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Why You Shouldn't Short Tesla Motors, Inc.

By Motley Fool Staff - Apr 20, 2016 at 11:04AM

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The electric auto manufacturer has a lot more going for it than its current sales and delivery numbers indicate.

Tesla Motors(TSLA 7.33%) stock has been on something of a ride lately, after the company announced impressive pre-order numbers for its Model 3, then reported underwhelming delivery numbers for the first quarter.

In this segment from the Market Foolery podcast, Chris Hill and David Kretzmann talk about why Tesla is not a good candidate for shorting, in spite of its apparent vulnerability.

A full transcript follows the video.

This podcast was recorded on April 6, 2016. 

Chris Hill: We should mention the stock, because it's up about 16% since last week, when they unveiled the Model 3. It's at its highest point since last fall. And you and I were talking before we started taping, because it's up about 3% this morning, but before the market opened, the news broke about the miss on deliveries, and the stock was down about 3%, and you had the short-sellers coming in there. I'm not saying it's a slam dunk that this company is a success, but Elon Musk is on the short list of CEOs that I would never dream of shorting his stock.

David Kretzmann: Never. (laughs) 

Hill: Just because, he's crazy in a good way. And I also think that this is a stock that, if you're in the automotive industry, and you're looking at Ford Motor and GM and you're trying to apply the same way that you valued those stocks to this company, I think that's just a huge mistake.

Kretzmann: There's a lot going on behind the scenes with Tesla. And man, Elon Musk is just a brilliant entrepreneur, brilliant engineer. It's rare when you have those two qualities in someone. You have some examples through history, like, Steve Jobs is a great recent example. Elon Musk still owns more than 22% of the company, so he has a lot of skin in the game with Tesla. But, what's amazing about Tesla is, to make this mass-market Model 3 vehicle, they need to revolutionize the lithium-ion battery industry. You can't have these affordable electric cars without affordable mass-produced lithium-ion batteries. So, Tesla is in the process of completing the Gigafactory in Nevada, which, I didn't realize this, but in the Model 3 unveiling, Elon Musk mentioned that, in terms of physical area, this is the largest building in the world. 

Hill: Wow!

Kretzmann: Really astonishing. And the battery production out of Tesla's Gigafactory in Nevada will surpass the production of all other lithium-ion batteries in the world combined. So, this is a massive factory. And this is just the first one. They're planning to build more, possibly in Japan, or somewhere else. So, Tesla has huge ambitions, and it shows on the cash flow statement, because the company is burning through cash, they're investing a lot in capital expenditures, building out these factories. But, yeah, Elon Musk is similar to, I would say, Jeff Bezos or Steve Jobs, a brilliant engineer, a very savvy entrepreneur. And man, he has a vision and he's disciplined and determined to make that vision a reality.

Hill: I think there are going to be a lot of things interesting to watch related to this story over the next couple years. And one of them, for me, anyway, is how the other traditional automakers react. Because I've talked to a couple of people who work in the automotive industry, who have said over the last couple of years, "We're keeping our powder dry until they come out with a mass-market vehicle. And then, we're going to go after them." So, it'll be interesting to see what form that takes and how that works out.

Kretzmann: Absolutely.

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