Every Bounce In Tesla Stock Can Be Fearlessly Shorted
Elon Musk sent out an internal email to employees on Thursday in which he makes the highly dubious claims that the Company has 50,000 new orders for the Model 3, the Company has a “good chance” of exceeding Q4’s record deliveries and the production of the Model 3 is close to 1,000 per week.
Regardless of the veracity of the production numbers, the new orders and Q2 deliveries assertions are likely Musk’s standard fraudulent misrepresentations. From all of the data that can be gathered from official sources which track deliveries and VIN registrations globally, sales of all three Tesla models are falling off a cliff. The recent price-cuts announced confirm the sales reports (eventually the Law of supply/demand/price prevails).
More likely, Musk scripted the email and its “leak” for the purpose of juicing the stock price in pre-market trading trading on Thursday morning in an attempt to stimulate hedge fund and retail daytrader momentum chasers and trigger a short-squeeze.
The leaked email had the intended effect – for about an hour – as the stock shot up to as high as $199.60 from $181. The stock closed at $195.46. This morning, the bubble-promoting financial media transformed lies embedded in the email into reports that Tesla was on track for record deliveries in Q2. The stock ran up in pre-market from $196 to as high as $203.71. As I write this the stock is trading below $191.
Elon Musk is obsessed with fighting the shorts rather than running a business and proving the shorts wrong. The funding secured debacle was more than a mistake – 1) it reflected desperation 2) it was highly illegal but our Government no longer prosecutes the crimes committed by billionaires.
The “leaked” email is another example of Musk using social media in an attempt to manipulate the stock price and punish short-sellers. He’s emboldened by the fact that SEC has made it clear that it has no interest enforcing securities laws on Musk. The public is on its own – those for whom the laws are meant to protect (unsophisticated daytraders and the investors in recklessly managed public mutual funds like ARK) are the ones who get hurt the most.
The problem faced by Tesla is that, in order to generate sales, Musk is unable to charge a high enough price to cover the all-in cost of designing, producing and delivering his cars to the end user. That’s why TSLA bleeds so much cash – it’s that simple. Furthermore, he should have never issued debt to bridge the funding gap until it was guaranteed that the business model was truly profitable. It’s the same problem all these unicorn businesses face (NFLX, W, CVNA, LYFT, UBER, etc ad nauseum).
Tesla is now headed toward “zombie” status as both its business and its stock price limps toward and off the cliff. As evidence, all of the stock analysts at firms involved with helping the Company raise $2.7 billion ($2.4 billion net) just two weeks ago have suddenly become bearish on the story. Morgan Stanley’s Andrew Jonas – snake oil salesman extraordinaire – has publicly set a “downside” price of $10. However, in a non-public conference call with clients, Morgan Stanley’s cross-asset trading group has made the case that the stock is worthless.
That the stock is worthless has never been an issue for me. The more interesting question regards the ultimate value of the junk bonds, which are currently “priced” in the low $80’s. But this is based on small trades – $1mm-2mm face value crosses and investment advisors at boiler room operations like Wedbush dumping 10 bond lots into client accounts. We used to play this game with ill-fated junk bonds that were artificially priced to high until a big seller capitulated when I traded junk bonds in the 1990’s. More likely the ultimate chapter 7 liquidation value of the unsecured debt on Telsa’s balance sheet is well below 20 cents on the dollar. In other words, short away every time the stock price spikes up on rumors or on desperate attempts by Musk to squeeze the shorts.
Dave Kranzler spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, he traded junk bonds for Bankers Trust. He earned a master’s degree in business administration from the University of Chicago, with a concentration in accounting and finance. Currently he co-manages Golden Returns Capital, a precious metals and mining stock investment fund based in Denver. He writes a blog and offers in-depth, unique research reports to help people understand and analyze what is really going on in our financial system and economy: