Tesla Motors, Inc. (TSLA) designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The company also provides services for the development of electric powertrain systems and components, and sells electric powertrain components to other automotive manufacturers. The company operates a network of 32 stores and galleries in North America, Europe and Asia.
Everyone has probably heard of electric cars, and many of us kind of thought they were a joke or would not be mainstream or the companies making the vehicles would not make any money. I was one of these people (although I was never short TSLA). However, it appears I was wrong on all accounts and I believe the folks who hold 31 million shares short here of TSLA will be wrong as well. Tesla Motors looks like it could honestly be innovating superb products and is in the early stages of turning the corner to tremendous profitable growth that could go on for years. It really is an amazing story and the CEO may be looked at in the future the way Steve Jobs was in the past (yeah, he may be that good).
Sure, there is risk here, this is a controversial stock and it's certainly not like some of the other small-cap value ideas I usually invest in. It certainly isn't for everyone and obviously there are 31 million "votes" or shares short that are betting on this not working. Additionally, there is possible risk of another equity raise at some point in time this year, which could cause a momentary dip (but I believe it would be short-lived if TSLA is delivering results).
First, let's talk about the setup here. TSLA is one of the most shorted stocks on the NASDAQ with over 47% of the float shorted. That would take approximately 23 days to cover based on average daily volume.
TSLA is trading at $45.45, which is just under its 52-week high after recently clearing long-term resistance of $40 a share. This stock was resilient today (4/17/2013) and has been resilient during the recent market weakness making it look as if it might be a new leader in the market. Combine the fact that it is near its all-time high and has an enormous short interest and it might not take much to ignite the monster short squeeze of 2013 here.
There are several recent pieces of data that have really changed the game here with the most important being turning the corner to profitability and delivering a greater-than-expected number of vehicles in Q1. Below are a few highlights many of which are included in the recent "must read" letter to shareholders:
- On April 1, 2013 TSLA announced that sales of its Model S vehicle exceeded the target provided in the mid February shareholder letter (Vehicle deliveries (sales) exceeded 4,750 units vs. the 4,500 unit prior outlook). As a result, Tesla is amending its Q1 guidance to full profitability, both GAAP and non-GAAP. Also, it indicated near breakeven from a cash flow perspective.
- In fact, TSLA outsold BMW, Mercedes, Lexus and Audi in the large luxury car category in the first quarter and it wasn't even that close (see article here). TSLA seems to be for real.
- It won Motor Trend's and Automobile Magazine's 2013 Car of the Year (so this is a great vehicle independent of if it is electric or not)
- TSLA announced in partnership with Wells Fargo and US Bank, it has created an automotive financing product that provides the best elements of ownership and leasing to Model S customers.
- It has successfully begun to ramp production, with some growing pains behind them, and expects margins to move from the mid teens to 25% by the end of the year.
- It is improving infrastructure for the customers of their vehicles.
- It continues to expand sales worldwide.
All that said, the reason I am interested here is the outrageously high short interest, which is on top of a company turning the corner to profitability and developing into a superb story for Wall Street. I imagine growth fund investors will begin to "have to own" at least a piece of this, which will put increasing pressure on the shorts. I also see TSLA in a mode where the news flow becomes very positive. This is where it gets real hard on shorts when every week or so "good news" is being announced about the company. I think we are near that here.
Interestingly, analysts actually estimate TSLA with earn near $1.50 a share next year, which really doesn't make TSLA all that expensive (30x PE) when considering it will be growing EPS at over 700% (albeit from a very small base this year) and revenue by a third according to analysts. One bullish report I recently read made the comparison of TSLA to AAPL in regards to its disruptive innovation and put a $200 target on the stock over the next few years. This is worth reading whether bullish or bearish.
So overall, I think this is an opportunity to invest in a potentially revolutionary company right at the point where it goes from a concept company to a "real company" that can make money and prove doubters (like I was) wrong. I am unsure in the end if TSLA becomes the next cult stock or not, but it certainly has all the makings of one with a massive short interest to boot. The matchstick to ignite the squeeze may be its first-quarter earnings, which are expected to be reported next month. One short squeeze everyone remembers recently was Netflix (NFLX) almost doubling in a week after earnings. Is a similar rally out of the question?