I'm a pretty easy going guy, but it's actually starting to offend my sensibilities hearing "experts" and "professionals" increasingly mock the market and the long side of the Tesla trade -- using words like "irrational", and even "silly" … as if to say bull profits since $125 or prior are not legitimate because they were earned off the backs of "rational" people.
If you really think the market is silly, be my guest and join the short party; I've heard it's been fun. That is your rational choice.
In reality, the longs have been buying real options for free or cheap for quite some time. This is largely because of a special situation created by buy side short-sellers (surprisingly, not sell side analysts). These resilient bears have been enthusiastically selling us shares they do not own, in very large quantities, strikingly - without asking for any option premium. It has been a very generous act of kindness to say the least and is the biggest reason things just keep going the bulls' way.
So where can we short Tesla?
Tesla's present value is not infinite. However, it is very hard to define and price all of the upside optionality it does carry.
In my second article from December 2nd, (written one year after Part 1: "No Money To Be Made Shorting Tesla But Lots To Lose"), I described the broadest plausible breadth of business possibilities for Tesla, including everything controversial Morgan Stanley analyst, Adam Jonas, pointed out on Tuesday.
I didn't even try to put a tangible price on all of the possibilities (a difficult task) -- but simply offered bonus scenarios as noteworthy "margin of safety". The fair value I probabilistically modeled in the midst of technology/safety concerns was $205 + Tesla's options to shake, move and capture quite a lot more of the relevant global marketplace:
"... we should be considering the additional "white swan" value Tesla carries as a disruptor of several other industries. For example, the petroleum/fueling industry, the utilities sector ... the auto parts industry, the auto dealership industry, the automation industry, the mass transport industry -- i.e. possible stake in Musk's Hyperloop."
These additional business prospects -- born off of the cutting edge of several plausible technological revolutions -- run quite contrary to the popular notion that Tesla is just a really cool, hyped automaker.
So, no, Tesla's present value is absolutely not infinite; shorts can rest a tad easier in that knowledge. But it remains my opinion that it is still a highly audacious and reckless decision to join the unhedged short-herd. There are too many upside possibilities beginning to play out, and too many shorts.
If you did make me decide now, I believe I would be willing to short (although hedged) if Tesla shares do approach Morgan Stanley's new price target of $320 this year. If that does happen, I think trade symmetry will have tipped strongly enough to the bear side. Otherwise, even at current price, there's still too little to be gained on the downside in the weighted-average scenario.
My Tesla track record for reference:
December 3, 2012 (at $32) "No Money To Be Made Shorting Tesla But Lots To Lose":
"... I'm going to outline a few reasons why I think Tesla is seriously undervalued by the market (notably the shorts) and in fact make an argument why there is actually a very strong floor in the company's stock price, creating a borderline immaculate risk/reward opportunity for longs."
"If electric cars truly are a meaningful part of the world's automotive future, as R&D dollars being spent across public and private sectors might imply - a mere $3 Billion or 0.25% of the $1.2 T auto industry would be a very small investment to make if it meant leap-frogging the entire pack to the front of the innovation curve."
"Come to think of it, a short squeeze like that might just make for a beautifully unmanufactured publicity blowup, especially if Tesla wants to sell a bunch of cars down on Wall Street."
December 3, 2012
December 2, 2013 (at $125) "There Is Safety In Disruption: A High-Level Tesla Valuation":
"I calculated a 10x expected return on investment -- ascribing just a 10% probability of a historic short squeeze occurring. The actual outcome of the strategy continued would have been somewhere between 20x and 80x total investment, depending on my timing of the last batch of calls"
"... we should be considering the additional "white swan" value Tesla carries as a disruptor of several other industries. For example, the petroleum/fueling industry, the utilities sector ... the auto parts industry, the auto dealership industry, the automation industry, the mass transport industry -- i.e., possible stake in Musk's Hyperloop."
"Buying into disruption might be safer than you think. Personally, I'm not satisfied with the earnings security of a lot of companies, in and out of the auto manufacturing business, knowing that a company like Tesla exists. Expect disruption. If you can find it at the right price, there is safety there."
December 2, 2013
December 9, 2013 (at $137) "Tesla Brand Is Crown Jewel To Big Automakers":
"Disclaimer: If you're a self-described quant; never having spent any time quantifying qualitatives, you haven't stimulated the creative side of your brain in a while, and/or you have a bruised ego from short-selling Tesla a year ago -- disregard this; you'll end up holding your short position regardless."
"So in my most short-forgiving estimations, short-sellers are chasing after a best-'expected'-case scenario of 50% -- in a herd again -- while risking theoretical unlimited losses"
"The downside protection I've described in the form of a powerful and valuable brand, is upward pressure on Tesla shares. It's my opinion that the Tesla trade won't balance out until we approach previous highs again."
December 9, 2013