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

[Prunesquallor]

Tesla (TSLA) short responds to Elon Musk’s invite with odd demands and side remarks

From the article:
Looking at Einhorn’s response, it appears that the TSLA short is not really taking an open-minded approach in responding to Musk’s letter. Instead, Einhorn seems to be doubling down on his allegations of fraud against Musk with his suggestion that the electric car maker’s finances don’t line up. With such a response, including snide, outdated references to GA4, it would not be very surprising if Tesla does not choose to go forward with Elon Musk’s initial invitation.

“Green light has also struggled over the past year, being unable to beat the market and declining 34% last year, its worst year since the fund was founded.”

Owwwich!

 

[Prunesquallor]

"I can watch videos about my car in my car. It's mind blowing!"

 

[ReflexFunds]

True, but presumably the options were bought when still out of the money when delta was lower. As price moves higher market makers will have to scale up their hedge.

The sheer number of open call options shows they are not all hedged 1-1 with stock though.
It looks like open call options corresponding to c.70 million shares. There are only 179 million shares outstanding (plus an additional c.35 million virtual/duplicated shares sold by shorts) and most are held by long term investors.

I do think the majority of share volume every day is likely option related. Expect this is just the same shares changing hands multiple times though while most shares are held long term.

Further to the talk on Tesla options and short interest earlier, I thought I'd add a comment on how this can drive the high volatility in Tesla stock price.

Due to the very high option open interest and very high short interest in Tesla, stock prices moves can be very self fulfilling.

For example, the high open interest in call options will be mostly delta hedged by market makers – requiring them to buy stock to hedge the call options they’ve sold. But as the stock goes up and more call options get closer to the money, delta increases and market makers have to buy more shares to maintain the hedge on their options – and these purchases act to drive the price up further.

At the same time, the higher share prices increase the $ size of the Tesla short position – therefore they need to invest more capital to maintain the same number of shares short. Many will not choose or be able to do this, so they will reduce the number of shares they are short to keep the same $ size of the position. To do this they need to buy Tesla shares – and these purchases act to drive the price up further.

Also, if a market maker has sold puts, these will be mostly delta hedged by shorting stock. But when the stock goes up delta on the put options reduces and market makers can reduce the size of the hedge - to do this they reduce the size of their short stock position and buy shares – and these purchases act to drive the price up further.

A higher share price can also attract new investors who now have more confidence in Tesla’s future - leading to share purchases which will drive the price up further.

Higher share prices also increase staff compensation and can increase staff incentives, moral and productivity – leading to better results – which in the long run will lead to a higher share price. It can also give customers more confidence in the company’s future and make them more likely to buy the car – leading to better results – which again leads to a higher share price. A higher share price also makes it easier to raise more capital with lower dilution.

Of course, this can also all work in reverse when the share price is going down. Which is why Tesla’s enemies have been so intent on producing FUD and employing the confidence crisis short and distort strategy to damage the company.

The feedback loop between market prices and company fundamentals is called Reflexivity by the way.

Similar self fulfilling feedback loops act with Wright's Law/Moore's Law/Experience curves. Wright's Law works because companies believe it is going to work so they invest in the growth that is needed to drive the mechanisms that lead to the learning rates. This increased cumulative production volume leads to lower production costs which leads to lower prices which creates the higher demand the volume was built for which leads to investment in further growth etc.

 

[PhaseWhite]

Latest NASDAQ short interest data just got released:

Date       TSLA shares short
10/31/2019 31,784,407
10/15/2019 37,186,793
 9/30/2019 36,058,919
 9/13/2019 38,883,688

On Oct 31 (when TSLA closed at $315) only about 5.3m shares were covered - which is a surprisingly slow rate of short covering 6 full trading days after Q3 earnings. Only 15% of the shorts covered on the jump from $254 to $315, 85% were still holding out.

From the $178 low in June this is a cumulative loss of 4.3 billion dollars in position value in just 5 months - that's going to hurt the trading power of the current shorts and reduce the influence they have on the stock price.

Ihor estimated 30.6m on October 31 - so his guess was off by about 1 million shares, but he got the magnitude of the move right.

I.e. the rally wasn't a short squeeze - 90%+ of the post Q3 buying was by new Tesla investors (!).

Personally I'm not unhappy that the Tesla shorts are this tenacious: may their journey be long, and may their losses be deep.

I agree most buyers are longs but I think this also shows it doesn’t take huge changes in supply/demand balance for TSLA stock to drive prices higher. The rally likely caused a large chunk of retail short covering that created significant price pressure and momentum that is supportive of longs. The good news is there’s still plenty of shorts to cover.

That said it’s going to take more effort to shake out the hedge funds and institutional shorts. Sustained profits will help but there’s still the overpriced arguments from those who doubt the growth story...

 

[EVNow]

Actually on the last day, during market hours, an MM may decide to un-hedge and drive the stock towards max pain (of their counterparties) to maximize profits. It's a judgement call and if it starts to go wrong against them, they'll just unwind it.

Is this a guess or do you have some information ?

I think there is very little to be gained by unwinding the hedge early and taking a risk of sudden changes to the market - either because of stock specific news or macro news (think of all those tweets). On Fridays, through out the day delta and the inventory of options will keep falling (for a given SP). This itself will result in MMs unwinding positions.

Making judgemental calls for hundreds of scrips every Friday with a continuously changing inventory & delta doesn't sound like a good process anyone would sign off. If there are people who can do it - they are better positioned in the investment groups where they can make a lot more money for the company.

 

[SpeedGoat]

It just occurred to me a significant change in the car market that I feel pretty stupid about not realizing earlier (most of you I assume already knew this, but I haven’t seen it included here in black and white):

The premium EV car market should be substantially bigger than what the ICE Market is, due to the extra “premium feature” that is present in the EV space that isn’t present in the ICE market: range.

Now here I am not talking about the difference between a model 3 and a model S/X, but between the low end auto sector - under 30k new & used (that traditionally dominates the car industry from a volume & revenue metric) - and the premium 30k segment.

For instance I am one of the uncivilized masses that never ever considered buying a premium car, and in fact have always bought used cars (Japanese imports under $10k). I simply do not care about any of the extra premium features that have existed on ICE cars. I don't care about leather seats/trims and 0-60 performance, because in the end my el-cheapo lets me drive the same speed and distance around town (actually my el cheapo usually goes a bit further on a tank of gas than most premium larger engine cars). This behavior is repeated amongst all my friends and relatives, and its got nothing to do with financial means (we are all middle class or better - no one I know owns a car that was purchased new despite earning plenty)

However as our next purchase will be an EV (we are of course considering a Tesla) - there is a huge difference between a new/near new premium EV and a low end EV: one lets you drive 2-3x further on a charge than the other. THIS IS A HUGE DIFFERENCE.

I think the above scenario probably fits a 100 million+ times amongst other typical buyers around the world who will be foregoing the cheap end of the market and buying a premium EV that will cost 2-3x what they usually spend on a car.

There are a lot of people who could buy a high end car that choose not to because it just isn't that important to them. I was driving a top of the line Civic before I bought my M3 LR. I went for Tesla because they made the only electric vehicles worth having, and I went for the LR (over the AWD and MR) because it was the best balance of practical performance and price.

Tesla is drawing a lot of demand from people who were previously buying higher spec Toyotas, Hondas, etc, who just didn't see the point in buying a "luxury" car previously.

 

[Krugerrand]

Further to the talk on Tesla options and short interest earlier, I thought I'd add a comment on how this can drive the high volatility in Tesla stock price.

Due to the very high option open interest and very high short interest in Tesla, stock prices moves can be very self fulfilling.

For example, the high open interest in call options will be mostly delta hedged by market makers – requiring them to buy stock to hedge the call options they’ve sold. But as the stock goes up and more call options get closer to the money, delta increases and market makers have to buy more shares to maintain the hedge on their options – and these purchases act to drive the price up further.

At the same time, the higher share prices increase the $ size of the Tesla short position – therefore they need to invest more capital to maintain the same number of shares short. Many will not choose or be able to do this, so they will reduce the number of shares they are short to keep the same $ size of the position. To do this they need to buy Tesla shares – and these purchases act to drive the price up further.

Also, if a market maker has sold puts, these will be mostly delta hedged by shorting stock. But when the stock goes up delta on the put options reduces and market makers can reduce the size of the hedge - to do this they reduce the size of their short stock position and buy shares – and these purchases act to drive the price up further.

A higher share price can also attract new investors who now have more confidence in Tesla’s future - leading to share purchases which will drive the price up further.

Higher share prices also increase staff compensation and can increase staff incentives, moral and productivity – leading to better results – which in the long run will lead to a higher share price. It can also give customers more confidence in the company’s future and make them more likely to buy the car – leading to better results – which again leads to a higher share price. A higher share price also makes it easier to raise more capital with lower dilution.

Of course, this can also all work in reverse when the share price is going down. Which is why Tesla’s enemies have been so intent on producing FUD and employing the confidence crisis short and distort strategy to damage the company.

The feedback loop between market prices and company fundamentals is called Reflexivity by the way.

Similar self fulfilling feedback loops act with Wright's Law/Moore's Law/Experience curves. Wright's Law works because companies believe it is going to work so they invest in the growth that is needed to drive the mechanisms that lead to the learning rates. This increased cumulative production volume leads to lower production costs which leads to lower prices which creates the higher demand the volume was built for which leads to investment in further growth etc.

Point being; welcome to have your cake and eat it too.

 

[RobStark]

Should be done in 2025. Not quite GF3 construction speed. Lucid Motors begins work on massive Arizona assembly plant for Air EVs

GF1 isn't done. It is only 30% complete.

 

[capster]

Further to the talk on Tesla options and short interest earlier, I thought I'd add a comment on how this can drive the high volatility in Tesla stock price.

Due to the very high option open interest and very high short interest in Tesla, stock prices moves can be very self fulfilling.

For example, the high open interest in call options will be mostly delta hedged by market makers – requiring them to buy stock to hedge the call options they’ve sold. But as the stock goes up and more call options get closer to the money, delta increases and market makers have to buy more shares to maintain the hedge on their options – and these purchases act to drive the price up further.

At the same time, the higher share prices increase the $ size of the Tesla short position – therefore they need to invest more capital to maintain the same number of shares short. Many will not choose or be able to do this, so they will reduce the number of shares they are short to keep the same $ size of the position. To do this they need to buy Tesla shares – and these purchases act to drive the price up further.

Also, if a market maker has sold puts, these will be mostly delta hedged by shorting stock. But when the stock goes up delta on the put options reduces and market makers can reduce the size of the hedge - to do this they reduce the size of their short stock position and buy shares – and these purchases act to drive the price up further.

A higher share price can also attract new investors who now have more confidence in Tesla’s future - leading to share purchases which will drive the price up further.

Higher share prices also increase staff compensation and can increase staff incentives, moral and productivity – leading to better results – which in the long run will lead to a higher share price. It can also give customers more confidence in the company’s future and make them more likely to buy the car – leading to better results – which again leads to a higher share price. A higher share price also makes it easier to raise more capital with lower dilution.

Of course, this can also all work in reverse when the share price is going down. Which is why Tesla’s enemies have been so intent on producing FUD and employing the confidence crisis short and distort strategy to damage the company.

The feedback loop between market prices and company fundamentals is called Reflexivity by the way.

Similar self fulfilling feedback loops act with Wright's Law/Moore's Law/Experience curves. Wright's Law works because companies believe it is going to work so they invest in the growth that is needed to drive the mechanisms that lead to the learning rates. This increased cumulative production volume leads to lower production costs which leads to lower prices which creates the higher demand the volume was built for which leads to investment in further growth etc.

Very interesting and helpful. Thank you.

My thinking recently has been that the professional shorts are, for the moment, staging a fighting retreat — slowly trying to extricate themselves but resorting to some shorting to slow the rise when necessary. The ~32 million shares short at 10/31 was consistent with my expectations whereas Ihor’s weird tweet at one point about ~25 million shares short seems a joke.

These shorts are, I think, trying to get to a position they can defend until Tesla’s Q4 progress becomes clearer. For example, they will try to take any new wind out of the sails from the pickup reveal, but won’t be as willing to push down hard — except in the unlikely event of an actual fail in the revealed Cybertruck (not meaning the wailing and weeping we can expect from the press).

Predicting their strategy towards the end of the year through the next quarterly report and 10Q is a bit trickier. The obvious way they might go is to take advantage of the short holiday weeks for their traditional slam.

However, that will be dicey this time given probable delivery volume and especially if China volume is really solid. Of course, everyone will be looking at the size of the profit and it’s affect on the clock for S&P 500 inclusion.

A lot will depend on where they can and do hold the line as we approach the end of the year.

If they can keep the SP below, say, $400, I’m not sure they’ll be able to bounce things down in the holidays and beginning of next year.

On the other hand, if the SP is above $400 especially well above that level, then maybe they could create significant downdrafts around the end of the year. Of course, by then they will have taken further, significant losses and lost even more ‘dutiful’ followers.

Either way, they’ll be taking some more of their medicine.

Just wool gathering here, not advice. As for myself, I will continue to hold.

 

[Mobius484]

Whew...As for myself, glad I’m not short... that sounds like a mess...

 

[EVNow]

Lithium wars are coming.

Lee J. Carter on Twitter

It's not a coincidence that there's a coup in Bolivia just a week after Morales refused to allow private exports of Lithium to Europe. These coups are always to steal resources. It's the way capitalism expands. Electric cars will now be built with Bolivian blood.
​

ps : I'm not endorsing the statement. But I'm sure we'll here this often going forward.

 

[Artful Dodger]

"What we've got here is a failure to charge".



Polizei Berlin: "der Dicke nicht". Translation: 'ICEhole'

Danke, Polizei Berlin

 

[Fred42]

Lithium wars are coming.

Lee J. Carter on Twitter

It's not a coincidence that there's a coup in Bolivia just a week after Morales refused to allow private exports of Lithium to Europe. These coups are always to steal resources. It's the way capitalism expands. Electric cars will now be built with Bolivian blood.​

It doesn't say how economic this would be.
Is it Possible to Extract Lithium from Seawater.
Adsorption, desorption, and crystallization
This approach leverages desalination waste streams rather than virgin seawater. This is because seawater desalination plants typically leverage RO, which produces both a purified water stream and a reject stream consisting of a concentrated brine solution. Reject streams are typically discharged to the sea, however, it is possible to recover lithium and other materials from the RO reject brine. This is typically accomplished via a multistep process involving the sequential application of chemical reactants to adsorb, desorb, and crystallize the lithium (or other desired constituents) in the brine. The precipitated salt is then filtered and the brine discharged.

 

[RobStark]

Lithium wars are coming.

Lee J. Carter on Twitter

It's not a coincidence that there's a coup in Bolivia just a week after Morales refused to allow private exports of Lithium to Europe. These coups are always to steal resources. It's the way capitalism expands. Electric cars will now be built with Bolivian blood.​

It has nothing to do with the fact Morales has served 3 terms and claimed he won a fourth when the Organization of American States found extreme irregularities, said the vote should be annulled and new elections held.

And the Bolivian Constitution limits Presidents to two terms. And the Bolivian people reaffirmed the term limits in a referendum. And "socialist" Bolivia's GDP per capita continues to be half of neighbor free market Peru.

That has nothing to do with widespread riots. It is German Intelligence operating on behalf of ACI Systems and Volkswagen.

 

[Fred42]

And "socialist" Bolivia's GDP per capita continues to be half of neighbor free market Peru.

A relative and friend recently took a lengthy motorbike trip through South America and reported that Peru is a miserable place.

 

[ggr]

Our Model 3 was 5% slower than it should have been. I had to wait billions of microseconds for service to fix it. Had to press the button on my phone to get it done. How can people tolerate service like this?

/s just in case.

 

[heltok]

Very interesting and helpful. Thank you.

My thinking recently has been that the professional shorts are, for the moment, staging a fighting retreat — slowly trying to extricate themselves but resorting to some shorting to slow the rise when necessary. The ~32 million shares short at 10/31 was consistent with my expectations whereas Ihor’s weird tweet at one point about ~25 million shares short seems a joke.

These shorts are, I think, trying to get to a position they can defend until Tesla’s Q4 progress becomes clearer. For example, they will try to take any new wind out of the sails from the pickup reveal, but won’t be as willing to push down hard — except in the unlikely event of an actual fail in the revealed Cybertruck (not meaning the wailing and weeping we can expect from the press).

Predicting their strategy towards the end of the year through the next quarterly report and 10Q is a bit trickier. The obvious way they might go is to take advantage of the short holiday weeks for their traditional slam.

However, that will be dicey this time given probable delivery volume and especially if China volume is really solid. Of course, everyone will be looking at the size of the profit and it’s affect on the clock for S&P 500 inclusion.

A lot will depend on where they can and do hold the line as we approach the end of the year.

If they can keep the SP below, say, $400, I’m not sure they’ll be able to bounce things down in the holidays and beginning of next year.

On the other hand, if the SP is above $400 especially well above that level, then maybe they could create significant downdrafts around the end of the year. Of course, by then they will have taken further, significant losses and lost even more ‘dutiful’ followers.

Either way, they’ll be taking some more of their medicine.

Just wool gathering here, not advice. As for myself, I will continue to hold.

My 2cents. I was part of a massive selloff after a huge runup in another domain and sat and sold for hours every day for about a month, all day looking and red and green numbers flashing through the screen like The Matrix.

While it is hard to unload huge amounts without crashing the market, understand that it’s not a team effort, it is short vs short and long vs long when it comes to unloading.

As a medium whale you can keep track of the bigger whales, but in the end it’s a few percent gain for a lot of lost sleep if you really try to be greedy. (Fwiw I tried to be greedy, next time I will probably be less greedy.) If you have a position of say $1M you want to cover you might aswell get it over with in one day, do 10 sell walls 0.1% above last trade of $100k spaced out randomly over the day, if not filled within 5minutes move the sell wall. If it is $100M you might do it in week and crash the market a percent or two. Often you look for a buy wall on the other side and just eat that wall, crash the market 0.1-0.5% which it recovers the second after your order but at least you can go back to drinking margaritas. There are some bots making some percent profit for trades inbetween the walls, but they also compete with each other driving down margins.*

The bigger players often hire people to do the selling for them over a time, often these people just supervise a bot doing it for them. It can be a scripted bot they just sells 10shares/second, sure you lose a litte margin to bots trying to exploit you, but the bots will compete for the profit so telegraphing your strategy is not really that expensive.


My take on current short interest. Shorts have been covering. This has likely caused and also been caused by the raise in the share prices. I would guess that this trend will continue, but also that this is already priced in. With more shorts covering, S&P buying there will also be a lot of people selling just waiting to do this until S&P inclusion.


People disagree on the future value of TSLA, we place our bets and see who was right. I love this game! Some shorts still believe that Tesla is not and never will be profitable. Some longs believe that Tesla is and will be profitable. Imo it is wise to not place total confidence in your beliefs, I believe that Tesla very likely is profitable, would be very surprised if Tesla has managed to cook the books. But I could be wrong, I have been wrong before and will be wrong again. But I am happy that there is a big disagreement, that means that there is a chance to make money if you are right and I’d like to think that I am a long term winning player in the guessing game.



*For some periods in time the market has been seriously broken, see Flash Boys

 

[RobStark]

A relative and friend recently took a lengthy motorbike trip through South America and reported that Peru is a miserable place.

And they are 50% better off than Bolivia. So imagine how miserable Bolivia is currently?

 

[SPadival]

“Worth it”
- @teslacharts , when asked by @bethanymac12 about the M2M losses on $TSLAQ shitputs

S Padival on Twitter

 

[JustMe]

Gali @ Hyperchange has a new video up highlighting Tesla’s various safety advantages:

The main takeaway is that significantly fewer accidents occur with AP engaged than without it. He makes a good point that this type of data will be essential for regulatory approval.

Definitely off-topic, but I actually measured Gali at 3 words per second, exactly twice that of Jack Rickard of EVTV (1.5 wps)

have I mentioned that I have too much time on my hands?