TSLA Market Action: 2018 Investor Roundtable

[ggr]

Begging an indulgence from the audience and Lord Vetinari. I have a friend who doesn't do much investing, drives a Tesla, believes in Elon, doesn't read TMC, who just asked me for my understanding of what's going on, why isn't Tesla trading at or near $420. So as not to waste the typing, here is what I replied.

Consensus on the TMC investor's lists (upward of 1000 messages!) is:

1. The only reason the stock isn't up is that FUDsters are saying that Elon is lying about having backing.
1.1. Some are also saying that Elon/Tesla are breaking security laws by tweeting the announcement and not filing docs with SEC. But this too is just FUD, although a lot of media and know-nothings are falling for it.

2. It really should be a no-brainer to buy if you have any faith in Elon at all... you're right.

3. His promise to allow existing stockholders to somehow stay involved is generating a lot of discussion, but no-one knows exactly what the mechanism might be.
3.1. Particularly, foreign stockholders might be SOL.
3.2. Holdings in tax advantaged accounts (401k, IRA) might also be SOL.
3.3. Some stockholders (eg. me) think that the offer undervalues Tesla, and if he/we can't figure out how to stay invested, might actually vote against it.

4. Lots of talk about "short squeeze", which could easily drive the price well above $420. The deal might get sweetened, or fail to go through because the offer is less than the current stock price.

5. Tesla is performing really well at the moment, sustaining about 750 M3/day. (We should get ours in the next week or two.) Everyone is overlooking this with all the sturm und drang about going private.

I'm less diversified than I was... have sold other stuff and bought stock and call options. Of course, not advice. I wanted to send the appropriate pithy quote about "Opportunity knocks once" but when I went to look up the correct attribution, it turns out there are many such quotes. One that seems appropriate is:

 

[Johan]

Shirts, shorts, short shorts, skirts, whatever - it's all about the garments right?

 

[Ratanpara]

I think Elon has plan to burn Shorts in a way that no body really knows at this point otherwise why would he say to Fred from Electrek that this burn will be bigger than VW.

 

[Johan]

I think Elon has plan to burn Tesla in a way that no body really knows at this point otherwise why would he say to Fred from Electrek that this burn will be bigger then VW.

I think as with all of his other "secret" plans it's hiding in plain sight.

The Secret Tesla Motors Master Plan (just between you and me)

The plan is this: De-listing Tesla from Nasdaq with a guaranteed buy-out price of $420. Funding secured. End plan.

30% short interest. What follows is common sense.

Elon is a first principles reasoning type of guy. Occam's razor and all that.

 

[saniflash]

It seems that the consenus in this thread about the timeframe the de-listing will happen in is 6 months (i.e., ~Feb 19)

BUT until then, if production ramp goes according to plan, we will see 2 profitable quarters (report on Q3 in Nov, report on Q4 in Feb (likely)).

If we see 2 profitable quarters before the de-listing, share price will most likely be above $420 by the time the de-listing occurs (share price should rise overproportionally on these news because it rejects one short hypothesis and thus should trigger the exit of many of them).

So EITHER the $420 is really low-ball OR the time frame is much shorter than 6 months.

 

[Fact Checking]

It will also be clear to everyone how many shorts are left.​

I agree with all the substance of your post. The quoted part is easy what most peaks my curiosity.

So I meant that in the following sense:

• There's bi-weekly short interest updates from NASDAQ, with some reporting delay, which forms a broad, official short interest baseline.
• There's daily short interest updates from S3 Partners which appear to be accurate: they were showing ~35m shares short for end of last week.
• (I'm ignoring the options space which could significantly amplify the short squeeze. It cannot dampen it I believe, as there's not nearlt enough OTM calls to cover 35m shares short interest. The put/call ratio is still very high.)
• If a short squeeze started now then we could track the "shorts left" count intraday by looking at forced buys: they will account for most of the buy activity. For example during the VW squeeze I believe the buying activity and volume gave a good upper limit of how many shares must still be short.
• This gives an "easy" intraday metric for the progression of the squeeze. For example high volume 20+ shares traded would probably signal that half of the squeeze is already over.

Note that this is imprecise:

• there will be shorts who have enough collateral to survive,
• there will be shorts with high strike price call options as a hedge,
• there will be momentum buying by longs,
• there might be options-derisking by market makers.
• there might be new shorts trying to sell at the top

OTOH there are probably also sellers of calls getting squeezed.

I suspect that even though outright naked short selling is illegal there must be a not-insignificant number of shares sold short through mechanisms that amount to more or less naked shorting, or any least partially. Most straightforward example being ITM/ATM calls sold by shorts; the holder of a call option can choose to exercise the call option rather than sell it [back to whoever issued it]. We might actually run in to a situation where there just isn't enough shares for sale, at least anywhere near $420 or whatever the buy-out price ends up at. Would anything, in principle, prevent TSLA from doing a follow-up offering at that point? For example issue an additional 3-4% of TSLA at say for example $600 or higher? As a shareholder I'd be OK with that, that way shorts can give Tesla some value back before the retire from NASDAQ?

I don't think Tesla "should" bail out the shorts.

This is self-preservation: before Tesla goes public again it wants to set an example: if shorts create a thermonuclear warhead equivalent out of stupidity and malice, then Tesla should let it explode, so that it leaves a molten hole behind, which would glow for centuries to come.

Maybe Tesla can architect the "deal" in a fashion that would allow Tesla to resolve bankruptcies after Tesla gets delisted. Some firms/banks might be willing to pay for private Tesla shares, so that investors who are owed shares can get them.

Tesla should do that for a premium, not a discount: doing that will allow firms to not default on loans.

(Of course this is all very speculative: the squeeze is not a certainty, it depends on the actions of shorts, longs, Tesla and regulators.)

 

[ggr]

It seems that the consenus in this thread about the timeframe the de-listing will happen in is 6 months (i.e., ~Feb 19)

BUT until then, if production ramp goes according to plan, we will see 2 profitable quarters (report on Q3 in Nov, report on Q4 in Feb (likely)).

If we see 2 profitable quarters before the de-listing, share price will most likely be above $420 by the time the de-listing occurs (share price should rise overproportionally on these news because it rejects one short hypothesis and thus should trigger the exit of many of them).

So EITHER the $420 is really low-ball OR the time frame is much shorter than 6 months.

I agree. People talk about "Elon time", but (without looking up details, I have work to catch up on :-( ) financial transactions for Tesla such as stock or bond offerings tend to happen with lightning speed. SCTY obviously is an exception.

 

[TrendTrader007]

It seems that the consenus in this thread about the timeframe the de-listing will happen in is 6 months (i.e., ~Feb 19)

BUT until then, if production ramp goes according to plan, we will see 2 profitable quarters (report on Q3 in Nov, report on Q4 in Feb (likely)).

If we see 2 profitable quarters before the de-listing, share price will most likely be above $420 by the time the de-listing occurs (share price should rise overproportionally on these news because it rejects one short hypothesis and thus should trigger the exit of many of them).

So EITHER the $420 is really low-ball OR the time frame is much shorter than 6 months.

SCTY meger took approx 5 months from June 21, 2016 to november 2016. however share price of SCTY peaked on July27th 2016 much before the actual merger and a few days before Aug 1st, 2016 when BOD made formal agreement announcement
this time it may take longer due to all the unknown variables and complications but once the final buyout price is announced the SP would already have peaked by then and it will be downhill from there
i give it no more than 20 to 25 trading days before current SP peaks maybe by the week after labor day or second week of september 2018 but it is just a wild guess and everything depends on price action
certainly if the SP does go parabolic over the next 4 to 5 weeks i will not be overstaying my welcome
at the very least i will be liquidating all my calls and stock provided SP is higher than $500 and attempting to time the stock with common only

 

[saniflash]

I agree. People talk about "Elon time", but (without looking up details, I have work to catch up on :-( ) financial transactions for Tesla such as stock or bond offerings tend to happen with lightning speed. SCTY obviously is an exception.

a high speed in this would also be the prerequisite for the "short burn of the century", since after 2 profitable quarters many of the shorts will already have exited...

 

[EVNow]

Elon Musk’s Pitch to Take Tesla Private Has Wall Street Salivating

One structure being studied by banks and Tesla, according to people familiar with the matter, is a transaction that would reduce the number of shareholders to such a degree that Tesla’s shares could be delisted from the Nasdaq stock exchange and the company no longer would be required to make quarterly filings with the S.E.C.

I've read a number of such prognostications & analysis. One thing is abundantly clear - they don't take into account the unique nature of Tesla & Musk. They just write stuff that might be true of a company whose CEO no one has heard of.

There are certain things Musk has promised employees (and other stock holders) that he has to honor - not because of some legal requirement - but because it would be a huge face loss for Musk otherwise.

 

[DriverOne]

I don't think the price of TSLA will get to $420 any time soon. There is a time value after all. Let's say the deal completes March 31st 2019... until then the price will stay lower. With over six months out, it might easily stay 5-10% lower. That's $380-$400 as a reasonable price between now and deal closure. Over time the price will approach $420. (Assuming no squeeze occurs).

 

[replicant]

I've read a number of such prognostications & analysis. One thing is abundantly clear - they don't take into account the unique nature of Tesla & Musk. They just write stuff that might be true of a company whose CEO no one has heard of.

There are certain things Musk has promised employees (and other stock holders) that he has to honor - not because of some legal requirement - but because it would be a huge face loss for Musk otherwise.

The NYT article is crazy. It makes no sense actually, given Elon's "def not forced sale" tweet.

If Elon wants to reduce the *number* of shareholders, they'll have a problem getting the thousands of hardcore shareholder (like me) to sell, unless they're legally obliged to do so. They might get mutual funds to sell because they don't *want* to own stocks of a private company, and these funds would rather get 420/share than stay with Elon (who want them out).

 

[replicant]

The NYT article is crazy. It makes no sense actually, given Elon's "def not forced sale" tweet.

If Elon wants to reduce the *number* of shareholders, they'll have a problem getting the thousands of hardcore shareholder (like me) to sell, unless they're legally obliged to do so. They might get mutual funds to sell because they don't *want* to own stocks of a private company, and these funds would rather get 420/share than stay with Elon (who want them out).

Does anyone find some sense in this NYT/Dealbook theory (however tiny)? I can't believe they wrote that down. Either I'm really stupid (expecting Musk to honor his commitment not to kick shareholders out) or I've lost considerable trust in the NYT.

 

[TrendTrader007]

I don't think the price of TSLA will get to $420 any time soon. There is a time value after all. Let's say the deal completes March 31st 2019... until then the price will stay lower. With over six months out, it might easily stay 5-10% lower. That's $380-$400 as a reasonable price between now and deal closure. Over time the price will approach $420. (Assuming no squeeze occurs).

You could be right but i highly doubt it, mainly because there are too many upward catalysts to ignore
all we are lookin at is a 20% move from $355 to reach $420 and with a highly volatile and fiercely contested stock like $TSLA it can easily happen within 1 or 2 trading sessions
we will soon find out

 

[Unknown_Wizard]

If execution of the deal gets clear, shorts are forced to cover. Better sooner than later... Since the price will run up fast as lighting. No one wants to be the last who covers... The squeeze gets more dirty if one or more investors are already hedging via call options.

And there it is: burn of the century!

 

[Fact Checking]

There are certain things Musk has promised employees (and other stock holders) that he has to honor - not because of some legal requirement - but because it would be a huge face loss for Musk otherwise.

Yeah, but he'd be keeping his word not due to the fear of face loss (Elon doesn't have that type of ego anyway), but because doing that to employees would be a kind of betrayal Elon is incapable of committing.

Look back all his business ventures of the last 20+ years: not a single betrayal, not a single forced out business partner, not a single investor screwed out of shares, not a single strategic bankruptcy, etc.

Elon is honest to a fault: there's been many cases where he's been honest to his disadvantage ...

(Would it be too much politics for this thread if I said that he' the inverse of Donald Trump?)

 

[KarenRei]

The NYT article is crazy. It makes no sense actually, given Elon's "def not forced sale" tweet.

If Elon wants to reduce the *number* of shareholders, they'll have a problem getting the thousands of hardcore shareholder (like me) to sell, unless they're legally obliged to do so. They might get mutual funds to sell because they don't *want* to own stocks of a private company, and these funds would rather get 420/share than stay with Elon (who want them out).

Indeed. I'm increasingly confident that we have significant time before any news that will cause the stock to "stay high". Tesla is volatile, and will continue to be volatile for months. So I'm planning to restore some sells tomorrow that I had previously cancelled. At a higher price point, mind you, but I'm comfortable enough that we'll have plenty of volatility left to justify the old "sell on the highs, buy on the lows" pattern. At least to put 10-20% of my holdings on the line.

 

[TrendTrader007]

$TSLA that would be even better
$420 is a floor until a higher final definitive buyout price is announced
until then sky (and imagination) is the limit
once a final buyout SP is announced it will come crashing down to earth

 

[Johan]

Does anyone find some sense in this NYT/Dealbook theory (however tiny)? I can't believe they wrote that down. Either I'm really stupid (expecting Musk to honor his commitment not to kick shareholders out) or I've lost considerable trust in the NYT.

I read the whole thing. Atrocious journalism. Lots of speculation about many scenarios that are obviously completely irrelevant: most importantly a leveraged buy-out and trying to buy out all small investors and be left with only 1000 or less stock owners. A prime example of NYT financial writers being fed some Prime USDA FUD by "people close to the matter". Close my a**. These greedy Wall Street bankers aren't "close to the matter" at all. In fact, it even says in the article that they only found out about Elon's plans when he tweeted. And they hate it - they're used to always having insider information to trade on.

 

[defc0n]

I don't think the price of TSLA will get to $420 any time soon. There is a time value after all. Let's say the deal completes March 31st 2019... until then the price will stay lower. With over six months out, it might easily stay 5-10% lower. That's $380-$400 as a reasonable price between now and deal closure. Over time the price will approach $420. (Assuming no squeeze occurs).

That's how I interpreted it, but it seems others on here think I'm crazy and that $420 is apparently a floor price (even though we've moved away from this so called floor). $420 seems like a ceiling to me at least unless/until there is a large amount of forced short covering. Agree with you on time value.

Regardless, I'm still positioning for a possible short squeeze, due to potential of massive short covering.