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

[MikeC]

That means, roughly, that if you give chanos $1M, he will short $900K worth of stuff, and go long $1.9M worth of stuff. This product is actually 100% net long, like a typical mutual fund might be - but it has 280% gross leverage. The $1.9M worth of long stuff is usually just the US market; something like just buying $1.9M worth of SPY.

Can someone help me with this math? If you short $900k of something, you have to give $900k in cash (or other) collateral. That leaves you $100k left to go long.

You don’t get cash for shorting. What am I missing?

 

[dc_h]

Jay in Shanghai on Twitter

It seems like it's the other half of GF3 for Model Y production. Probably another year and a half of construction at GF3.

Although there seems to be two extra blocks on left side of these pics. Maybe not all for Model Y.

Edit: also not sure if these are fan renders or something from Tesla itself.

The first phase can build 5000 cars a week. Likely all 3. The second building will likely start right after the battery pack building is done. If that’s for the Y, they’ll have 10,000 weekly 3Y production. Any reason it won’t go up faster then building 1? No stamping press and it will be a close copy of building 1 assembly.

 

[dc_h]

Can someone help me with this math? If you short $900k of something, you have to give $900k in cash (or other) collateral. That leaves you $100k left to go long.

You don’t get cash for shorting. What am I missing?

Margin.

 

[CorneliusXX]

Insanely obfuscatory and absolutely ridiculous

I think the separation needs to be made between the tool (long/short fund) and the person wielding it (Chanos). The L/S fund is a clever bit of financial structuring. Chanos is probably a criminal trying to juice his returns by literally performing a confidence trick.

 

[MFranc123]

Can someone help me with this math? If you short $900k of something, you have to give $900k in cash (or other) collateral. That leaves you $100k left to go long.

You don’t get cash for shorting. What am I missing?

You do get cash for shorting. If I short $1000 worth of stock, I get paid instantly $1000. The profit or loss I realize depends on whether I can buy back the shares with less than the $1000 I got paid instantly.

If chanos gets $1M from an investor and shorts $900K, that means he's borrowing $900K worth of stuff and instantly selling it. Now he has a total of $1.9M cash (but he's still worth $1M, as the $900K of cash are offset by -$900K of liability - the stock he's short).

Small retail accounts like mine have a maximum leverage of about 2. Also, if I receive $1000 because I am short $1000 worth of stock, my account is still worth whatever it was worth before doing the short, and I can't use these $1000 to buy additional things. Institutional funds can leverage much more, and effectively finance the long positions with the $1000 cash they receive by shorting.

Remember, when you short something, you loan the shares from someone, which "costs" you nothing, and then you immediately sell them.
In a small retail account, you just make some small nominal interest from the cash you receive and have to keep there as collateral. Someone with a 190/90 fund will instead use the cash to buy more stuff on the long side.

 

[MP3Mike]

Can someone help me with this math? If you short $900k of something, you have to give $900k in cash (or other) collateral. That leaves you $100k left to go long.

You don’t get cash for shorting. What am I missing?

You only have to provide 25-50% cash of your shorted position. So $900k cash gives to the ability to short up to $3.6 million worth of stock, and the money from shorting can potentially be put into other investments.

 

[Artful Dodger]

That elevated metal structure is not extending in the direction of the main factory building.

Lol, did you read this part?

elevated track/conveyor frame (in white) under construction

Wait for it to make a right turn. It'll likely continue at that elevation all the way to the main factory (like an overhead tram), then make another 90 degree right turn to cross the road at height w/o interrupting the flow of truck traffic.

Cheers!

 

[MikeC]

Margin.

You only have to provide 25-50% cash of your shorted position. So $900k cash gives to the ability to short up to $3.6 million worth of stock, and the money from shorting can potentially be put into other investments.

Got it, thanks.

You do get cash for shorting. If I short $1000 worth of stock, I get paid instantly $1000. The profit or loss I realize depends on whether I can buy back the shares with less than the $1000 I got paid instantly.

If chanos gets $1M from an investor and shorts $900K, that means he's borrowing $900K worth of stuff and instantly selling it. Now he has a total of $1.9M cash (but he's still worth $1M, as the $900K of cash are offset by -$900K of liability - the stock he's short).

Small retail accounts like mine have a maximum leverage of about 2. Also, if I receive $1000 because I am short $1000 worth of stock, my account is still worth whatever it was worth before doing the short, and I can't use these $1000 to buy additional things. Institutional funds can leverage much more, and effectively finance the long positions with the $1000 cash they receive by shorting.

Remember, when you short something, you loan the shares from someone, which "costs" you nothing, and then you immediately sell them.
In a small retail account, you just make some small nominal interest from the cash you receive and have to keep there as collateral. Someone with a 190/90 fund will instead use the cash to buy more stuff on the long side.

I think you're confused about the mechanics of shorting. You don't get $900k cash when you sell your borrowed position. It's not free money, banks require $102% of the value in collateral. So it will cost you $918k in collateral for the short position and all you'll have to show for it is being short the stock. As the other posters explained, the extra money for the long position comes from margin.

Edit:

Collateral

Short Sale > Collateral
Borrowing stock requires that the borrow post collateral of the quantity x underlying share price to the lender in exchange for the shares. Collateral is returned to the borrower when the shares are returned to the lender. The lender is required to pay any applicable interest on the collateral to the borrower.

In determining the cash deposit required to collateralize a stock borrow position, the general industry convention is for the lender to require a deposit equal to 102% of the prior day's settlement price, rounded up to the nearest whole dollar and then multiplied by the number of shares borrowed. As borrow rates are determined based on the value of the loan collateral, this convention impacts the cost of maintaining the short position, with the impact being most significant in the case of low-priced and hard-to-borrow shares. Account holders may view this adjusted price for a given transaction in the "Non-Direct Hard to Borrow Details" section of the daily account statement.

 

[MFranc123]

You don't get $900k cash when you sell your borrowed position. It's not free money

OK, I might be wrong here, but this is my understanding of the matter:

You do get $900K cash when you short $900K worth of stock. You can try it if you have a margin account by shorting a single share of something like iwm or SPY. You'll see your dollar balance go up.

The reason it's not free money is because you assume at the same time a liabiltity worth the same amount. If you have $1M and short $900K worth of stock, you now have $1.9M cash, and -$900K equity. The value of your account is still $1M because when you add up the cash and the equity in the short you get to $1M. This puts you at a leverage of about 0.9x. Your risk is the $900K worth of stock your shorting, against the $1M of value of your account. But as we previously said, institutional investors can use much more leverage in their account than that. That's why they can use their $1.9M of cash to buy something like SPY without having to borrow anything, financing it from their short.

 

[MP3Mike]

I think you're confused about the mechanics of shorting. You don't get $900k cash when you sell your borrowed position. It's not free money, banks require $102% of the value in collateral. So it will cost you $918k in collateral for the short position and all you'll have to show for it is being short the stock. As the other posters explained, the extra money for the long position comes from margin.

It certainly isn't free money, but you do get it. You do have to pay the daily borrow cost to carry your short position, but that is often cheaper than margin costs. But I'm pretty sure the hedge funds can invest that money into long positions. Of course as the value of the stocks they have shorted changes so does the amount of collateral they have to provide. So it is possible as a shorted stock goes up that they actually have to bring in more money or close out some of their short position to keep the collateral level correct.

 

[MikeC]

OK, I might be wrong here, but this is my understanding of the matter:

You do get $900K cash when you short $900K worth of stock. You can try it if you have a margin account by shorting a single share of something like iwm or SPY. You'll see your dollar balance go up.

The reason it's not free money is because you assume at the same time a liabiltity worth the same amount. If you have $1M and short $900K worth of stock, you now have $1.9M cash, and -$900K equity. The value of your account is still $1M because when you add up the cash and the equity in the short you get to $1M. This puts you at a leverage of about 0.9x. Your risk is the $900K worth of stock your shorting, against the $1M of value of your account. But as we previously said, institutional investors can use much more leverage in their account than that. That's why they can use their $1.9M of cash to buy something like SPY without having to borrow anything, financing it from their short.

If your dollar balance goes up but your liability goes up equally, your purchasing power hasn't gone up. But I think we're in agreement that it's leverage that allows $1M to be used to go $0.9M short and $1.8M long.

 

[MFranc123]

@StealthP3D, let me reiterate that I do not know whether Chanos is operating morally or he is guilty of all the accusations I'm reading in these last few pages. I will try to research them to make up my own mind. I was not defending anything. I hoped to clear some confusion regarding the mechanics of most short sellers for some people, that's all.

Many people here already know how these kinds of funds work (as many people replying to me explained what I was trying to explain, but better, and effectively gave me homework with stuff to study I did not know about).

It seems like I did not go about this in the right way. I can understand this reaction and why in a Tesla forum shorts are not very welcome, but I would ask you to consider whether I'm trying to poison discussion or just trying to chat in good faith with people with a viewpoint that is different from my own, trying to learn from it, and whether my behavior warrants the animosity you seem to have towards me.

That's a twisted way to look at it. The position itself either loses money or makes money. The more it makes, or the less it loses, the better it is for the fund. The fact that it exists in the first place in order to increase leverage makes no difference to this fact. A fund manager wants all the positions in the fund to make as much as possible (or lose as little as possible).

This is factually incorrect. One of the main takeaways from modern finance research is that you have to consider your portfolio as a whole, not as single positions, to properly construct and evaluate it. A nobel prize has been given for a work in this area, which is called Modern Portfolio Theory. A portfolio consisting of only shorts should be and is considered completely differently from one that uses shorts as hedging.

If your dollar balance goes up but your liability goes up equally, your purchasing power hasn't gone up. But I think we're in agreement that it's leverage that allows $1M to be used to go $0.9M short and $1.8M long.

I think we're in completely in agreement about everything, actually. I might just be bad at... words.
Another poster did say about my post that it was "Insanely obfuscatory and absolutely ridiculous".

 

[Thumper]

I took the Factory Tour about 2 weeks ago. Big take away was so many smiling and waving employees. Everyone who even noticed us seemed very happy to be there. We exchanged a lot of thumbs up. The tour is pretty noisy. I hadn't been there since the Model S party in October of 2011. Highly recommend if you can get there.

 

[Artful Dodger]

I believe @KarenRei said this was a frame to carry piping. There were pipes lined up around it.

Yeah, its certainly possible that its a utilities access bridge. We see such a structure at the SW corner of the main factory, bridging over from the utilities building carrying pipes.

However I don't see a destination building for such a bridge in the plan or current construction. Looking at the newly released site plan again, I've added 2 annotations:

1. Utilities bridge (SW Corner of main factory bldg)
2. Location of Bty Workshop relative to the site

As you can see, the bty workshop is already on the Southern edge of the site. There is no additional space on site for a further bldg directly South from the white bridge structure now under construction on the SE corner (bottom-right) of the bty workshop.

Therefore, that bridge must continue by making either a right or a left turn, else its a bridge to nowhere. I'm willing to suspend disbelief as to its purpose until we see which way the bty workshop bridge goes next. However, if its a utilities bridge turning to the East, then the question remains unanswered how they transfer completed bty packs.

Cheers!

 

[dc_h]

Yeah, its certainly possible that its a utilities access bridge. We see such a structure at the SW corner of the main factory, bridging over from the utilities building carrying pipes.

However I don't see a destination building for such a bridge in the plan or current construction. Looking at the newly released site plan again, I've added 2 annotations:

1. Utilities bridge (SW Corner of main factory bldg)
2. Location of Bty Workshop relative to the site

View attachment 475055

As you can see, the bty workshop is already on the Southern edge of the site. There is no additional space on site for a further bldg directly South from the white bridge structure now under construction on the SE corner (bottom-right) of the bty workshop.

Therefore, that bridge must continue by making either a right or a left turn, else its a bridge to nowhere. I'm willing to suspend disbelief as to its purpose until we see which way the bty workship bridge goes next. However, if its a utilities bridge turning to the East, then the question remains unanswered how they transfer completed bty packs.

Cheers!

The bridge goes directly to the utility power line. Could be massive power going into the battery pack building to charge up to 15,000 packs every week when the plant is running at capacity. More packs if they build packs for Tesla Energy onsite.

 

[Sancho]

Shorting, by itself, is no more or less exemplary activity than long passive investing.

But many shorts also spew FUD and/or try to manipulate the market, and that is heinous (some longs also do this, but it’s relatively rare).

What to do about the shorts that act heinously? In rare cases a criminal action, or a direct refutation by the company or others, is necessary.

In most cases, ignoring them is by far the best answer. Tesla will succeed by continuing to perform effectively, and by conducting positive PR (which it will get better at doing as it matures).

The amount of handwringing in this forum over a relatively small number of cretins, who collectively have dubious impact and influence, detracts from the otherwise superbly informative and interesting posts I have read here over the years.

 

[mongo]

In the Oct 31 GF3 drone video, we got another clue as to how battery packs will be transferred from the bty workshop to the main factory building.

Notice the elevated track/conveyor frame (in white) under construction in this detail taken of the SW corner of the bty workshop:

View attachment 474991

The bridge goes directly to the utility power line. Could be massive power going into the battery pack building to charge up to 15,000 packs every week when the plant is running at capacity. More packs if they build packs for Tesla Energy onsite.

Yah, there are also those foundations block in the previous video that seem to end where this raised structure meets them. Power feeds from the substation seems reasonable. Though I'd expect the cells to come in fairly charged from the manufacturer (until Tesla does that on site also).

I noticed in the site layout image that the outdoor parking lot by stamping turned into a building. Is the test track missing also?

 

[Artful Dodger]

The bridge goes directly to the utility power line. Could be massive power going into the battery pack building to charge up to 15,000 packs every week when the plant is running at capacity. More packs if they build packs for Tesla Energy onsite.

If that's the case, then thats equally an argument that the bty workshop is intended to build bty cells, since newly built packs don't need to be charged (cells are already charged) and the vast majority of energy used to build cells is during the SEI formation stage (consisting of 3 to 4 cycles of charge/discharge and about 80% of the total energy needed for the produciton process).

Not sure if those large pipes seen in other drone videos are suitable as electrical conduits, although the building will certainly need other utilities as well. As always, I'll take the advice of experts. Paging @mongo

Cheers!

 

[Artful Dodger]

I noticed in the site layout image that the outdoor parking lot by stamping turned into a building. Is the test track missing also?

Yeah, I think that image is cut off, as it doesn't quite show the current bty workshop construction. The building I've pointed at in the annotation is currently where the paved lot with ~50 Supercharger stalls sits, and the bty workshop would be off-screen to the right.

I suspect that's an older plan shown in that image.

Cheers!

 

[StealthP3D]

Can someone help me with this math? If you short $900k of something, you have to give $900k in cash (or other) collateral. That leaves you $100k left to go long.

You don’t get cash for shorting. What am I missing?

Actually, you do. You just sold shares that you borrowed.

Crazy, eh?