Short squeeze: Willful and malicious?

[DonPedro]

Disclaimer: This post is highly speculative, and I know it.

I have a hypothesis: Elon Musk and Tesla management have planned for a short squeeze to happen, and have been executing on that plan lately.

Isn't this an obvious fact? Not really, because if true it means that this spring, they care not just about long term value creation but also about creating a spike in the share price that will engender the short squeeze.

And if true, what is the implication? My hypothesis is that the earnings call on Wednesday is T=0, the day when the squeeze is intended to begin.

My reasoning:
Does Elon Musk seem like a man who sees a problem, and then does nothing about it? We are talking about the man who decided single-handedly to do something about the fact that humanity has not gone to Mars yet. And, by the way, at the same time accelerate the advent of electric road transportation globally. This is clearly a person who does something about stuff that bothers him.

Next: Has Elon Musk been bothered about the shorting of the Tesla stock? Definitely! Back in September, he was quite vocal about this on national TV. In fact, he was even already promising a solution to the problem (the now-famous "tsunami of hurt"). More recently, he tweeted his glee at the losses of TSLA shorts ("stormy weather over at Shortville"). Clearly this is something that has bothered him.

SO, I find it highly unlikely that he has not given quite a bit of thought to how to get the shorts out of his face. The obvious solution is a short squeeze to take them out. This would actually be good for the company long term, because the absence of the shorts would reduce effective supply of shares to those who want to invest, and thereby probably put the stock on a permanently higher level (assuming all the shorts don't pile in again after a squeeze, which seems like a reasonable assumption). A higher long term stock price means that any financing TSLA would need, for instance for GenIII R&D and factory ramp-up, would dilute existing shareholders less.

So, fast forward to the end of Q1 and management pulls the trigger on Operation Tsunami. Why? Because they have extremely good news. CapitalistOppressor has mused in another thread about how margins (excl. green credits) could stay far from 25% in a quarter with streamlined production. Maybe they didn't. Maybe the quarter was very profitable even before the credits, and the credits made almost ridiculously good. So, how to play this: One, big announcement may not be enough. Rather, there needs to be a crescendo of good news ending with the Big Bang. Thus the immediate release of the news that Q1 is profitable. Once done, everyone thought that was the Q1 cat let out of the bag. In fact, it was only the tip of the iceberg.

Next, the launch of the "5-part trilogy". Not uniformly successful, but certainly the kind of thing you would do to create short-term momentum in the stock. The stock is now up by >50% since the start of Operation Tsunami.

Then, the race to finalize orders in Europe ahead of the Q1 earnings announcement. Loading all chambers of the "Q1 good news big bertha".

Who knows what other goodies may be in store for Wednesday:

• EPS way above even luvb2b's estimates?
• Supercharger announcement?
• >5000 cars sold Q1?
• Production rate >600 cars/week?
• 5th announcement? (or saving this for a few days after earnings, for the double-tap?)
• Model X news?
• GenIII news?

I have nothing more to back this up than the logic above, and I won't say I'm 100% convinced. But what if it is true? I sure am bracing for a wild ride next Thursday...

 

[mitch672]

Zombieland Rule #2, always doubletap: Zombieland Rule #2 Double Tap - ZombielandRules.com

But I would think the double tap out would come into play if they "reshort" TSLA, after getting "stopped out" by margin call or pain. Always make sure your enemy is dead

 

[jeff_adams]

Disclaimer: This post is highly speculative, and I know it.

I have a hypothesis: Elon Musk and Tesla management have planned for a short squeeze to happen, and have been executing on that plan lately.
what if it is true? I sure am bracing for a wild ride next Thursday...

Wouldn't be all that shocking. Tesla has been in the news quite a bit lately. MSN had an article today on "10 red hot stocks to buy" and named Tesla as one of them. If Elon uncorks some very good news, the stock could blast off like a Space X rocket.

 

[avatar]

I hope you are right.

Cheers!

 

[dmckinstry]

Not willful and malicious, but righteous retribution.

 

[AudubonB]

I hope you are wrong.

For any number of reasons, but before I give the most important one, let me state that TSLA is my single largest holding, and, as my entire portfolio consists of naked long positions (no shorts, no derivatives), that's a "pure" number.

I do agree that from the corporate executive's position, short positions, short sellers and short advocators - as well as analyst Sell recommendations - can be a pain in the neck, and worse.

HOWEVER....every moment executives spend time on such a subject is time spent not doing their job, which is running the company, etc. And that, in my opinion, is bad executive judgment and comes close to corporate malfeasance. At the very, very least, it is NOT what I look for in corporate management when I look to invest in a company's stock. That said, it both is understandable in general and even more so when a company is one individual's baby - as in the CEO is the founder and dominant shareholder. But it's still wrong.

 

[eAdopter]

@DonPedro
As good as that hypothesis is (and it's VERY good), I think it still underestimates Mr. Musk. I think he'll triple-squeeze or quadruple-squeeze shorts out of the equation using a series of strategic, well-timed announcements. There will always be shorts, but their dominance and influence will be greatly reduced. This paves the way for more partnerships and long term growth. I think the news on Wednesday will include some of the items listed above, but some will be withheld until they mature.

 

[ItsNotAboutTheMoney]

No. that's conspiracy theory thinking. They pushed production in Q1 to get more cash, to get waitig times down, to get more market confidence and to push productivity. All of those are important, and more important than pushing the share price up to drive out the shorts.

 

[gray]

Seriously? It's a POMO day. You people should know better.

Also: The market can stay irrational longer than you can stay solvent.

 

[TD1]

I hope you are wrong.

For any number of reasons, but before I give the most important one, let me state that TSLA is my single largest holding, and, as my entire portfolio consists of naked long positions (no shorts, no derivatives), that's a "pure" number.

I do agree that from the corporate executive's position, short positions, short sellers and short advocators - as well as analyst Sell recommendations - can be a pain in the neck, and worse.

HOWEVER....every moment executives spend time on such a subject is time spent not doing their job, which is running the company, etc. And that, in my opinion, is bad executive judgment and comes close to corporate malfeasance. At the very, very least, it is NOT what I look for in corporate management when I look to invest in a company's stock. That said, it both is understandable in general and even more so when a company is one individual's baby - as in the CEO is the founder and dominant shareholder. But it's still wrong.

I think TSLA is an exception it that case, because its shorted at record worthy rates.
I would answer the question if a CEO should worry about the short position by the Number of Shorts for TSLA, at some point the Shorts start to really hurt the company business, we can argue where that Point X is, but in TSLAs case its over X.
And since Elon is not only the CEO, but Founder and largest stake holder, I think he cares about the short also on a personal level.
Its like having the opportunity to slap all the naysayers in the face, and I hope Elon will slap hard.

 

[joefee]

"Willful"…heck ya! Tesla has a right to beat the crap out of the shorts. However, what they have done so far is just wildly innovative business strategy not "malicious."
Thank You shorts for paying for half of my Sig ….can't wait to collect the other half! :biggrin:

 

[AudubonB]

I am, to an extent, just playing with youz guyz; at the very least, I'm playing a bit of the devil's advocate here. A couple more things to think about, however:

* TD1: re-read the penultimate sentence in my first post: I did pay obeisance in the case of the Founder/Largest stakeholder.

* Don't most of you understand that an immense short position is one of the classic bullish signs to slaver over? That's Stock Market 101, folks!!!!!

 

[GenIIIBuyer]

I've given this some thought as well. I wasn't aware of Elon complaining about shorts on national television last Fall.

Elon's tweet from April 25th "Seems to be some stormy weather over in Shortville these days" came out the day after Nasdaq released its short interest update showing only 600K shares covered from April 1st to 15th.

I'd also like to point out how well the price action on TSLA's chart lined up with the beginning of this "plan." $40 had been long-term and short-term resistance on TSLA's chart, most likely the mental stop that many traders set. However, the April 1 positive earnings pre-announcement caught everyone off-guard, and TSLA opened up at $42. Did trade down to $40.21 a couple days later, but that's as close to covering at $40 the shorts got. Resistance became support.

I'm not sure if Elon and the management team were aware that $40 was the blue line. However, it certainly helped catch the short-sellers "offsides". Sorry for the hockey pun.

 

[Curt Renz]

I am, to an extent, just playing with youz guyz; at the very least, I'm playing a bit of the devil's advocate here. A couple more things to think about, however:

* TD1: re-read the penultimate sentence in my first post: I did pay obeisance in the case of the Founder/Largest stakeholder.

* Don't most of you understand that an immense short position is one of the classic bullish signs to slaver over? That's Stock Market 101, folks!!!!!

If the company is going to become a major player in the auto industry before competition encroaches its niche, it needs to be able to exponentially ramp up production and fully utilize its factory. It also must expand its Supercharger network and its sales and service operations. And it must develop continuous demand through marketing and advertising. To not have to wait until the next decade to meet these requirements, they'll have to raise more capital through a subsequent offering of shares. They'll want to be able to price the offering at a substantial amount. For that to happen, the current market price should be as high as possible. Forcing shorts to cover would be a means of accomplishing this. As a CEO responsible to his shareholders, and with added personal interest as a major shareholder, it is not only reasonable but mandatory that Musk devote some energy to forcing the shorts to cover soon rather than waiting years for them to capitulate one by one.

 

[Johan]

I guess that right now important factors that drive share price and squeeze out the shorts could be things like, for example:
- Better than expected gross margin
- Better than expected production rate
- Sustained high demand
- Better than expected penetration in EU and other new markets
- Regulatory credits adding more revenue than expected
- A new innovative financing product
- Faster than expected roll-out of supercharging network
- New features added to the car (perhaps already in the car just noe enabled)

Now you could imagine a scenario where all of the above were made public in Q1 call after market close on Wednesday the 8th. Now, that would scare a lot of short sellers into getting out, however it would also attract a lot of new investors. What could happen is that on the 9th we would see hughe volumes of TSLA being traded but perhaps with about equal buying v.s. selling pressure leading to only a modest increase in price? In other words: shorts and longs swapping shares?

The other scenario, which is more in line with what we have been seeing and in line with the suggestions of the OP, is a gradual build-up and releasing of these positive news. Bit by bit, carefully timed, in an effort to lure shorts to hold too long, making them wait for the "inevitable" correction, holding a bit more and so on in a vicious circle (for a short that is). The net effect of this type of gradual release of good news, with all the "theatrics" assosiated with it, could be in effect to manipulate the short sellers and "use them" to drive share prices up to a higher level "when all is said and done" (all the news have been released). Also, by dragging it out over time, your getting a lot of (free) media exposure and advertising.

All of this would be logical, like Curt Renz says, if you want the share price up high for a secondary offering. Willfull? Yes. Malicious? No. Smart? Yes.

 

[CapitalistOppressor]

Disclaimer: This post is highly speculative, and I know it.

I have a hypothesis: Elon Musk and Tesla management have planned for a short squeeze to happen, and have been executing on that plan lately.

Isn't this an obvious fact? Not really, because if true it means that this spring, they care not just about long term value creation but also about creating a spike in the share price that will engender the short squeeze.

And if true, what is the implication? My hypothesis is that the earnings call on Wednesday is T=0, the day when the squeeze is intended to begin.

My reasoning:
Does Elon Musk seem like a man who sees a problem, and then does nothing about it? We are talking about the man who decided single-handedly to do something about the fact that humanity has not gone to Mars yet. And, by the way, at the same time accelerate the advent of electric road transportation globally. This is clearly a person who does something about stuff that bothers him.

Next: Has Elon Musk been bothered about the shorting of the Tesla stock? Definitely! Back in September, he was quite vocal about this on national TV. In fact, he was even already promising a solution to the problem (the now-famous "tsunami of hurt"). More recently, he tweeted his glee at the losses of TSLA shorts ("stormy weather over at Shortville"). Clearly this is something that has bothered him.

SO, I find it highly unlikely that he has not given quite a bit of thought to how to get the shorts out of his face. The obvious solution is a short squeeze to take them out. This would actually be good for the company long term, because the absence of the shorts would reduce effective supply of shares to those who want to invest, and thereby probably put the stock on a permanently higher level (assuming all the shorts don't pile in again after a squeeze, which seems like a reasonable assumption). A higher long term stock price means that any financing TSLA would need, for instance for GenIII R&D and factory ramp-up, would dilute existing shareholders less.

So, fast forward to the end of Q1 and management pulls the trigger on Operation Tsunami. Why? Because they have extremely good news. CapitalistOppressor has mused in another thread about how margins (excl. green credits) could stay far from 25% in a quarter with streamlined production. Maybe they didn't. Maybe the quarter was very profitable even before the credits, and the credits made almost ridiculously good. So, how to play this: One, big announcement may not be enough. Rather, there needs to be a crescendo of good news ending with the Big Bang. Thus the immediate release of the news that Q1 is profitable. Once done, everyone thought that was the Q1 cat let out of the bag. In fact, it was only the tip of the iceberg.

Next, the launch of the "5-part trilogy". Not uniformly successful, but certainly the kind of thing you would do to create short-term momentum in the stock. The stock is now up by >50% since the start of Operation Tsunami.

Then, the race to finalize orders in Europe ahead of the Q1 earnings announcement. Loading all chambers of the "Q1 good news big bertha".

Who knows what other goodies may be in store for Wednesday:

• EPS way above even luvb2b's estimates?
• Supercharger announcement?
  [*]>5000 cars sold Q1?
  [*]Production rate >600 cars/week?
• 5th announcement? (or saving this for a few days after earnings, for the double-tap?)
• Model X news?
• GenIII news?

I have nothing more to back this up than the logic above, and I won't say I'm 100% convinced. But what if it is true? I sure am bracing for a wild ride next Thursday...

I am becoming increasingly bullish about Q1 results. A knock your socks off moment is in play, and possibly even more likely than not (go back to the thread you linked for my latest post on labor costs). But even if not, Luvb2b's projections are very credible and still much better than many on Wall St seem to be expecting.

I'd be slightly shocked if Q1 sales was greater than 5,000. For a variety of reasons that were likely caused by the switch to Multi-Red, the last week of March and first few weeks of April are messed up, so its hard to say if a particular 250 cars were built in the last week of March or first week of April. It doesn't help that March ended with Easter Weekend, and Tesla might have taken some extra holiday days.

But I don't see any way that there were much more than 5,000 deliveries.

And in terms of current production, there is zero chance that it is 600+ unless it just changed. I am too close to April to really measure it properly, but it looks more likely that they reduced production below 500/week. If they delivered 4,750 cars in Q1 then 500/week might still be happening, especially if they took a few days off for Easter. If they delivered 5,000 cars in Q1 then its more likely that they delivered closer to 400/week in April.

Depending on how the delivery data comes together in the next few weeks there is actually an outside chance that there were only 4,750 deliveries AND that production is only 400/week in April. But it seems much more likely to guess that reality is messy and it was 4,850 Q1 and 450/week in April, lol. But to be clear, there is a softness that makes anything over 500/week in April extremely unlikely. Anything under 400 is probably equally unlikely.

Edit: Just to clarify, the data could also be consistent with a slower production rate early in April and a higher one later.

There was some kind of production shock in late March that caused Tesla to start delivering cars severely out of order, by something like ~1,000 VIN's. They delivered a large block in the new range during the last week of March, then they backfilled through the next few weeks of April. Similar shocks have happened before during major switches, but the magnitude was much larger because their production rate was so high in March.

Anyways, they might have only delivered like 200 cars in the first week of April then sped up from there, so I am hesitant about really forcasting current production rates or total Q1 deliveries. More than 500 seems really unlikely though, under any circumstances.

 

[twinklejet]

HOWEVER....every moment executives spend time on such a subject is time spent not doing their job, which is running the company, etc. And that, in my opinion, is bad executive judgment and comes close to corporate malfeasance. At the very, very least, it is NOT what I look for in corporate management when I look to invest in a company's stock. That said, it both is understandable in general and even more so when a company is one individual's baby - as in the CEO is the founder and dominant shareholder. But it's still wrong.

In summary,

The "executive"'s job is to run the company, for profit but self-interest dictates that he/she would run the company in a way that would allow his/her own salary to increase.
The board of directors and the chairman of the board is to protect the interests of the shareholders and keep the executive in check and ensure executives remember that profit is the foundation of the company and his/her salary is remuneration for getting said profit.
The shareholders "own" the company and expect a return / partake in said profits...

In this case, the dominant, most important shareholder and the chairman of the board and the executive are all the same person. Hmm.

 

[DonPedro]

Now you could imagine a scenario where all of the above were made public in Q1 call after market close on Wednesday the 8th. Now, that would scare a lot of short sellers into getting out, however it would also attract a lot of new investors. What could happen is that on the 9th we would see hughe volumes of TSLA being traded but perhaps with about equal buying v.s. selling pressure leading to only a modest increase in price? In other words: shorts and longs swapping shares?

You are forgetting what the sellers have to do to "get out", namely to buy shares. So what you are describing is a scenario with new investors looking for shares to buy simultaneously with short sellers scrambling to buy shares to cover their positions. There are always a few longs who would take profit at that time, but until the stock had risen sharply they would be few. While the price is bid up and up by the "new longs" and the covering shorts, the situation for other shorts becomes just worse and worse. Everyone recognizes that this is The Squeeze, and suddenly covering the position at $70 or $80 seems vastly preferable to seeing how far up it will go. More shorts want to cover, increasing demand and upward price pressure further.

...and all the longs lived happily ever after (while scratching their heads second-guessing their decisions on when to take profit or not in those crazy, crazy days).

 

[Johan]

You are forgetting what the sellers have to do to "get out", namely to buy shares. So what you are describing is a scenario with new investors looking for shares to buy simultaneously with short sellers scrambling to buy shares to cover their positions. There are always a few longs who would take profit at that time, but until the stock had risen sharply they would be few. While the price is bid up and up by the "new longs" and the covering shorts, the situation for other shorts becomes just worse and worse. Everyone recognizes that this is The Squeeze, and suddenly covering the position at $70 or $80 seems vastly preferable to seeing how far up it will go. More shorts want to cover, increasing demand and upward price pressure further.

...and all the longs lived happily ever after (while scratching their heads second-guessing their decisions on when to take profit or not in those crazy, crazy days).

You are right, of course. So why then would it matter if the series of good news were all presented at once or in this drawn-out, sequiential fashion with a kind of "build up" to the big moment?

 

[DonPedro]

So why then would it matter if the series of good news were all presented at once or in this drawn-out, sequiential fashion with a kind of "build up" to the big moment?

Only psychology. The valuation parameters for TSLA are so uncertain that psychology/momentum/perception plays a big part in the day-to-day share price. A constant stream of good news followed by a "big bang" of extremely good news may create a greater stock price spike then just a big bang (even if that big bang were to also include all the good news items that in this case are released in a "constant stream".