I think this is a pretty good guess as to the make up of the short's.Being short/bear a stock actively is a difficult mental state to break out of. I think there are two main categories of shorts.
"Type I" shorts are the 'genuine believers', who are genuinely convinced that:
These "Type I" shorts are only going to dig in their heels.
- Elon is a fraud and the Antichrist reborn, who only wanted to go to that Thai cave to drown little kids.
- Tesla is a zero, a nil, a nada, and that in fact NASDAQ should introduce the concept of negative prices so that their inevitably successful short position can run all the way to -$100 per share.
- That the Tesla quarterly statements are obviously manufactured, that this is a second Enron and Theranos, where Enron hero Jim Chanos has unmasked a level of fraud for the history books.
- (Bonus: EVs are an expensive fad for rich people who want to kill the sweet smell of gasoline. That gasoline and its exhaust is carcinogen is just as much of an un-American lie of the tree-huggers as this global warming nonsense which was only concocted to line the pockets of Al Gore.)
- I.e. they are shorting Tesla because they hate Elon and hate the change Tesla stands for.
Then there's "Type II" shorts:
Then there's also "Type III" shorts:
- They are reasonably good investors and have read plenty of quarterly statements and made some good investment decisions in the past. They consider themselves to be rational investors.
- They really suck at shorting high-tech firms though, and have trouble valuing hyper-growth companies that combine new disruptive technologies with a significant first-mover advantage - like Tesla does.
- To them Tesla is 90% of what the past 8 years of their quarterly statements tell them: a big, big mess and an overvalued company in big liquidity trouble. They only see a negative net working capital, awful gross margins, ridiculously high R&D spending and ignore the intangibles potentially worth trillions (literally), such as automotive or the new high-tech EV market that could easily be 2-3 times the size of the automotive market - because they are not on the balance sheet.
- I.e. they are shorting Tesla because of the negative picture their financials paint, they believe that Tesla is a hype stock and a bubble of a seriously overvalued company which needs to trim its stock price - and why not earn money while the trimming is done.
Of the ~34 million shares short position on TSLA I believe most are owned by "Type III" shorts: well over 20 million I believe. A couple of million (up to 5) are owned by "Type I" shorts, mostly through small retail positions - the remaining 5-10 million by "Type II" shorts.
- Top people of New York hedge funds, moving billions of dollars. Top education, very good grasp on how the markets work, very good access to the markets, and a mostly cynical view of all things life.
- Most of them have probably never performed honest work in their lives and have no trouble shorting an American manufacturing company if they think they can make a buck. They never use mass transport (daily helicopter transport is so much less suspect to traffic jams thank you very much) and are rarely exposed to the toxic air of inner cities either, so the 'green' and planet saving aspects of EVs don't connect with them. They obviously also don't see all that many Teslas.
- These people (correctly) identified Solar City and then Tesla as a potential target of an attack against their sources of financing: both companies were/are 'leveraged' to a great degree with exposure to constant sources of financing, roll-over of debt and in the case of Solar City the constant flow of new short term funding backed by their long term loans and leases. If funding dries up then stock price crashes.
- These guys, possibly in coordination, initiated tens of millions worth of TSLA shorts originally done against SCTY but now inherited by Tesla.
- These guys have both media contacts and extensive contacts all around the financial world: analysts, rating agencies, you name it. They know how to work the news against Tesla and are probably not shy to perform a dirty trick or two - they don't care if it's illegal as long as it does not result in a prison sentence.
Here's how these categories of shorts act usually:
Mark Spiegel is IMHO a Type-III wannabee who is in reality Type-I. I wouldn't be surprised if some of the funds in his 'hedge fund' originated from Type-III shorts though - in exchange for the media noise he is generating.
- "Type I" shorts are the loudest and probably make up 90% of the Twitter noise. They actually have the smallest short position in total.
- "Type II" shorts try to lend credibility to "Type I" shorts.
- "Type III" shorts are the most silent but also the most dangerous ones: not just due the high stake they have, but also due to the asymmetrically large influence they have on sentiment, through their media and financial world contacts.
To me the following looks probable:
At least that's how I imagine the sociology of TSLA shorts - a lot of it is speculation and conjecture though.
- "Type-I" shorts will be forced out of their (often over-leveraged) positions once the price breaks through $390-ish price levels. The 'forcing' will be done by their brokers as their margin levels go negative. That will give a nice little pop to the breakout. (Think TT007 but in inverse.)
- "Type-II" shorts are probably not over-leveraged but they are going to take losses. Q2 financials are technically still looking pretty awful to an old-fashioned accountant, so I can see a fair number of them 'holding' their short positions for the time being. Also, higher price levels should convince them that Tesla is even more overvalued, which is a really bad state of mind to be in, and which can result in pretty bad investment decisions. They'll cover on Q3, or maybe even on early October delivery numbers.
- "Type-III" shorts are possibly in a 'bear trap' already (average SCTY shorting price levels are $240-$260? Then there's 2 years of short interest - their true break-even price might be as low as $200 at this point - and then they missed one of the biggest bull markets of recent memory ...), and they'll be in even more of a trap over $350. They will try everything in their power. I'm genuinely curious what they'll do once the end of quarter mark-to-market window dressing fails before Q3: people will be expecting a positive surprise, so unless something negative happens to Tesla or to the global markets, I just cannot see a significant drop in the share price prior the quarterly report. Once that happens they might be forced by their own investors to cover, and that could be pretty disorganized, because each of the Type-III shorts is probably watching closely what the other big shorts are doing - if one runs for the door the others will try to go through first. I don't see them having the backing to hold out until Q4 though, unless they are managing their own personal funds, which most of them are not doing I think.
After reading "the Divide" and also Jessy's thesis it makes sense.
The type III shorts will kill and dismember anyone who stops them from making more money so I expect the SP to be vulnerable for a time.
If Tesla can get to self funding then they will run and move to next opportunity to add to the billions they already have.
