Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Zhelko Dimic]

Thank you for finding this thread from 2013 created by notable TMC contributor @luvb2b it's an amazing backgrounder to the current discussion, and comes more from a insider's technical understanding of the MMs short selling exemption for Option hedging.

He points the finger at likely a large MM conspiring with a hedge fund for options purchases causing the near instantaneous naked short sales sometimes amounting to up to 2% of TSLA entire outstanding shares (not just the float).

The best part of the thread IMHO is how he explains the mechanism for perpetuating a naked short position thereby avoiding paying carrying charges for share borrowing ( @Boomer19 this explains why TSLA borrow rates are low; this scheme doesn't depend on borrowing shares conventionally thus does not drive up the cost of borrowing shares), all the while never intending to deliver actual shares associated with these outsized naked short sales. @luvb2b comments that this is likely an illegal scheme.

Paging @StealthP3D @FrankSG @Hock1 I think we finally have stumbled upon our viable mechanism for naked shorting, and by extention, how this scheme is disrupted by inducing other MMs to call in their short shares in advance of a Share Dividend dispersment.

This scheme depends upon the hedge fund purchasing Options, which then induces the MM immediately to sell large numbers of TSLA shares due to their delta-hedging requirements. The hedge fund thus able to employ naked short selling by MMs to sell massive numbers of shares w/o locating them first, or paying the fees associated with borrowing shares to sell short. The other advantages are speed and the ability to sell arbitary numbers of shares without the normally expected restricts of supply, demand, and cost elastisity of borrowing those shares. Or as @Unpilot would say, "bastages".

This is the ACTUAL MECHANISM by which this scheme is able to crater the SP: They can short sell an arbitary number of shares, indeed however many shares are needed, to burn through the order book and thus force the SP to their desired price, thus making these shorts almost instaltly profitable. That's what we saw with the huge SP plunges on Feb 4, 2020 and again on July 13, 2020.

I believe this is also what we saw on Fri, Aug 21, 2020 from 3:32 to 3:36 pm where dumping 573K shares dropped the SP from $2,079.89 to $2,049.05 in 5 minutes. And magically, Call Writers (mostly MMs) saved about $28M in payouts to holders of those $2,050 Strike Call contracts (just ask for details if ur curious).

And the 2nd best part of the 2013 thread by @luvb2b ? Almost nobody else has ever read it.

So here's a link which will take you back to the discussion in Apr 2013. Note that @luvb2b has not been active on TMC for over 29 weeks, according to his profile so we will likely be best served by continuing this discussion here in Main rather than on the old thread:



Regards,
Lodger

I read this whole thread in early 2015, while researching Tesla before sinking all of my money in it.

What I remember finding is that few months after this thread last post (at the time), there were 2 traders investigated and sentenced/punished(?) for doing this. The best my memory serves me is that they were executing massive coordinated short call orders with each other, and just by the sheer volume of orders, they'd catch huge majority of them in their own account. One of them sells massive amount of short calls, MMs execute delta hedging, drop SP, and the other buys them at the lower price. And then second account sells those or similar calls, before they have to post collateral, first account buys, etc. This is how they were able to maintain naked short position, and victims were actually MMs, due to their delta hedging. Which is probably why they eventually got caught.

It was a small news, barely reported, and TSLA was mentioned just as a vehicle they were using for their strategy, onus of reporting was on their abuse. You needed to know both thread and read this news to assemble probable facts. I don't think this news was ever linked back, and at the time I wasn't contributing to this site, I was quiet observer.

I am too lazy to search and find the news now, and it may be impossible with proliferation of everything Tesla since - at the time I think I read everything I could've found on tesla, part of my due diligence process. I was going 100%, actually more like 200-300%, with all my gains from FB, NFLX, AMZN at the time... I got Tesla right, yet, I underestimated forces against it, so I was 4.5 years too early.

 

[Stretch2727]

Does ARK trade employ any options strategy of any kind with TSLA or do they just trade in and out if shares?

Was thinking - if they are really solid options performers they might provide value to TSLA investors who don’t trade options to have the diversity of TSLA options being traded for them by a professional who believes in the TSLA business case.

They don't do options. Straight up stock with generally long term investments. They are really about finding the next Tesla's in several different industries. Their website has a lot of information/transparency including daily updates of holdings and you can get what they have bought/sold on a day to day basis.

I get their diversification strategy (<10% stock in each company in each ETF). It limits the upside but also limits the downside if things go south. It's all about risk/reward. Not everyone can/should be majority in one stock like most of us here including me.

 

[SarahsDad]

Tesla on the Pike's Peak mountain course live now.

https://www.facebook.com/video.php?v=248343459600949

 

[Singuy]

Tesla on the Pike's Peak mountain course live now.

https://www.facebook.com/video.php?v=248343459600949

If anything, this should be an advertisement for starlink cause damn the potato quality.

 

[gene]

I guess if one were single, they could make use of this temporary accounting by trying to pick up someone at a bar this weekend. "Oh what's this, I accidentally opened up my etrade app?"

Oh believe me, I sent a screen shot of my $16 million worth of TSLA to my sister who has been trashing TSLA, and telling me to sell out since 2012. That was a laugh hahahaha!

 

[Singuy]

Oh believe me, I sent a screen shot of my $16 million worth of TSLA to my sister who has been trashing TSLA, and telling me to sell out since 2012. That was a laugh hahahaha!

Now she thinks you are an ass for not paying off her mortgage.

 

[Sudre]

Just a minor correction, the AC to DC rectifier in the current fleet is not capable of bidirectional flow. But the DC to DC circuits used for Supercharging are capable of bidirectional flow. This wouldn't allow a vehicle from the current fleet to operate as a Powerwall by itself, but if Tesla were to design a DC charger (a relatively slow home Supercharger) with a built-in inverter, the current fleet could be used for V2G.

And the external inverter is actually how all current V2G pilots work. The only issue is that these external inverters are relatively expensive (~$4,000). For e.g. Wallbox Quasar bidirectional home DC charger will turn EVs into a huge Tesla Powerwall - Electrek

The cars can't output AC, but they could output DC. Which would require a new EVSE that had an inverter in it. Of course, you would likely need a Gateway device anyhow, so they could enable V2H/V2G with a new EVSE/Gateway install at the home. (Of course it wouldn't be cheap.)

I have always assumed it would be way to expensive to put the Pure Sine Wave inverters into the cars. I certainly would not want one and not wish to pay for it. The other one has been noted about utilities up thread. It will never get passed in any state unless there was a transfer switch on every location that a Tesla could plug into so the power back to the grid could be disconnected when the batteries were operational so the utility lines can be serviced.

My original thought has always been the EVSE solution like MP3Mike suggests except I believe this EVSE solution will simply be a modified Powerwall. The Powerwall already has everything needed inside. Heck people with existing Powerwalls would only need a small box mounted and connected to the Powerwall that holds the EVSE cable and then a wiring run to where ever the Powerwall is at. From my understanding the Powerwall is usually already in the garage. Powerwall software update and done.

With a Powerwall/EVSE combo one can have the typical Powerwall power backup, utility disconnect means and load balancing with or without the car plugged in. With the car plugged in it means more power outage backup time. It would also be possible to sell a Powerwall/EVSE without the internal typical Powerwall batteries for a significantly reduced price and the Tesla becomes the only battery.

What I like about this idea is there is no extra cost added to the car. Since the process uses the DC to DC portion ALL Tesla cars can be part of the system (after software update) altho a huge disclaimer would have to be made about the older cars batteries degrading faster. The software for the DC to DC reversal could not be installed on the car until you read and checked off the degradation statement for the older cars.

The box with the EVSE cable that connects to the Powerwall would be for DC voltage balancing. I believe the different vehicle batteries have different voltages and the Powerwall is also a different battery voltage. I could see the V2G EVSE for the Powerwall costing a bit more than a Tesla CHADEMO adapter since that adapter does a similar process. The Powerwall already has the charger and all those bits.

 

[clmason]

Does ARK trade employ any options strategy of any kind with TSLA or do they just trade in and out if shares?

Was thinking - if they are really solid options performers they might provide value to TSLA investors who don’t trade options to have the diversity of TSLA options being traded for them by a professional who believes in the TSLA business case.

The fund may not employ Options but Cathie herself went on record claiming to have purchased Calls when FUD was strong and S/P depressed at <$200. Later TSLA spiked to $900 and she purportedly made 6000% gains. I wonder how many Options she had/how much she personally made? Would like her to one day share the actual figures of this trade.

In my opinion, this move in her personal account that she made public, was the single news bite that put her on the (financial) front page. ARKK has good performance, but not 6000% gains (due to what has been recently discussed here).

 

[Etna]

In case you missed his tweet this morning, Elon confirmed he will be in Germany this week for Giga Berlin (belated groundbreaking ceremony presumably) and also for his RNA printing side project.

https://twitter.com/elonmusk/status/1300091877014810624

 

[AZRI11]

My Ally account shows no changes yet at all, but my Merrill Lynch account is really messed up. It shows my actual number of shares (pre-split) and the old stock price from closing Friday, but it is multiplying my pre-split number of shares by the new /5 share price, so the value in my account shows down by 80%.

Same for me too. I also have a Merrill lynch account.

 

[EinSV]

incorrect. Elon projects 2M / year between Model 3 & Y. Cybertruck should do 1M / year and then there’s SX and Semi.

‘So your argument is with Elon not me. In the next 5 years, we just don’t need cheaper vehicles to drive demand. After that, then most definitely.

Completion of current production plans will result in S3XY in Fremont, 3Y in Shanghai, Y, Cybertruck and Semi in Austin and 3Y in Berlin by mid-2022.

Tesla is not going to sit on its hands after that. It seems highly likely that groundbreaking for production of the next generation products will begin in 2023 at the latest, including smaller cars designed in Shanghai and/or Berlin, and possibly a smaller Cybertruck and/or Van in Austin, Europe and/or China, along with likely Semi production in Europe and China.

A European hatchback or smaller Chinese designed cars don't have to be "cheap" -- Tesla can sell plenty with base price in the low $30,000 range (US). BMW, Audi and Mercedes all sell smaller vehicles than the Model 3/Y (e.g., BMW 1/2 Series/X1, Audi Q1/Q2/Q3, A3, Mercedes A/B).

ASP will obviously be higher and by the time production begins in 2023ish Tesla's battery and EV production costs will be substantially lower so they should be able to sell it profitably.

Also to @MikeAtkinson's discussion on growth, in the Q2 2019 call Elon estimated growth at 50-100% over the next several years (referring to units).

So just really great work by the Tesla team to achieve that outcome and we expect growth to continue in the future at -- for several years to come at the 50% to 100% level. Tesla, Inc. (TSLA) Q2 2019 Earnings Call Transcript | The Motley Fool
​

Since then Elon has referred to growth at over 50% on several occasions, with 40% growth a worst case scenario.

 

[mickle]

In case you missed his tweet this morning, Elon confirmed he will be in Germany this week for Giga Berlin (belated groundbreaking ceremony presumably) and also for his RNA printing side project.

https://twitter.com/elonmusk/status/1300091877014810624

Now we know why that Tesla tent appeared at the Berlin factory site last week.

 

[Joe F]

Except that’s like playing roulette and complaining that you hadn’t bet more AFTER the ball falls on your number

Said the person who probably didn’t invest in the IPO with at least as much as they probably have now?

There are some here who were early Roadster owners, and some I’m sure who weren’t but who understood the potential of Tesla, who were early and large investors. I know of one. They don’t post much here anymore; They don’t have to...

 

[Jack6591]

Chase is showing the split for shares, not for option contracts.

Hmmmm. Sunday morning, coming down.

 

[smorgasbord]

A possible mistake in your assumption is that you revert back to a 50% growth rate after two years of 100% growth. That may be too optimistic, as 50-50-50-50-50 cannot simply be replaced by 100-100-50-50-50. More likely is something like 100-100-40-40-30.

Note: Tesla (Elon) is not guiding for an average of more than 40-50% compounded growth over the next five years. His predictions on FSD may be off, on total production he is more accurate: Elon was spot on when in 2015 he predicted production of 500,000 cars in 2020.

Also, be aware that the market is forward looking. PE for this year is about 200-400 ($1-2 billion profit versus $400 billion valuation). For PE to get to 50 we need $8 billion profit, which will likely take another 2 years (2022). And at the current valuation a PE of 20 (a profit of $20 billion) will probably only be reached in 2025. This means the market is already looking ahead several years with the current valuation. An SP of $10,000 at this moment is very unrealistic; the market does not look 6-7 years ahead, as there are too many uncertainties over such a long period.

This is a great post; I "loved" it. However, I think the issue is that, like Amazon before it, Tesla will continue to plow profits back into the business to fund expansion (GFs, TFs, SuperChargers, Service Centers, etc.), which will make the calculated PE much higher than some kind of effective, non-GAAP PE (if such a thing exists). There was a recent thread in which I was quite outnumbered had people throwing about PE's of 50 or above as if they were no-brainers to Mr. Market. While I do think Mr. Market understands business profit reinvestment better today than in Amazon's growth hay-days, not all will and we'll continue to get plenty of analysts and pundits declaring that Tesla's PE is too high, just as Amazon had to suffer through a decade and a half ago.

There will come a point where it becomes impossible for Tesla to keep the profit low. They would be undercutting everyone else in the market and on the way to being a monopoly supplier, which doesn't further the goal of transitioning to sustainable energy as well as allowing (some) competition to survive. It's like when Microsoft invested in Apple to keep them alive.

I think Tesla can continue to find way to put profits to use for several years. Looking back at Amazon again, they only ran out of ideas of what to do with their mega profits when they dominated both eCommerce and Cloud Computing (AWS). So, I think it will take FSD or Tesla Energy to become dominant, in addition to Tesla vehicle production/sales becoming dominant for Tesla to not be able to keep the reported GAAP profit low.

I'm not sure why you think 40% in year 3 is more likely than 50% (or 60%) for that matter. Indeed it is quite easy to make an argument that the growth rate will be higher than 50%. If we assume that:

2020 : 500k cars
2021 : 1000k cars
2022 : 2000k cars
2023 : 4100k cars - Fremont, Shanghai, Berlin and Austin fully ramped, then 600k Fremont, 500k Shanghai, 1000k Berlin and 2000k Austin (based on plant land area & increased efficiency). Production from any new gigafactories would be on top of that.

Elon seems to be sandbagging his numbers, 500,000 cars in 2020 would have been comfortably exceeded if it were not for COVID-19

Tesla's growth has been governed by capital availability, which is increased because of profitability and capital efficiency which has been improving. There is no reason to assume that they won't increase in the future, that means growth is more likely to increase rather than decrease.

Just about everyone underestimates exponential growth, which for an S curve is up to the mid way point or for cars about 50 million per year. The more I study this, the more I'm turning into a hyper-bull.

The exponential growth curves I've seen are typically in software companies, not hardware industries like automotive, roofs and panels, etc. You're right that one limiting factor is capital availability, but as Elon pointed out, there are only so many different things the company can do at one time, probably due to management bandwidth. This leads me to wondering if we're at the point where Elon himself doesn't scale, and so needs to start allocating more responsibility to his management team. Jerome Guillen is a proven leader, but I don't know who else could do more than they're doing today. With so many different businesses under the Tesla roof (cars, FSD, solar tiles, powerpacks, energy arbitration, etc.) I would think that for all them to grow in a S-curve fashion Tesla needs not only a ton of capital, but a ton of brainpower that can focus and manage the efforts.

 

[Lessmog]

If this V2G comes to pass, then for maybe $4K for the convertor you could have a backup - much cheaper than a set of powerwalls and much more storage capacity (1 PW =13.5 kwh). With a million mile battery and no issue with charging and discharging cycles, you would also be able to arbitrage cheap nighttime energy into the car and expensive peak daytime energy out of the car.

At first I balked at the absurd conversion -- typical of US vs metric -- because I read that as 1 Petawatt. After the initial shock, however, the parsleying went off as expected. So, carry on and best of luck/success!

 

[Prunesquallor]

 

[Knightshade]

Fun update over at ML- as of this morning the share value was calculated post-split, but # of shares was still listed pre-split, so all my accounts balances were down massively from Friday (in one it suggested I actually owed them money)

Banner at top still says it'll be working right for shares pre-open Monday... (though not for options till pre-open Tuesday)

 

[smorgasbord]

Said the person who probably didn’t invest in the IPO with at least as much as they probably have now?

There are some here who were early Roadster owners, and some I’m sure who weren’t but who understood the potential of Tesla, who were early and large investors. I know of one. They don’t post much here anymore; They don’t have to...

I am a late Roadster owner (2011). I know that early Roadster owners were able to buy shares, I believe as part of the IPO. I had to settle for being a year late and buying in the mid $20's (soon to be converted into the $4 range!).

However, it has not been an easy road to hold shares while stocks in other companies soared. I just did a quick Yahoo historical chart price pull for each July since IPO:

Early/Mid July prices and CAGR (Compound Annual Growth Rate, for stock price):
2010: $19
2011: $26 CAGR: 36.8%
2012: $34 CAGR: 33.8%
2013: $120 CAGR: 84.9%
2014: $218 CAGR: 84%
2015: $275 CAGR: 70.7%
2016: $216 CAGR: 50%
2017: $313 CAGR: 49.2%
2018: $310 CAGR: 41.8%
2019: $245 CAGR: 32.9%
2020: $1500 CAGR: 54.8%

So, you can see that after the nice gain in 2013, TSLA was not an accelerating investment- actually the CAGR peaked in 2013 and has declined steadily until this year's pop. And, this is not counting the volatility and wild swings. I know early investors who jumped out in 2013 thinking TSLA was over bought, some of them bought back in the $100 range. I know more investors, including former Tesla employees, who sold out during 2017-2019. Between Elon's tweets, SEC actions, manufacturing problems, delivery logistic problems, it was hard to hold TSLA. I know some early Roadster owners, but not all of them kept all their shares, and not all of them invested, or could invest, enough in the beginning.

Buying a Roadster was a stretch for me in 2011. I had to get a loan. I certainly didn't have money equivalent to another Roadster to invest in TSLA. I did, however, take most of the $12k I was going to put into the battery replacement program and instead put that into TSLA. Best. Decision. Ever. Even today, however, that's not island money.

 

[brianhn1]

Now we know why that Tesla tent appeared at the Berlin factory site last week.

They've just landed in UK about an hour ago...took an overnight red-eye from SoCal. Him and the team doesn't stop working weekend or weekdays.