One More Reason Not to Short Tesla Motors

Tesla Motors (NASDAQ: TSLA  ) is starting to rev up again, and that should translate into pain for the growing number of naysayers willing to put their money where their bearish thoughts are.

The stock exchanges released  their latest short interest data on Christmas Eve, and the number of folks betting against Tesla continues to inch higher. There were 30.3 million shares of the electric-car maker sold short as of Dec. 13, far more than the 18.5 million shares shorted when interest bottomed out in mid-July. 

We're closing in on the 32.3 million shares held short on March 15, and it's important to remember where the stock was at the time. Shares of Tesla closed at $35.29 that day. Nine months later we find ourselves with a market darling that has more than quadrupled despite the pullback that investors experienced earlier this quarter.

Tesla's been debunking skeptics as it expands overseas to grow sales of its critically acclaimed yet pricey Model S sedan. This week it gained more momentum after the National Highway Traffic Safety Administration stuck its five-star rating for Tesla's signature vehicle. Some feared that recent news of fires as a result of road debris penetrating the battery pack in a couple of cars would ding its safety rating. It didn't.

The spike in short interest may be seen by worrywarts as a sign to stay away, but we already saw how it should have been a dinner bell for bulls during the stock's springtime peak in bets placed against Tesla. We've now seen short interest move higher for four consecutive reporting periods, and that's not exactly a bearish sign.

Date Short Interest
10/15/13 20.8 million
10/31/13 21.4 million
11/15/13 25.4 million
11/29/13 29.2 million
12/13/13 30.3 million

Source: Nasdaq

What does this table tell us? On the surface it tells us skepticism grows about either Tesla's viability or its valuation. One can argue that $19 billion is a pretty steep sticker price for a company delivering less than 2,000 cars a month. But that does a disservice to how Tesla's pulled off three quarters of better-than-expected profitability this year, and how its prospects for international expansion, next year's Model X crossover SUV, and the more economical model to follow require a broader horizon in weighing what Tesla's worth. The last time that short interest got this high the bears paid dearly. Tesla's unlikely to quadruple over the next nine months. Tesla at $80 billion would certainly be a stretch. But now that we're back to more than 30 million shares sold short, it sets the stage for a short squeeze when positive catalysts force the naysayers to cut their losses and cover their positions. 

Tesla's not cheap, but that doesn't mean that it won't be less cheap in the near future.

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  • Report this Comment On December 28, 2013, at 11:04 AM, ckgod wrote:

    Let me say this again. People who short Tesla based only on valuation should think twice. Investors who invest on a growth company do not care much about current profit or PE. The only thing they care is how the company use the revenue to create or expand the market. That's how VC's invest in start ups or many investors invest in public companies like FB, AMZN, NFLX, LNKD.... You know what happened if you bet against them a few yeas ago if you base your decision on valuation only.

    Look at what Tesla has achieved in the few very short years: They have created and produced the best car ever (per CR, MT, etc.), plan to sell the next likely hot selling model soon, will release the prototype of low cost EV in a year, in the process of building superchargers to cover the entire US, plan to supply battery packs for clean energy storage, another hot new market at this moment. More importantly these are the things we already know. Can you imagine what are the things we don't even know that they will have in five years? You'd be very foolish to think this will be it. These high growth companies are never at a stand still.

    I'm not saying Tesla will definitely succeed to become a great company or to become a great company we don't even know yet. All I am saying is there is a reasonably good chance they will succeed and it's worth betting on them. (Smart) People who bet on Elon Musk are the same people who bet on Jobs, Bezos or Hastings. These people are such visionaries and shrewd businessmen people trust them for their ability to create and expand into markets no one has seen before and in the process kill everyone else who got in their way. You don't need to bet on them if you are not a believer but at least you should try not to be one of the casualties.

  • Report this Comment On December 29, 2013, at 3:11 PM, duuude1 wrote:

    The "tsunami of hurt" part 2!! Followed soon after by part 3... I think this will be a volatile stock as Elon Musk and electric vehicles are polarizing stories that some people love to hate and others will love. Me? I just want to make money. :)

    Isn't it typical for a short squeeze to be followed by a sharp and deep decline? The short squeeze itself allows Tesla to sell additional shares at an artificial high brought on by desperately covering shorts. The subsequent crash allows folks like me to get in long. Thanks shorts - I encourage your pessimism!!

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