Tesla Stock: Musk’s Biggest Rocket

Tesla (TSLA) stock has gained 112% this year, boosting the company’s market value higher than that of General Motors Co (GM), Fiat Chrysler Automobiles NV and Volkswagen AG… COMBINED!

There is much speculation as to whether Tesla represents the future of electric vehicles or is over hyped — leaving many to question whether Tesla’s stock is driven by record revenue & fourth quarterly profit in six periods or the cache of their founder, Elon Musk.

Short Seller’s Nightmare

Traders betting that Tesla shares will decline, lost $2.5 billion in one day as Tesla’s stock soared to record highs on Monday, February 3 rd2020. At one point, the stock rose 20%, representing the biggest one-day gain for the company since 2013, according to Bloomberg data.

Year-to-date losses from Tesla short-sellers is a staggering $8.3 billion, nearly three times greater than short-seller losses in 2019 which were about $2.9 billion!

As short-seller losses pile on, investors are keeping their eyes open for a “short squeeze”, which is when a stock gains so rapidly that traders betting against it are forced to cover short positions, which could send the stock price even higher.

Ihor Dusaniwsky, the managing director of predictive analytics firm, S3 believes “ it is more likely to be a continuous slow decline in shares shorted rather than a sudden abrupt plunge.” Such a forecast is likely due to the way fund managers hedge their positions. While some may impulsively trade or face margin-calls due to the high-exposure of Tesla’s sudden surge, other managers may begin to slowly unwind their short positions and let short options expire.

Why so short?

As of January 15th, Tesla is the single most-shorted stock on the U.S. market with more than 20% of its outstanding shares being shorted. Elon Musk takes this personally and once called them “ jerks who want us to die”.

Short sellers come in droves with criticisms ranging across arguments stating that Musk is an erratic fraud all the way to Tesla’s Autopilot technology being dangerous or even homicidal. Many argue that the company is highly-levered with debt, heavily reliant on government subsidies, and faces mounting international risk with plants based in China amidst an ongoing trade war.

The SEC is still frustrated with Musk after he tweeted that the company would go private at $420… perhaps just humor from an eccentric founder with an estimated net worth of $38 billion.

So-what?

While Musk can be quite eccentric, other auto manufacturer’s electric vehicle technology pales in comparison to Tesla. Auto manufacturer’s as a whole are witnessing a decrease in overall vehicle sales.

Ford is down more than 10% year-to-date following a recent big plunge in shares after disappointing earnings. General Motors is around 4% lower this year. Europe’s Daimler and BMW are down approximately 11% and 9.5% year-to-date, respectively. Meanwhile, Nissan is down around 7% this year and Honda is about 8% lower, as of Wednesday, February 5.

In contrast, Elon Musk’s firm is still up around 76% year-to-date, thanks to a monster rally attributed to exceeding analyst targets and its delivery of Electric Vehicles over the year period. That’s even after last week’s 17% drop.

So has the market overpriced Tesla’s future growth amidst late competitors pushing into the market? Or will the stock to continue to behave like one of Musk’s SpaceX rockets?

At this point, we’re just along for the ride.

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Originally published at https://blog.rapunzlinvestments.com on February 11, 2020.