A Whopping 40% Short Interest In Tesla In November? Who Was Buying In December Driving Up Prices?

| About: Tesla Motors (TSLA)

Summary

Tesla short interest was at a recent high in November, but they are covering.

Reporting commenters that don't play by the rules.

A primer on short selling for the more novice crowd.

There is an interesting phenomena that happens when a stock has a high level of short interest, like Tesla (NASDAQ:TSLA) with its whopping 40% short seller interest. That's when highly speculative negative press starts to climb and discussion sections on investment sites get flooded with negatively.

As a student of the markets, I closely watch discussion forums and I've see it over and over again. Unmoderated sites get so clogged with lies, distortions, attacks that it's often hard to find the good short thesis among the noise. It's highly counterproductive to investors who are long, short or just watching. A prospective buyer of a product for example, might also be watching and be horrified if they take the noise and short seller "short and distort" seriously.

Shorts sellers = bad people & crooks?

Now, don't get me wrong. Short sellers don't always fabricate false information but, let's face it, they don't have a great reputation. When I take a short or long position, I prefer to be clear so readers know where I'm coming from. There is no need to hide it if you are confident that you are on the right side of the trade. Getting intelligent feedback and opposite views can be very valuable. I'm not always right and love to hear from those with great thesis which allows me to get back to the drawing board. All my articles and comments are clear whether I'm a bull, bear or just watching.

What isn't valuable to the investment community is "fear, uncertainly and doubt" FUD mongering. And that's what some manipulative short sellers, and their hired bloggers, have perfected their trade on unfortunately. And even highly moderated sites suffer from coordinated attacks. So on a site that vets postings from members before actually posting, the quality of discussions are high. Unfortunately, it appears that some crafty posters get vetted and given "automatic posting" privileges and they can start abusing the system by posting unmoderated comments. On SeekingAlpha, one of the best investment discussion site on the Internet from my perspective, some Tesla posters are out of control and my bet is these are affiliated with shorts sellers or competitors. I not only have years of experience trading and investing, I have years of experience with investment chat sites (most of which are worthless even for pros).

Take a look at the many regulars on Tesla discussions. Ask yourself, why are some there almost 24x7? To save investors who have been snared by Tesla CEO Elon Musk "religion" on electrified cars and sustainable renewable energy? No! Don't fool yourselves.

Although there might be a few, the reality is that many are short sellers betting against the company wishing the stock to go down for profit. Some might even be competitors. After all, we know that Volvo from Sweden is entering the market with Uber on self-driving cars. Could one, or more, of their regular social media staff member be going after Tesla? I doubt that, Volvo seems to be a very credible company but competitors in some sectors can take surprising actions against threats. Look at industrial espionage cases. It's not fiction.

It's hard to tell but what isn't hard to do is using the Report Abuse feature. It's designed to allow moderators to catch the bad apples that slipped through and are abusing their privilege by abusing the rules. I assume that if enough people report the abusers, they will either get the message or get dropped down to "moderate before posting" status that newcomers have to face until they become trustworthy enough to post unmoderated.

Good, civil, discussions are good. Both long and short. I've seen many cases where short sellers were right. Stocks were overpriced and companies were "smoke and mirrors". Health based merger and acquisitions in the past few years have been horrible examples of shareholders getting caught by less than ethical corporate corruption detected by short sellers. But short sellers need a clear, concise, thesis to be credible. Random speculative negativity and personal attacks on management isn't credible at all. If fact, it diminishes the short seller's position.

What is short selling? (for the more novice readers)

Short selling is borrowing shares you don't own but promise to buy them back later to return them to the rightful shareholder. It's done via brokerages and instead of placing a "buy" order, you place a "short sell order". If there is enough, your order gets filled at the price you set.

Now, this is the funny thing, they don't ask for permission from the shareholder who owns them. You might be long on Tesla but your shares have been borrowed behind your back by shorters to depress the stock price. That's the beauty about the market rules, they don't really follow real world rules.

When I explain this to regular people and new investors, the analogy I use is: Imagine being able to walk in to a store, say Home Depot, you want to bet that a hammer will go on sale, so you "borrow it". You know, stick it down your pants and walk out. Now, nobody does that I hope, but work with me here... Then the hammer goes on sale so you go and buy it and return it to the shelves. You were able to use the hammer when you wanted it and paid less for it. You win, the store (owner of the inventory) loses.

Now, in the real world, that's illegal. You can't "borrow" something you don't own without asking permission but on the markets it's legal. As a short seller, I love it because on market downturns, I make money. Leave your emotions on the side here and just understand and accept the market rules as they are today because it impacts your stock price.

Short selling is dangerous for the average investors, there are tales of people losing their 401k short selling pharma plays headed by master stock market manipulators. You know, guys that end up in handcuffs one day and free the next! So if you short, don't short betting against the pros on the more speculative stocks, you will lose. And shorting has unlimited loses, you could end up losing everything and owing your broker so much you have to declare bankruptcy. Be warned. That's probably the one mistake I haven't done in my long self-investing career more out of luck I think because I had a philosophical problem with shorting (or anti-investing as I called it) for years. Now, it's just a very sharp tool that I use with great caution, like a semi-automatic weapon.

Most short sellers are typically market professionals. Hedge Funds and other institutional money managers love to short because going long forces them to declare their positions. But for some odd reason, they don't have to report short positions. The NYSE itself has asked the SEC to change the rule on this for obvious reasons if you understand the future if things are left as is. For the sake of the markets, I hope that is in progress since there are legions of regular investors who have no idea what short selling is, let alone the impact it has on their stock and volatility.

In many cases, as is often seen in penny stock pump and dumps, traders go long, pump a stock, sell the stock, short it, and bash the stock to drive it down to buy/cover. It's called "wash, rinse and repeat". It's quite formidable and not a train you want to stand in front of. It's one of the reasons I avoid penny stocks and why brokerages warn investors against them. You are much better staying with larger cap, highly traded (high "liquidity") stocks but even those aren't immune to massive market manipulation. That's why I mostly invest in ETFs (long & short) these days.

Stock manipulation is an illegal activity mind you but regulators have a very hard time to keep up it seems. They have my sympathy!

So why the large 40% short ratio on TSLA?

40% of the float shorted is HUGE. That means that for every share owned by a shareholder, a market player (short seller) has borrowed almost one with the promise to pay it back.

Here are the last reported short ratios, the numbers for December 15th should be released by the time this article is approved by the Editors so I should be able to update this or visit ycharts yourself to get the latest.

Tesla Motors Historical Short Interest Data (from ycharts.com)

Date % of Float Short % of SO Short Days To Cover Avg Daily Vol Short Interest
Nov. 30, 2016 40.06 22.15 7.58 4.708M 35.69M
Nov. 15, 2016 35.39 21.04 6.098 5.171M 31.53M
Oct. 31, 2016 32.32 19.21 6.688 4.305M 28.80M
Oct. 14, 2016 31.58 18.78 9.482 2.967M 28.14M
Sept. 30, 2016 31.10 18.49 8.266 3.352M 27.71M
Sept. 15, 2016 31.30 18.75 8.628 3.232M 27.88M
Aug. 31, 2016 29.42 17.63 9.679 2.708M 26.21M
Aug. 15, 2016 29.59 17.73 8.739 3.017M 26.36M
July 29, 2016 30.27 18.13 6.986 3.859M 26.96M
July 15, 2016 32.92 19.81 5.229 5.608M 29.33M
June 30, 2016 34.74 20.91 5.719 5.412M 30.95M
June 15, 2016 32.15 21.38 6.855 4.178M 28.64M
May 31, 2016 31.87 21.20 5.771 4.920M 28.39M
May 13, 2016 32.90 21.88 6.271 4.674M 29.31M
April 29, 2016 31.89 21.21 4.499 6.315M 28.41M
April 15, 2016 32.63 21.71 4.464 6.513M 29.07M
March 31, 2016 36.29 24151.98 6.922 4.671M 32.33M
March 15, 2016 36.17 24.40 6.608 4.877M 32.23M
Feb. 29, 2016 38.22 25.79 5.237 6.503M 34.05M
Feb. 12, 2016 35.37 23.86 5.296 5.951M 31.52M
Jan. 29, 2016 34.00 23.05 7.566 4.003M 30.29M
Jan. 15, 2016 32.67 22.15 8.548 3.405M 29.11M
Dec. 31, 2015 31.07 21.06 10.18 2.718M 27.68M
Dec. 15, 2015 28.84 21.32 9.782 2.854M 27.92M
Nov. 30, 2015 28.78 21.27 7.055 3.949M 27.86M

If you look at the financials on Tesla, you will see why it's a favorite. Tesla is highly overvalued. They will have to sell millions of cars and skeptics aren't convinced. The biggest skeptics are the short sellers.

Now, I would never short a stock like Tesla. Why?

Tesla Owners are "unique"

Look at the owners. The owners of the high priced cars know they are overpaying! And many owners of the stocks know it's highly overpriced. When I short company stocks, I short what I like to call "flaming trash cans". Overvalued stocks with a broken business model. Tesla does not fit in that category and with just a high short ratio, there is a high risk of a massive short squeeze. Something the markets don't expect. Short sellers all having to buy in a hurry because Tesla announces it's shipping the Model 3 early for example. Or the Energy Division just landing a mega contract with a solar or wind utility for energy storage.

But why the increase of short by a factor of two since summer?

Ah, that's where you have to think like a short if you are an investor. What event would propel you to bet even more against this overvalued company. You know they slip on timelines, that's nothing new and nothing that seems to phase investors or customers. The stock is as overpriced as it was. So what?

"BOLT"!!!!

That's right, skeptics have been waiting for majors to come out with a Tesla killer. New entrants don't have a chance to catch up with first mover Tesla. So just as Netflix (NASDAQ:NFLX), the investor community is saying, the majors will eat this new guy alive! So shorts have placed their bets on giant GM to deliver the competition. You know, like assuming Disney and Sony will be able to crush Netflix with little effort.

Where are we today?

Well Bolt has shipped. In California only it seems. I've been trying to test drive a Bolt all month with ZERO success. I'm told by a dealer in Canada they will only get 12 for the whole 2017 year! And that Canada will only get 200 for the entire country! Yes one Bolt for every 175,000 people. Wow. I pulled up GM dealership websites in various parts of the US to see where I could go. I can't find many dealerships that even lists the "December 2016 Bolt shipping" EV.

So, the bulls on Tesla claim that Tesla is a "game-changer" and the bears and shorts willing to do the same with the GM Bolt.

Speculative closing

The shorts are on the wrong side of the trade. They are realizing GM isn't delivering and that is the reason the stock has gone up from the $180s to the $200 during the first few weeks of December. And ladies and gentlemen, the rest of the shorts might just get BOLTED in time for Christmas and New Years.

Enjoy the short term possible short squeeze where the short sellers betting against Tesla on this round. with GM Bolt as their ammunition, were just let down by GM. With such a limited release EV, GM is marginal at best. GM sales on the Bolt will are certainly be insignificant in the first quarter if not for the entire year. They haven't learned from Tesla that EV needs to make a splash. The Bolt is no Roadster!

Disclosure, I can't recall the last time I took a long position on any overvalued stocks but I might make an exception here!

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TSLA over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I might also short the majors like GM for their failure to take EV seriously and Ford for having a 2021 timeframe on their August 2016 announced strategy.

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