Short-Term TSLA Price Movements - 2016

[sub]

OK, choose it if you like.

No, you'd have negative gross margins so that would be silly! Tesla has gross margins > 20%

I know you understand that gross margin is what's left after just physically building the car prior to deducting all the other costs of running that business which last year meant $924mil gross profit. Unfortunately operating expenses were $1,640 and interest expense was $119mil which are a couple of numbers ignored when using price to sales and gross margin as valuation measures

I don't intend to argue, if you're happy investing based on gross margins and price to sales for this business that's your prerogative. The only reason I even bother to look at this thread and post is thinking perhaps a counter balancing view might add value to a thread that appears to be about investing.

As soon as you have something to post worth reading for all of us I know I'll then appreciate your contribution. If you think anything you said in your last few posts is somehow enlightening for the visitors of this forum/thread, think again. I'm all for counter arguments but I've yet to see a short say anything intelligent in this thread.

 

[esk8mw]

That appears to be an extremely ambitious schedule. Tesla’s letter of June 20, 2016 was just an expression of interest, not an offer sufficiently definitive for an acceptance to constitute a binding contract. As a layman, I suspect the steps in the process include:

1. Tesla is currently in the process of performing due diligence which is a prerequisite to preparing a formal, detailed offer to Solar City and its retained consultants (Skadden, Arps, Slate, Meagher & Flom, LLP as legal counsel and Lazard as financial advisor). If Tesla has retained similar professional advisers, they have yet to be disclosed.
2. After the definitive offer is submitted, it is likely there will be a period of negotiations, assisted by the professional advisors. Each corporation’s debt creditors may want to be involved.
3. Once a definitive deal is agreed, both Boards of Directors will have to meet and vote to submit it to a vote of their respective shareholders.
4. An outside accounting firm will have to prepare pro-forma consolidated financial statements with accompanying notes and explanations.
5. Both the Hart, Scott, Redino holding period with the DOJ and the more thorny corporate governance blessings from SEC will need to occur.
6. There will be road-shows with each corporation trying to convince its respective institutional shareholders of the synergies and financial benefits of the transaction. (This is likely to proceed simultaneously with the regulatory approvals in 5.)
7. Proxies will be prepared, sent out, and a sufficient time allowed for voting and counting.

My expectation is this process will take until at least year end, but I’ll defer to experts like Messrs Renz and ESK8MW if they believe it can be completed more quickly.

You pretty much nailed it. In my experience, the fastest I've seen deals close is about 3 months. Complex, billion plus dollar deals with public companies often take a good deal longer.

 

[ev-enthusiast]

You pretty much nailed it. In my experience, the fastest I've seen deals close is about 3 months. Complex, billion plus dollar deals with public companies often take a good deal longer.

So plenty of time to recall shares sold short.
Thus the recall is more likely to provide SP support or let SP creep up slowly than induce a very short term very high SP spike?

 

[CALGARYARSENAL]

We have a bull flag going on people. The technical analysts I follow and respect suggest we are in for a bull run. Don't forget how bearish I was 6 months ago......

 

[esk8mw]

So plenty of time to recall shares sold short.
Thus the recall is more likely to provide SP support or let SP creep up slowly than induce a very short term very high SP spike?

I'm honestly not familiar with these recall dynamics. I work directly with the institutional investors who invest in my employer (fidelity, vanguard, other heavy hitters) and I can tell you that they are very interested in and vote on the annual proxy items for the companies they invest in. They have entire departments devoted to these issues and the bigger ones like fidelity even develop their own proxy voting guidelines. I'm struggling to understand why this recall issue would not crop up with highly shorted stocks' annual meetings every year.

 

[theschnell]

We have a bull flag going on people. The technical analysts I follow and respect suggest we are in for a bull run. Don't forget how bearish I was 6 months ago......

Are you referring to TSLA specifically or the market generally?

 

[vgrinshpun]

That's because it was triggered by a fundamental repositioning of market thinking on the stock, not on a technicality of shares being temporarily unavailable for borrowing. The salient point of my comparison was that however high Tesla soared, there was always more than enough short interest once it stabilised.

And my point was that this "stabilization", in spite of what you argue is infinite supply of short sellers, was at much higher SP than prior to the squeeze. This is just a fact.

Regarding the "technicality" vs. "fundamental re-positioning", I agree that the 2013 SP move was triggered by the "fundamental re-positioning". Where we differ is in the assessment of what is going to happen in the next month or two. My view is that we will have both the "technicality" and "fundamental re-positioning" hitting at about the same time, ostensibly by design. My view is that the company is ripe and long overdue for the "fundamental re-positioning", to account for the TE and GF manufacturing efficiency leap (3 x production per the square foot of space), and I believe that GF party is designed to showcase these achievements. The huge difference with the 2013 is that both of the "technicality" and "fundamental re-positioning" seem to be orchestrated by the Maestro to be happening concurrently.

I do not think that we will see lower $200-eds, if not $200-eds, post the squeeze. My advice to both friend and foe is to be wise...

 

[30seconds]

Very interesting article on battery storage at utility level

World's Largest Storage Battery Will Power Los Angeles

 

[vgrinshpun]

I'm sorry for the off-topic, but is this why I just got an email from the TradeKing offering me to lend my shares for both TSLA and SCTY? The numbers are quite good (~0.03% of my position PER DAY). Is there a risk associated with it? Is anyone here doing it with his shares?

Yes, the scarcity of TSLA and SCTY shares that are available for shorting is the reason for the e-mail. I do not have experience in participating in these lending programs, but from the postings by others, the risk is designed to be managed by the guidelines for such a program by the brokerage that offers it, so might be different between, say TradeKing and Fidelity. It seems that larger and older brokerages would be more conservative...

There is an on-going discussion on this topic in the "Tracking Short Interest" thread, with the latest discussion starting in this post: Tracking short interest

 

[CALGARYARSENAL]

Are you referring to TSLA specifically or the market generally?

TSLA

 

[Oil4AsphaultOnly]

I'm honestly not familiar with these recall dynamics. I work directly with the institutional investors who invest in my employer (fidelity, vanguard, other heavy hitters) and I can tell you that they are very interested in and vote on the annual proxy items for the companies they invest in. They have entire departments devoted to these issues and the bigger ones like fidelity even develop their own proxy voting guidelines. I'm struggling to understand why this recall issue would not crop up with highly shorted stocks' annual meetings every year.

Perhaps it's a perfect storm of large institutions holding large stakes in high growth company with huge short interest AND in the process of an M&A? I'm not well versed in business dealings, but I would guess that there really aren't very many opportunities like this.

 

[vgrinshpun]

There has been much recent discussion about the initiation of a short squeeze OR that the stock price now is being supported by large institutions calling in their short sold shares. I have been discussing this with several people more knowledgeable than I which has resulted in this question:

If the institutions can/would do this, would it not be wiser to wait till closer to the actual acquisition vote as they would be collecting some nice interest payments until the voting gets closer?

This is an interesting question. I think that answering this question requires some basic quantitative analysis (aka napkin math). Here is my attempt at it.

The five largest institutional owners of TSLA have their own Brokerages, and, most likely, have share lending programs. The summary of the shares owned by these five institutional owners at the end of Q1 is included in the table below.

According to Ihor Dusaniwsky, head of research at S3 Partners, brokerages have self imposed concentration limits resulting in 20 to 50% holdback (see below).

Assuming that big Brokerage houses are on the conservative end of the spectrum, and that these five are close to maxing out on TSLA shares they can lend, out of the 32.3M TSLA shares sold short at the end of Q1 a whopping 22.3M, or 69%, were lent just by these five brokerages. This is massive quantity of shares, in both absolute and relative terms. If they will try to recall these 22.3M shares in the span of just few days before the vote, there will be a TSLA calamity of biblical proportions, which they most likely are not interested in. So in my opinion there will be steady stream of recalls from now until the voting, with the pace accelerating as we get closer to the special shareholder's meeting.

 

[ev-enthusiast]

We have a bull flag going on people. The technical analysts I follow and respect suggest we are in for a bull run. Don't forget how bearish I was 6 months ago......

Nice, could you please post a chart showing the bull flag?
Is that bull flag forming on the daily or hourly chart?
You follow some TA guys on Twitter? Maybe you could share some of them in the TA thread?
Thanks in advance!

 

[schonelucht]

Where we differ is in the assessment of what is going to happen in the next month or two. My view is that we will have both the "technicality" and "fundamental re-positioning" hitting at about the same time, ostensibly by design. My view is that the company is ripe and long overdue for the "fundamental re-positioning", to account for the TE and GF manufacturing efficiency leap (3 x production per the square foot of space), and I believe that GF party is designed to showcase these achievements.

I agree absolutely with you on our most major disagreement : I am a fan of the cars they produce and the market they build around it, but I am a bear on Tesla Energy for quite some time now. Maybe the GF party will reveal some super massive impressive achievements that will change my mind. But at the same time I became also quite the skeptic of Elon Musk's communication strategy. It wouldn't be the first time that he showcases something extraordinary leaving the public with a much better impression than reality. Therefore I am sticking to 'the proof of the pudding is the eating' : once they start announcing the really large projects and showing the margins on their balance sheet, that's when I will gladly concede you were right all along.

But all that isn't what @SBenson were originally talking about. That was strictly about a short squeeze triggered by a shortage of shares to short because their original holders need them for voting purposes. Should that happen, then what happens when the shares become available again and there is (not yet) a fundamentally different outlook on the company because TE didn't ramp up yet? Then I believe we will simple move back to current price levels. On the other hand, if the shorts are able to deal with the recall without being squeezed due to weak longs selling on the recent bad news, then what do you think happens when the shorts get their grubby hands on the shares that were recalled (once again, assuming TE revaluation didn't kick in) : then we could easily see a piling out where shorts are taking out more and more weak longs, multiplying a downward trend.

Personally I am waiting on the second scenario to be able to get back in at a low price. If it doesn't happen, all I lost is an opportunity since I currently have no position at all.

 

[SebastianR]

I would like to add another perspective on the short-selling / price action we are seeing these days: what if the "0 available shares for shorting" is less a function of institutional investors recalling their shares and more driven by shorts desperately trying to gain votes? (i.e. making them longs in a way).

I was trying to find more evidence on how institutional investors behave during normal operation and if they recall shares for votes in the annual shareholder meetings. Research seems to suggest that more shares are recalled if investors have an issue with the board / during takeover / merger situations (not really surprising, but seems to be backed by a few papers I found). Then I found a WSJ article that loaning shares during important votes is a "cheap" way swing the outcome their way.

Now if you look how bitter, loud, and full of rage some of the reactions to the SCTY merger announcements were, could it be that at this time there is general rush for votes going on?

 

[Runarbt]

I would like to add another perspective on the short-selling / price action we are seeing these days: what if the "0 available shares for shorting" is less a function of institutional investors recalling their shares and more driven by shorts desperately trying to gain votes? (i.e. making them longs in a way).

I was trying to find more evidence on how institutional investors behave during normal operation and if they recall shares for votes in the annual shareholder meetings. Research seems to suggest that more shares are recalled if investors have an issue with the board / during takeover / merger situations (not really surprising, but seems to be backed by a few papers I found). Then I found a WSJ article that loaning shares during important votes is a "cheap" way swing the outcome their way.

Now if you look how bitter, loud, and full of rage some of the reactions to the SCTY merger announcements were, could it be that at this time there is general rush for votes going on?

But would shorts vote for a deal they see as negative, or against it to undermine Elon?

Dont think it will be possible to loan enough share to matter. Most available shares have already been loaned and sold short.

 

[AlMc]

Panasonic expects to double sales of electric car batteries in three years

 

[AlMc]

This is an interesting question. I think that answering this question requires some basic quantitative analysis (aka napkin math). Here is my attempt at it.

The five largest institutional owners of TSLA have their own Brokerages, and, most likely, have share lending programs. The summary of the shares owned by these five institutional owners at the end of Q1 is included in the table below.

According to Ihor Dusaniwsky, head of research at S3 Partners, brokerages have self imposed concentration limits resulting in 20 to 50% holdback (see below).

Assuming that big Brokerage houses are on the conservative end of the spectrum, and that these five are close to maxing out on TSLA shares they can lend, out of the 32.3M TSLA shares sold short at the end of Q1 a whopping 22.3M, or 69%, were lent just by these five brokerages. This is massive quantity of shares, in both absolute and relative terms. If they will try to recall these 22.3M shares in the span of just few days before the vote, there will be a TSLA calamity of biblical proportions, which they most likely are not interested in. So in my opinion there will be steady stream of recalls from now until the voting, with the pace accelerating as we get closer to the special shareholder's meeting.

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Thanks. I guess we will see once we see the short interest changes over the next month. If the short interest is unchanged/rising then another explanation for price stability is at play.

 

[Gerasimental]

How about this butchering of units in the article about the LA storage

will be gone, replaced by the world’s largest storage battery, capable of holding and delivering over 100 megawatts of power an hour for four hours.

I just can't believe how reliably journalists utterly fail to grasp the simple concepts of energy and power

edit: entertainingly, two wrongs here made a right. Even though he has no idea what he's saying, we can figure out from his attempt that this is a 400MWh, 100MW battery. Usually it is just left totally open to interpretation what the actual battery specs might be.

 

[Stretch2727]

Thanks. I guess we will see once we see the short interest changes over the next month. If the short interest is unchanged/rising then another explanation for price stability is at play.

So the next official short interest report is July 12 to report the short interest on June 30th. If we see the number of shares going down despite all the increases in the lending rates the theory will hold true. The lending rates are increasing due to a lack of shares to short rather than an increase in demand to short. Just wish these reports were not so delayed as by the time you have the information it is too late to use it!