The shorts of Tesla Inc. (TSLA) are often quick to cite the problems they see about the company, but with a short-sighted vision, maybe? They also want their positions well heard and thus can be loud, echoing among themselves with a total short interest of 30.68%, as of 5/15/2018. That’s soundly high and you can’t miss it but instead, have probably heard enough of it. Market chatters will always be there and the key is to hold your own ground with some solid perspectives.
Increased Competition for Tesla, the Shorts Would Say. Well, Take a Contrarian View!
Why is it not a good thing for Tesla when more companies are making electric cars? It only helps Tesla continue to go mainstream. The company will continue to be in the driver seat in the electric-car race, the same way it started the electric-car movement.
Having established a secured marketplace with its Tesla brand, the company needs not to worry about how competitors are trying to catch up, when it can keep introducing its next thing and setting the industry trend. The head-start by Tesla ensures that it continues to move in the fast lane as the competition drives forward. Unless the company suddenly makes cars that can’t even break, loyal customers won’t miss their pit stop at Tesla for their electric-car services.
Production is not Meeting Demand: Maybe a Good Problem to Have?
Would you rather have a production problem you know you can fix over time or a demand problem you don’t think you can solve in the end? Then why the intense worries about meeting production targets? If it took about a year ramping up from making 200 to 2,000 cars a week, it’ll just take more time to reach 5,000 or 10,000 cars a week. Someone has to understand manufacturing cars inside out to be convinced that Tesla can never be able to mass produce its Model 3.
Or if someone is really knowledgeable about making cars, he should know that Tesla’s current production issues will be resolved as it continues to break production bottlenecks. To prove that they really know it all, a big sell-side investment company recently recommended GM over Tesla, on the merit of GM as a whole. An apple-orange comparison?
What About Earnings and Cash Flows? Sure, Let’s Talk About Investment Paybacks.
Investing in something as pioneering as Tesla for a few quick bucks out of the income statement? What would be the direction of cash flow in the investing stage? Right, outflow! Naturally, investments of a grand scale like Tesla’s come at the expense of short-term business profits and quick investment returns. It’s true that Tesla hasn’t retained any earnings, but it’s also real that Tesla has accumulated some unique intangible value that has yet to be fully accounted for on the balance sheet.
Should Tesla ever run into a cash crunch and need to liquidate itself, its acquisition value would probably be more than enough to pay for itself, both its debt and shareholders’ equity. Then why such a liquidation in the first place when Tesla’s assets could command a premium over its debt?
It’s no coincidence that Tesla’s market cap is almost twice as large as the company’s total assets, or the sum of its total liabilities and shareholders’ equity: $49.5 billion vs. $25.3 billion, excluding $3.4 billion in cash, as of 6/1/2018. In other words, the market is more than willing to pay for Tesla’s debt and compensate for its shareholders in a hypothetical sale.
Investor Note
In any one of the above-mentioned situations, more upsides are evident for Tesla stock and more downsides for Tesla shorts, making shorting Tesla shares simply riskier than the Tesla venture itself. Without a longer vision for Tesla, what you see may not be what you’ll get in the end.
What if Tesla, Inc. someday becomes Tesla Group, folding in Elon Musk’s other ventures one at a time? There are certainly fewer questionable headlines about SolarCity these days. Then maybe less unwanted attention to the nitty-gritty of Tesla’s car operation too, when it’s only part of a bigger Tesla Group. Some Tesla shorts are also betting on Elon Musk’s walking away at some point, like how he cashed out with his Paypal stake last time around. Not likely! The man’s legacy is on the line this time, not the money.
JW Investments Associates: Research & Management 