Tesla Bears Remain Active

Summary

• The verdict is in: Bears remain put. Pun intended.
• This article presents one more indicator of persistent short activity.
• Both bulls and bears may want to consider risk-reduction strategies.

Investment Thesis

Both Tesla (NASDAQ:TSLA) bulls and bears have dug in their heels, which could lead to higher volatility in Tesla's stock. Combined with the recent increase in macroeconomic and political risks, investors on both sides of the isle may want to consider risk-reduction strategies.

The Stock Has Underperformed

Since the major run-up from December 2016 through June 2017, Tesla's stock has greatly underperformed the major indices:

TSLA data by YCharts

The above graph illustrates that, in the last nine months, Tesla's stock has declined by 12%, whereas the S&P 500 and Nasdaq have increased by 11% and 18%, respectively. In other words, Tesla's stock has underperformed the major indices by as much as 30% in just nine months.

Positive Developments

The primary reason for the recent underperformance is most likely the back-to-back Model 3 production delays. Despite those setbacks, in the most recent earnings release, and in a subsequent 8-K filing, Tesla reaffirmed its "target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2."

More importantly, however, Tesla's Elon Musk noted in the last earnings call:

We feel like the error bars around the unit volume predictions are getting smaller with each passing week.

Elon made that comment on February 7, which means that when Tesla releases its 1Q 2018 Production and Delivery Report in the first few days of April, or eight weeks after the above comment, the company may provide investors with guidance for the rest of 2018 with a higher confidence level.

Whether such guidance will benefit bulls or bears remains to be seen.

Short Interest Remains High

Nasdaq recently released the latest short interest data, which showed that bears remain committed to their positions:

In addition, the following graph illustrates that short volume has reached nearly 70% of total volume on Friday, which is near all-time highs:

The graph below presents the same data over a longer period:

Readers should note the disclaimer shortvolume.com provides.

Having said that, as estimated by the website, Friday's short volume to total volume percentage of 70% was at a one-year high.

This stunning observation may explain why TSLA bounced down so strongly from $360 last week:

TSLA Price data by YCharts

Upcoming Catalysts

Several key events will drive the stock price in the near future.

First, Bloomberg created a neat tool that estimates the weekly Model 3 production rate by relying on data from official U.S. government resources, social media reports, and direct communication with Tesla owners. The tool recently showed a significant dip in the production rate, which if true and proves persistent, could lead to further slump in the share price in the coming weeks.

Second, Tesla will soon announce its 1Q 2018 Production and Delivery Report, and if the company reaffirms its guidance for a 5,000-unit weekly production target by the end of Q2, then the stock could react positively.

Several other macroeconomic and political risks, such as volatile interest rates and oil prices, as well as the rising possibility of global trade wars, can swing the share price in either direction. Investor beware.

Bottom Line

Bulls are not selling - bears are not covering. Something's gotta give. One thing is for certain: TSLA is volatile, and such may be life for investors on both sides of the isle. Combined with rising macroeconomic and political risks, which has led to a surge in the CBOE Volatility Index in February, both bulls and bears may want to consider risk-reduction strategies.

Analyst’s Disclosure: I am/we are long TSLA. 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.

Comments

[aldol]

i've got the impression that demand for tesla's is softening. if that turns to be the case tesla stock will go into a long slide or a deep dive

[Maxed Out Mama]

Aldol, may I ask why you have that impression? Is it acquaintances/friends?

[watchingfromabove]

@Value

Might as well post this on your article.

The Con Man has done it again!

Musk/SpaceX just completed successfully their 50th Falcon Launch. Payload (Hispasat) is on its way to geostationary orbit with the Falcon stage 1 and 2 having nominally completed their part of the mission. Largest payload to date for Falcon 9-6000 kg. The first stage was not attempted to be recovered due to rough weather in the Atlantic.

Pretty impressive for the long con! (Those guys crack me up with that silly narrative!)

[LucasErratus]

The ticker sure got interesting today. Indexes are up. Ford and GM are up on a spot check. Yet Tesla is down even though it’s resting around the $330 support level. It should have gone up. If you look at MACD, there’s the crossover signifying a drop. Sentiment has turned negative. If the Feb delivery estimates make mainstream news, they’re headed to $300 real fast until April 3 official delivery numbers take it down further. Watching for the news. If it hits mainstream outlets before April 3, I’m doubling down on April 20 puts.

[Michael Rogus]

Yep.

[ea1122]

Agree, this thing should have ripped yesterday, especially given Friday's action. Fun times.

[Tom Short]

And possibly some tariffs on autos both directions across the Atlantic announced before then (or is TSLA software only?)... And even if that does not happen, other conditions for current valuation to be maintained;
- production issues solved
- ramp up to 5k/w confirmed, proven
- new financing achieved by mid 2018
- most of competition withdraw already launched EVs and failing any new models at least until 2020
Possible but perhaps not so likely...

[DisruptiveDave]

Mounting debt, losing about $12 per share, a market cap bigger than both Ford and GM, poor sales; there's a lot to hate here.

[chistletoe]

Tesla is bankrupt. The stock is worth $0.00. They lose money on every car they sell. The more cars they sell, the more money they lose. "Something's gotta give" ...No, actually, some people gotta stop giving Musk their hard-earned money with no rational hope of ever getting anything back.
It will happen. Musk does an amazing job of tom-foolery, skul-duggery, three card monte, hide-the-pea. But the whole reason that he is not building the Model 3's like he said he was going to, is that he no longer has the money to lose on that much production. The noose is getting tighter and tighter. I can wait, I am solvent, and he is not.

[jsantmyer]

The never ending optimism is starting to erode

[Calculus]

No use shorting bankrupt Ford Motor Company at ten us bucks a share....though many will.

massive short positions in Tesla is hugely bullish not bearish as they become Tesla's biggest buyer when equity price surges higher.

Tesla is now part of a "protected market" given the trade War rhetoric too.

Long Tesla
Very, very strong buy now.

Very bearish news for those long gasoline too in my opinion.

Rex Energy had a huge up day today.

[NYC1965]

calculus

Too bad you do not know that many shorts use hedges so no requirement to buy Tesla. until it folds

[LucasErratus]

@ValueAnalyst thanks for being such a good sport and going for constructive conversation. I think your article was actually fairly balanced between the views.

[NYC1965]

Author’s reply » I submit that, if you were as involved as I am on several TSLA-related platforms, you'd be as shocked as I am at how similar the two sides' views on each other are

I agree however each QTR the longs remind me they got in at double digit prices and have paper profits. While every QTR I go short and by the second month I get realized profits.

I like realized over paper

[hdan23]

With record losses, the bear case makes more sense than ever. Losses have followed revenue. A company’s job is to turn a profit

[kylethsmith]

I just have to give credit. I always love to see a balanced Tesla article. There aren't many of those on either side, and it is always good to read an article that is trying to inform me instead of preach to me.

[P. Roger]

Hmm, all that short volume, bad news and the bears can't crash the price. If bad news and aggressive shorting can't move the price down, where is the short cavalry going to come from?

[User 6547041]

PRoger. The problem is as VA pointed out Tesla has underperformed the market by 30% in the last 9 months. You are drifting lower slowly while everything else is taking off.

[Husker Bob]

P. Roger - "where is the short cavalry going to come from?".

Tesla management, obviously.

[AreV]

kitsinu wrote:

"It truly is amazing how well spoken persons can be this utterly foolish. Bulls have between a month (possibly less) and two and a half months before Tesla stocks goes into free fall, and instead of rushing to sell their toxic TSLA shares, bulls are spending their time mocking the far wiser bears. When the rain starts, it is too late to board the ark.

Tesla is so bad that it won't be reorganized, it will be liquidated."

I heard the same thing about GM, Chrysler and Ford back in 2008 when Tesla debuted the first long range BEV with excellent performance, handling and top speeds. It sold out and they did not go public (IPO) until two years later. But Tesla survived where GM Chrysler and Ford who barely scraped by but required 3$30 billion dollars in Government guaranteed loans, and then got a DOE loan from the Bush legislation in 2008 approved and paid out in 2009 to the tune of $5.9 Billion. Tesla borrowed 1/2 B or $500 million from the same DOE loan program but paid it back within a year. Ford has not, GM still owes between the $10 billion taxpayer dollars they acknowledge, and the $20 billion taxpayer dollars accountants say they never paid back.

I haven't seen you here before but have seen this same erroneous and short fired fable for the last 10 years since the first production Tesla hit the road. THey did not offer public shares (IPO) until 2010, two years after they wowed the world with million dollar performance in a vehicle for 1/10 of that.

Your prediction of bk from no facts I can see, and no sources, is as wrong, in my opinion, as it has been when the shorts repeatedly made that claim here for the last 8 years since IPO.

[Bill Cunningham]

Tesla is so bad that it won't be reorganized, it will be liquidated."

I heard the same thing about GM, Chrysler and Ford back in 2008

AreV,

Yes, I agree; there's a definite possibility TSLA will only be re-organized rather than liquidated.

[Jaberwock Research]

Going into the 2008 recession GM was in poor shape. After losing money in 2007, the huge drop in sales caused by the financial crisis proved to be too much for GM. GM filed for Chapter 11 bankruptcy in 2008.

Shareholders were wiped out - they lost all their investment.

Tesla is in worse financial shape now than GM was in 2007. When Tesla files for Chapter 11, shareholders will be wiped out.

[kitsinu]

Call it a death from a thousand cuts. Call it a perfect storm. Call it increasing the cash burn beyond the corporation's utility to hard core traders. Call it becoming too big and catching the SEC's attention. Call it impending interest rates, inflation and a recession looming all at once. Call it an impending bear stock and bond market. Call it a confluence of oddities beyond even what is normally seen from Tesla. Call it the arrival of skilled competition.

There is a pace to things like Enron and Bernie Madoff. The closer they get to the end of the run, the more you see them. When I see a sociopath getting his face plastered all over the news spouting his blatantly wrong predictions and not being called on those predictions, there is a point where I know his end is coming within the year. Perhaps it is that sociopaths are dangerous to society, and when sociopaths get too much power people instinctually conspire to bring them down. Perhaps it is something else. But I look at these men then become irrationally irritated (without even knowing anything about their business), I know that their time is coming to an end.

I don't hate Elon Musk, and I am certainly not jealous of his intellect. But I would be lying if I said that he doesn't rub me the wrong way. When I look into his eyes they appear dead and lacking in empathy.

[james 310]

This stocks cracks hard after a major holder decides to sell. Best case for a bag holder is that it’s dead money-look at the market today and the price of Tesla. No correlation at all. Worst case is a severe loss of capital.

[Maxed Out Mama]

Good content-rich article.

[ValueAnalyst]

Thanks!

[CommodityInvestor]

"Second, Tesla will soon announce its 1Q 2018 Production and Delivery Report, and if the company reaffirms its guidance for a 5,000-unit weekly production target by the end of Q2, then the stock could react positively."

I'd love to see someone statistically correlate Tesla guidance with results. Historical data seem to suggest little if any reliability for management guidance over the past several years? It's hard to see how anyone would consider such guidance as credible basis for investment at this point?

[ckarabin]

Why would it react positively to 5000 per week. You do know that Tesla themselves said the car would have a negative gross margin for while and certainly in Q1. Sell more=lose more. And THAT's supposed to push the stock market cap to be even HIGHER YET than GM or Ford? Tell me why Tesla that loses $500MM per quarter should have a market cap equal to GM or Ford. And if you think 2019 sales will be better, then do the math and make a 2019 EPS estimate before you just blindly say that any good news equals a higher stock price!

[doggydogworld]

ckarabin - "You do know that Tesla themselves said the car would have a negative gross margin for while and certainly in Q1. Sell more=lose more."

It's actually sell less=lose more.

Do you understand the concept of fixed costs?

[watchingfromabove]

@doggydog

>>>ckarabin - "You do know that Tesla themselves said the car would have a negative gross margin for while and certainly in Q1. Sell more=lose more."

It's actually sell less=lose more.<<<

Actually, for the period that ckarabin describes, he is right. If you have a negative gross margin, sell more = lose more. At the same time period, for the S/X, sell more = lose less.

I'm unsure what drives those margin calculations in Q1 and why they would change, but to go from negative to positive margins, some cost per unit has to go down with volume. Fixed costs are fixed so they don't change. So it is interesting to ascertain what is changing after Q1 (training costs, hiring costs, labor cost per vehicle or several other factors?).

[ckarabin]

Why would the author believe ANYTHING that Musk says? It really is the height of gullibility at this point! Even if he does come thru on Model 3 production this quarter, how many times has he fibbed so far on the same subject? Fool me once, shame on you, fool me 4 times, shame on me for listening!

[User 6547041]

Interesting chart on short volume. I find that Fidelity still has plenty of shares available to short. I personally covered the trading position of my short around $327 last week from $358. Core position is still intact cause I want to be short when it really moves.

"Bulls are not selling - bears are not covering. Something's gotta give" - It is already giving look at your comment below.

"In other words, Tesla's stock has underperformed the major indices by as much as 30% in just nine months."

VA - I think you answered your own question only you just didn't realize it. Underperforming the major indices by 30% means there are no new buyers and there are plenty of sellers (and not just shorts) There are still plenty of shares available to short so the shorts are not driving the price action. The big boys are selling and this thing is making lower highs and lower lows. The diehards will hold their position all the way down and probably double down along the way a few times but it will continue to be liquidated by the smart money.

You are losing faith but don't let your stubbornness cost you significant $$. This thing will continue to sell off. Today is a perfect indication of that based on the action in a very strong day in the market.

[rennatus]

VA wants a "healthy discussion", in his opinion your opinion isn't healthy....lofl, so no comments from him.

[ValueAnalyst]

My publicly available articles get over a thousand comments daily. It's simply impossible for me to respond to everything. I respond to all questions on my service.

[ValueAnalyst]

kcdowntown,

Thanks for your comment. I see stock price underperforming as an opportunity, as the fundamental outlook of the company has continued to improve: cash balance has remained healthy, competitors' products have flopped (Bolt?) and will continue to do so (I-PACE is significantly inferior to current Model X, let alone the upcoming Model Y), Gigafactory production is gradually increasing, Fremont assembly is humming along.

In short, Tesla is massively underperforming its own guidance, but still years ahead of competition, because nobody has even plans to build a Gigafactory... all that "Chinese supply" of batteries that was supposed to burry Tesla... where are they?! Without batteries, there is no successful competing production. Without Gigafactories, there is no batteries at a reasonable cost. It's simple as that. Tesla is charging $9,000 on 20 extra kWh for LR at $100-120/kWh cost to manufacture... think about that.

[Rogier van Vlissingen]

Monorail Man on Twitter just posted 21 theses on Tesla. Check them off, please and then then answer the question: what are you long?

[ValueAnalyst]

I can't read every nonsense out there. There are certain bears I follow, but that's about it.

[earlyriser]

Hey VA, yes, both sides have yet to blink. I am convinced that one side will blink this year. The model 3 rollout meets capital raise. These two things are the test. Even after suffering substantial losses on my 2019 puts, I am more confident than ever (at least on the fundamentals). Who knows how long the market can ignore them. Musk either raises substantial amounts of capital to fund expansion this year or the semi, roadster, etc prove to be vaporware.

[ValueAnalyst]

It may be that Musk is waiting for the short squeeze to raise capital (whether equity or debt, I do not know, but I think debt) to accelerate the buildout the next round of Gigafactories. I'm okay with minor dilution if it gets us Gigafactories 2, 3, 4, and 5+ sooner rather than later.

Same thing happened in 2013. Tesla (under the radar) scouted 100+ locations for Gigafactory, but did not announce location or the intent to build one until November, several months after the mother of all short squeezes in April/May, closely following which Tesla raised capital.

[Maxed Out Mama]

Interesting thesis. Do they have time to wait?

[earlyriser]

Well, other than model 3 suddenly showing better than expected volume at a good margin, I don't know what would cause a short squeeze. Actually, the opposite may could occur. I also am curious as to what form the capital raise will take. Logic would say eqiuty. Even though eqiuty is dilutive, it doesn't require interest payments or have to be paid back. What Tesla needs is a long runway and debt, while cheaper than eqiuty, shortens that runway.