Tesla: Shorts Should Heed This Warning

Aug. 30, 2013 3:39 AM ETTesla, Inc. (TSLA)134 Comments

Tesla Motors (NASDAQ:TSLA) has been one of the best performing and most hotly debated stocks this year. It has risen from under $40/share to $166/ share, where it currently stands, up nearly 400% this year. This advance has caused many critics to proclaim that Tesla is way overvalued and is due for a crash. Comparisons to Apple (AAPL) at $700 abound, yet shorts have been frustrated by the seeming relentless drive upward. Tesla is a highly volatile stock and one that could drop greatly, but I believe that many shorts are approaching this from the wrong angle.

The main case from shorts is that the stock is wildly overvalued. Granted, there have been some that have approached it from the fundamental side, suggesting that the company would struggle to maintain margins. By far, however, the short thesis is that "this stock is really, really expensive." Those that are shorting Tesla only for these reasons, should listen to what brilliant short seller John Hempton of Bronte Capital has to say about this very topic. Hempton on valuation shorts:

In a valuation short we are working on the same information as everyone else has. This makes me uncomfortable. There is an arrogance in suggesting we can analyze the information better than anyone else. We find it harder to answer the question of what we see when others don't and hence harder to justify the position at all. (...) Anyway - I am uncomfortable because I can't describe my informational edge and I don't like thinking I am smarter than other people (as opposed to better informed than other people).

This is critical to understand for Tesla shorts. Unless you are doing something that I am not aware of, in this case you do not have better information than the market. While I don't believe that

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