla making money but not compelling VW and Toyota to produce EVs is a failed endeavour in my eyes. So if Tesla turns a profit / generates cash in Q3/Q4 in my eyes that's only since there would not be any other money for Tesla to access. If Tesla can issue more equity or get more (cheap) dept, I doubt we will see cash flow positive / profitable quarters any time soon. (Which in turn will keep both bulls & bears occupied and busy for many years to come). Having said this, let me buy a few more shares

Agree that Tesla is interested in things other than profit. However, Tesla needs to make money to invest in more growth. Profit in Q3/Q4 means they are delaying some parts of the expansion and increasing cash on hand.

Once the 3 gets going, they can expand while setting aside a small profit each quarter to make investors, lenders, and wall street happy. External raises will then only be needed if there is a compelling reason to pull growth forward and take on debt or dilution to do so.

 

[ggr]

That is a very interesting thesis. However, say Tesla continues negative cash flow for another quarter or two and requires more capital. Do you believe the new capital investors would be OK with this?

We were posting at the same time. Simple answer: yes.

 

[ShortSeller]

Ah, but it would affect your judgements were you to understand the appeal of the product. Since the short thesis is predicted on not only delays in delivery of products it also depends on some degree of disbelief in the product itself.

To that it extent it is also directly analogous to the historical short thesis for Apple. The negative there was often based on the certainty that MacOS and IOS were inferior, but the "eco-system", consistency and the App Store were pretty much ignored.

In the Tesla case the long thesis depends on product superiority and an established "eco-system", Tesla support over-the-air updates and compelling vehicles dynamics plus Tesla Energy.

In both Apple and Tesla cases the financial performance was for an extended period quite poor when seen in static 10q GAAP terms. Bluntly, @ShortSeller, despite your stated Big 4 background your understanding of the accounting intricacies (that so easily explain Tesla funding success) blinds you to the failure fallacy.

If you're serious in becoming educated about the risks you run as a short you might want to do your homework on:
1. Accounting impact of owning all stores and servicer centres;
2. Accounting impact of recognising revenue only on final purchaser title transfer. Hint: To see this as all other auto manufacturers do it look up 'floor planning';
3. Accounting impact of Supercharger network (this one is a big more complex than you might imagine. Hint: Look how Supercharger revenue is dealt with for Model S and X with lifetime Supercharging;
4. Compare R&D and Capex accounting treatment for Tesla vs other manufacturers;
5. Since you're fond of NUMMI vs Tesla. Look up the actual manufacturing, model diversity and vertical integration for NUMMI vs Tesla plus for GM Fremont prior to NUMMI.

All of those require work. All of them quite easily end out explaining quite a lot.

There's more, but nobody who understands those five components is likely to feel confident holding a short position for much time. Of course, serious chartists and TA people will trade on volatility. That is a different situation, about which I make zero comment. All of my comments are based on people who short on purported fundamental weaknesses in Tesla.

What’s “Supercharger Revenue” on a vehicle with a lifetime of free supercharging? I may have barely passed the CPA (hung over), but to me that’s a lifetime of expenses paid by Tesla.
But to be fair, I recognize the Supercharger network as a “moat” for now.

 

[anticitizen13.7]

OK I’ll bite. I’m quite certain at least a one short seller has driven a Tesla. The driving experience has nothing to do with our investment thesis.

"Montana Skeptic" is a notable Twitter personality with a short thesis, and he made is case in this inverview https://quoththeraven.podbean.com/mf/web/4kdds5/qtr_23.mp3

My analysis is here: General Discussion: 2018 Investor Roundtable

Tldr; (1) Montana Skeptic's belief is that too much can go wrong, and therefore Tesla must fail. (2) My belief is that while I agree that there is an extremely high level of risk in TSLA, the potential payout is worth a bet because failure is NOT a certainty. My investment in TSLA is limited to discretionary funds (money I can afford to lose without risk of compromising my standard of living and future retirement).

 

[SebastianR]

That is a very interesting thesis. However, say Tesla continues negative cash flow for another quarter or two and requires more capital. Do you believe the new capital investors would be OK with this?

I believe this is the other way round: What Tesla did in the past is extremely cost efficient. No other car company gets away with creating so many so captivating products with so little money. I believe that if capital investors would no longer be ok with this, Tesla would stop requiring new capital. For the past 3 years, they could have existed ok and well without new capital had there not been a Model 3, Model Y, Roadster, Semi, the GF, the Solar City adventure etc.

I agree. But to clarify my own thinking a bit, how's this? There's making money to give dividend return to investors. This means taking profits and giving them out rather than re-investing. Then, there's making money to fund expansion, which brings long term extra value. Fortunately for us, Elon's view of making money is that it's a means to an end, not the end itself. By taking the long view we'll probably end up making more anyway. However, it's worth noticing that either way, he can't achieve his goal without making money along the way (as he's said himself many times). So he's absolutely focused on cash flow, because lack of it is the thing that actually sinks companies.

Agree. But there is a fundamental difference in "means to an end vs. the end itself". I fully agree that EM will make everyone a ton of money. But I also agree with him, that he could have made more money quicker had he created another internet start-up... The way I look at this is similar to his inconel fuse: it is wicked cool to have such a fuse, it is a super high-tech solution and it will make every aerospace engineer proud. But he didn't develop it for any of these reasons: he needed to solve an issue and that was the solution that he found. He needs to get the world off-oil and the only way to do that is to destroy the oil-based economy i.e. create a vastly successful company that bullies everyone else to go electric.

Agree that Tesla is interested in things other than profit. However, Tesla needs to make money to invest in more growth. Profit in Q3/Q4 means they are delaying some parts of the expansion and increasing cash on hand.

Fully agree. That's why it will only happen if there is no other way to get more money...

Once the 3 gets going, they can expand while setting aside a small profit each quarter to make investors, lenders, and wall street happy. External raises will then only be needed if there is a compelling reason to pull growth forward and take on debt or dilution to do so.

Yes, to fund the Semi, the Model Y, the Pick-up, the next 5 GFs, the [whatever else cool stuff they are currently dreaming up]

So I predict there will be a (very small) profit in Q3, then a slightly bigger one in Q4 and immediately a huge raise just after that to fund the Semi and the Model Y (+ maybe 1 more GF + more production capacity for the M3)

But this will keep the bears (and bulls) busy.

 

[bhzmark]

I think what must drive the short reality distortion field is the prospect of infinite downside, compared to limited upside — for the basic simple short anyway. I suppose most shorts are smart enough to not be exposed to infinite downside, but still, psychologically, the prospect of a four digit stock price must make for some twisted psychological coping mechanisms.

 

[mongo]

The way I look at this is similar to his inconel fuse: it is wicked cool to have such a fuse, it is a super high-tech solution and it will make every aerospace engineer proud.

They used Inconel in the contactors for current handling, and a smart pyro fuse in the pack for over current protection. Link. Agree, the use of materials and the smart fuse are uber-cool.

Yes, to fund the Semi, the Model Y, the Pick-up, the next 5 GFs, the [whatever else cool stuff they are currently dreaming up]

So I predict there will be a (very small) profit in Q3, then a slightly bigger one in Q4 and immediately a huge raise just after that to fund the Semi and the Model Y (+ maybe 1 more GF + more production capacity for the M3)

I like it! However, the assumption of additional debt does not mean they can't keep running at a net profit. At a 5% rate on a 10 year term, a million in loans costs about $33,000 a quarter. Or, one million in quarterly profit covers 30 million in debt.

 

[Electroman]

ShortSeller: Look. Anytime you make an argument that Tesla/Musk have missed their guidance one too many times, you are going to ignored and laughed at. I am not going to explain to you one more time as to why that is. Go figure it out yourself.

 

[Causalien]

Participated in IPO.

Then the stock promptly dropped. So I took the time to review all elon's interviews in slo mo. (This was before I found TMC). I only had 10 years of experience in the market at the time so I relied alot on analysis.

Unlike other CEOs who talk in CEO speech Elon is a dreamer by default. A dreamer who can execute. Once I determinec that Elon is not doing the typical CEO bullshit, I started to listen to the content of his message. It was a refreshing and confusing experience since I am used to what normal ceos say and do.

So I bought more below IPO price.

Later on, I bought more after huge sell offs. Each time evaluating whether or not the reasons shorts used have merit. An even larger chunk was bought around rhe 2013 incident where severe put option skew caused shorting to be self sustaining and infinitely profitable.

To be honest, many of my additional purchases are due to shorts attacking tsla in what I deemed as an unsuccessful way that'll allow me to profit later.

You guys will have to undetstand, tgat taking out tesla just means another corp will take over. The core ppl who believes in the same vision and want the same thing to happen is still there. You have to make them believe that EV is not the way to go.

Stupid arguments like usa power generation is 80% coal, hence tsla is not as green as ice Is just stupid strategy wise. The ppl who buy ev will just think" well, duh, change it to solar and wind".

 

[generalenthu]

What’s “Supercharger Revenue” on a vehicle with a lifetime of free supercharging? I may have barely passed the CPA (hung over), but to me that’s a lifetime of expenses paid by Tesla.
But to be fair, I recognize the Supercharger network as a “moat” for now.

It's not free for the 3

 

[Reciprocity]

That is a very interesting thesis. However, say Tesla continues negative cash flow for another quarter or two and requires more capital. Do you believe the new capital investors would be OK with this?

You do realize that you only have to pay for kuka robots once right? Even in shortsville. The massive capex over the last 8 qtrs will mostly all be paid for this qtr. That's model 3, gf1 to 35GWh and gf2 solor roof and panels. This isn't really accounting so you probably don't understand it. The company delivers the hardware, installs the hardware, verify it works then there is a sign off and an invoice with terms. Once that invoice is paid, that's it. That hardware can produce millions of cars. Same goes for gf1 with battery packs and cells as well as gf2 with solar tiles and panels.

So Tesla has large margins, the cash flow goes quickly from negative to positive. Also, parts suppliers are on 60-90 day terms. The biggest advantage for this is when you produce and ship 2-3x as many cars Q over Q for several qtrs. What happens is you deliver 30,000 cars but pay for parts on 10,000. This is what will happen Q3 and Q4 while at the same time most capex will be 90% less then it was last year. This is why Elon would be so bold in his assertion.

Here is the kicker and why 5k/w is critical. Tesla can order the kuka robots for the ramp to 10k and be producing cars before the bill comes due for the Robots and the parts. Shorts don't get this, they think $1B capex with production delays forever. The chickens are coming home to roost. I almost think Elon set this up to look horrible right before it becomes clear whats going on. Not only that, but Y is based on the 3. The ramp will be smoother by far unless Tesla tries to add to much early on.

 

[Causalien]

Another angle you have to consider. Trump got elected for MAGA. Even though the eco movement and trump are incomPatible concepts. Tesla us fundamentally a usa based corp with all the important bits in usa vs the other manufacturers.

Also th dealership class are mostly rent seekers tha take a cut vs a full production and technoly company that produces goods. Trump is a businessman first and will recognize the difference in the importance. I assume most politician will recognize it too. And as tesla grows in employee count its political support grows.

In a sense, having brought most manufacturing in houseactually solidified their political support as the number of usa jobs connected to tesla grows. Traditional auto enjoyed political help at the beginning of the fight against tesla, now they have to see that slowly decline. When most see them as sellout that offshored their jobs vs a true american corp like tesla.

The maga movement was a surprise and often ridiculed as hillbillies with low IQ. But you cannot ignore it.

 

[Electroman]

It's not free for the 3

You think he doesn't know? He of course knows.

But by making that statement, "no revenue in lifetime free supercharging", he is hoping that would catch a few newbies and ignorants. See, that statement in itself in isolation is not incorrect, but it conveniently ignores the rest of the story, that SC costs money in M3 and M3s will outsell SX by a huge factor.

This is the typical modus operandi of the shorts.