For many years, Tesla has been a battleground for short sellers. Sometimes they have made money; but they have also lost money, most recently when Tesla made a surprising profit in the third quarter and the stock plunged back over $ 300.
Tesla shares are unstable, but there is also attention from short sellers. For much of the last two years, their focus was on Tesla's car business, which made sense. Even today, car revenues are the vast majority of Tesla's top line, at over $ 14 billion so far today, while the energy business has kicked in just over $ 1 billion.
Through three different vehicle programs: Model S, Model X, and Model 3, Tesla had shown an enviable ability to generate massive hum and register customers. But when it came to actually building and delivering cars, Tesla struggled. The modern automotive industry is very much about production processes, but Tesla did not want to follow any leaders. CEO Elon Musk's ego got in the way of a smooth performance on this front.
Short sellers smelled blood and moved in, knowing that the cash-intensive nature of the auto business would weigh Tesla's ability to record profits and raise capital. Some big names ̵
Musk did not help Tesla's case by entering a chaotic period in which he attempted to take the company private, failed, and had to submit to an SEC investigation and pay millions in penalties, losing his chairman's title in the process.
A stabilized car business sends short salesmen looking for weakness elsewhere
However, following Q3 2019 earnings results, Tesla looks like it has stabilized its Model 3 business and can move on to the next challenge and launch its Model Y transition. (Revenue appears to have flattened out after reliable expansion by around millions per quarter, but the company is likely to trade revenue growth for steady profits, and at least now has the balance of $ 5 billion in cash with just two months left in 2019, a historic unusual situation for Tesla.)
Short Tesla based on a negative view of a car business that has grown from under 50,000 in annual sales to nearly 250,000 in 2018 or probably 300-400,000 in 2019 is to borrow a phrase from the chess world , a busted position.
That's why shorts have zeroed in on solar energy. For the record, I thought Tesla's 2016 merger with SolarCity – Musk was chairman, his cousin Lyndon Rive was CEO, and brother Kimball was on the board – was a terrible idea. My biggest concern was that Tesla would add SolarCity's rather weird debt load (it was based on long-term rental of solar panels) to the balance at a time when Tesla needed resources to launch Model 3.
It's really not much to suggest The SolarCity reality at the time, which is that it was heading toward insolvency. Chanos had already focused on this via a short position he took in 2015; The merger snook it, and Chanos went on to make Tesla his most talked about position.
Musk now has some shareholders who claim that the SolarCity merger involved fraud and self-dealing, a question that the justice system should settle. From the Tesla investor's point of view, the negative aspects of the merger were oversold: The stock sank at the end of 2016, but in mid-2017 it surged to a record high, approaching $ 400. The long consensus was that all concern about SolarCity created a fantastic buying opportunity.
Always right, but lose money anyway
Tesla's tendency to reward long investors – the stock is up over 1200% since the company's IPO of 2010 – is both frustrating and addictive for short sellers. After all, the stock is up … 1200% in less than a decade, and during that time, Tesla has never had an annual result. Hence the addiction.
But what about the frustration? As I noted in 2017:
The shorts have always been right on Tesla, but it has nothing. They were right when there was only one car company that sold a small number of cars and made no money. They were right when it became an energy storage company. They were right when it saved SolarCity.
GRRR! Few things are worse on Wall Street than it is always technical while still losing money.
If long-time investors are like big military strategists, charting the financial continent and distributing forces to keep ground and avoid conflict, short sellers are more like guerrilla tacticians, who flit from hit to hit, and enjoy the melee. Any weakness is a goal.
Since Tesla's automotive industry is now as strong as it has been in the company's history, the weakness is now obviously solar energy. For the markets, that business is as irrelevant as it has ever been; despite the unevenness of the shutdown, Tesla shares have consistently shriveled away from the SolarCity burden, and in any case, Tesla has not exactly poured money into growing SolarCity (quite the opposite, in fact, as Musk has admitted that Tesla borrowed SolarCity employees for to get the Model 3 out the door.
As far as I'm concerned, Tesla solar is basically a nothing-burger, and I half expect that Tesla will liquidate it when it finds a way to get the balance off the debt. enough, Musk, a committed solar booster, proved to be overly sensitive to card sellers, poking Einhorn after the guy complained to Tesla in his Q3 investor letter (and pointless, and invited Einhorn to tour Tesla's facilities when Einhorn appeared in his letter to
Interestingly, the brief attack on solar energy has taken what was an invisible business and brought it back into the picture, which can actually improve Tesla's solar fortunes. But there is always a risk in guerrilla warfare: attack a weakness enough times, and you can inadvertently turn it into a force.