The Crazy Tesla Play

[Singuy]

Hope some of you guys bought into AMD when I wrote the long thesis on longing AMD. Got another play that may just look to be too good to be true.

Background: Elon Musk tweeted "am thinking about taking Tesla private @420/share, funding secured!" and then submitted a letter to his employees about why he wants privatization, and for share holders who wish to stay in Tesla, they have the option to after privatization. Later he tweeted "the only reason why going private is not a sure thing is because shareholders need to vote on this". Tesla board responded that Elon spoke with them a week ago about privatizing Tesla and addressed the issue of funding.

Elon tweeted 6 weeks ago "shorts you guys have 3 weeks to cover".

Earnings report came out strong for Tesla, hitting 5k/week on the model 3 production and turning it slight gross margin positive. They are expecting 6k+ in the up coming quarters and 15% gross margin positive for the M3 and overall be cash flow positive from now on forward.

The play: Currently Tesla is not at 420. SP is currently at 350ish. You might be scratching your head as to why. There's a bear thesis that Elon does NOT have funding secured, lied on tweeter just to burn the shorts via stock manipulation. They are hoping that the SEC fines/put musk in Jail for this. That's right...the short thesis is Elon decided on a Tuesday morning to commit a crime, sabotaging himself and his company because he's on a suicide mission to burn the shorts!

Potential: So there are a couple thoughts on the matter.

1. Stock goes to 420 eventually after the board files a 8k.
2. Stock goes way beyond 420 after the board files 8k

The reason why there's a chance of surpassing 420 is because

A. Tesla is one of the most shorted stock on the market, with shorts INCREASING AFTER the tweeter announcement. Once 8k is filed and funding is indeed secured, shorts will have no where to go but to cover since their thesis of "Elon is going to Jail, Tesla going down to Zero" is no longer a possibility. With 27%+ of the shares floated(meaning created out of thin air due to shorts borrowing them), these 35 million shares need to be bought back and return them to the share holders. This may trigger a black swan event like what happened to Volkswagen in 2008. Considering that Elon also want die hard Tesla fans to keep their stock privatized, this create more incentive for longs to not sell to shorts..meaning there may be a huge deficit in shares that can be bought back triggering the black swan event.

B. Shares are incredibility hard to buy once the company goes private. This will be the last time to easily purchase Tesla shares via open market before they are delisted. Longs who believe in the mission and their potential will want to pay a premium for Tesla shares.

So to me the play is safe because at the end of the day, the only way Tesla will tank is if Elon is indeed lying and ends up in Jail. It's hard to prove considering that they need to prove he made up the entire scenario, have spoken to no one about going privatization, and secured no funding even verbally from anyone prior to his tweet. Good luck shorts..you guys are crazy.

Disclaimer, I have 70k worth of Tesla stocks.

[james.hendrickson]

Here is what Morningstar's analysts have to say about TSLA:

Tesla has a chance to be the dominant electric vehicle firm and is a leader in autonomous vehicle technology, but we do not see it having mass-market volume for at least another decade. Tesla's product plans for now do not mean an electric vehicle for every consumer who wants one, as the prices are too high. The Model X crossover released in late 2015 starts at about $80,000, but will average much higher with options. The Model S sedan starts at $74,500. The Model 3 sedan starts at $35,000 and rolls out gradually through 2019 in other variants. This price is before any tax credits, but the $7,500 U.S. federal tax credit will start to phase out in January 2019.

Tesla is building its gigafactory--a lithium-ion battery plant under construction in Nevada--to help it produce at least 500,000 vehicles at its sole assembly plant in Fremont, California. CEO Elon Musk said in May 2016 that his best guess for 2020 output is 1 million vehicles, but we think that will certainly not all be in California. A Shanghai plant will open in a few years and be wholly owned by Tesla. We are skeptical of the 1 million number, given Tesla sold about 103,000 vehicles globally in 2017. Even if demand exists for these vehicles, this quantity is small relative to total global auto production, which should reach 100 million units in the next few years. Thus, we think global mass adoption of pure electric vehicles is still a ways off.

In the meantime, Tesla will have growing pains, possibly recessions to fight through before reaching mass-market volume, and increased its debt levels by acquiring SolarCity to become a vertically integrated sustainable energy company. It is important to keep the hype about Tesla in perspective relative to the firm's very limited production capacity. Tesla's mission is to make EVs increasingly more affordable, which means more assembly plants must come on line to achieve annual unit delivery volume in the millions. This expansion will cost billions a year in capital spending and research and development and will be necessary even during downturns in the economic cycle.

Source: August 07 TSLA Morningstar report, via schwab.com

They pretty much give TSLA 1 out of 5 stars, citing overvaluation, lack of economic moat and high uncertainty.

[Singuy]

You should check to see what analyst had to say about AMD in 2017.

[Singuy]

Also I am not advocating people here to go long on Tesla. This is a Tesla stock play..meaning short term. You are betting that Tesla will go private vs Elon committing a crime.

[james.hendrickson]

Singuy - thats right. Its good to have a comprehensive discussion. In general, its hard to predict the future and adverse news can provide opportunities.

[rennigade]

Isnt the SEC now investigating since Elon thought it would be a good idea to manipulate the stock price by tweeting what he did? Wonder who all sold when the rise happened? yikes

Ive said it since day 1...Elon is one smart dude...but he's a shady character.

[Singuy]

Isnt the SEC now investigating since Elon thought it would be a good idea to manipulate the stock price by tweeting what he did? Wonder who all sold when the rise happened? yikes

Ive said it since day 1...Elon is one smart dude...but he's a shady character.

It's pure speculation to think Elon is purposely manipulating the stock. That's the angle of the shorts hence the current sp. When a company CEO says one thing and the other side thinks it's completely made up for the purpose of x,y and z..the other side is speculating hence having the riskier angle.

[corn18]

It's pure speculation to think Elon is purposely manipulating the stock. That's the angle of the shorts hence the current sp. When a company CEO says one thing and the other side thinks it's completely made up for the purpose of x,y and z..the other side is speculating hence having the riskier angle.

I don’t understand any of that.

I am also not going to gamble on Elon Musk. He’s as predictable as Howard Hughes.

But I am rooting for him. What he is doing is changing the world and I’m a big fan of that.

[Tabs]

Mmm OK, I'll bite. I think this is a classic tale of short-term swing and day traders doing what they do best, and that is trading on news.

Aug 6, 2018: Prior to the rumor that Tesla might go private, the stock sat at around $342.

Aug 7, 2018: Musk's infamous tweet goes out. TSLA rallies, peaking almost to $380.

Here, I want to take a moment and emphasize two key words that Musk himself wrote, and that is, "Funding secured." I don't know how anybody can interpret that to mean anything else other than what is literally printed on the label, and that again is, "Funding secured."

Aug 9, 2018: Still, people are interpreting away, although Musk being quiet on the details hasn't helped on this front. To add insult to injury, Tesla's own board seemed to have been kept in the dark as well, well other than the rumors that the Secret Santa might be Saudia Arabia. No matter who it is, please keep in mind that won't necessarily solve any of Tesla's productions woes. In fact, it might actually make it worse somehow. Typically, a buyout means even longer production times (since Tesla would not be beholden to shareholder demands), and longer production times is likely to translate to more cancellations. The sobering news erased the rally, bringing it back down to as low as $347.

So what does all this mean? First of all, there is no way I'd short this stock. Sure, Elon likes to promise the sky, but history has shown that he has this magical way of actually pulling it off somehow. Well, mostly. Especially when his wording is as plain as, "Funding secured." Seriously, why would he need to lie about this? Is it really that far-fetched to imagine that he has the musk to attract foreign investment for a buyout? Also, the conspiracy to squeeze short sellers and manipulate the market makes no sense to me. You're talking about a guy who made a lot of his own company patents public for his rivals to use freely. No, the man is an idealist and a romantic. He doesn't care about short sellers. He only wants to see his visions turn into reality, regardless of what form it takes. That and the valuation is refusing to sink.

However, would I buy TSLA just on this news? No. Please remember that, no matter how this story pans out, Tesla's production woes remain hellish. That is the one fundamental constant here that will not change. Also please keep in mind that what Tesla is facing is not a money issue, but a technical one (mass production scaling). So, extra cash injections wouldn't help him that much at all (and this funding isn't for that anyways). Also, let's not forget that whoever fronts the money, IN THEORY, can force Musk's hands to do something different from what he is promising current shareholders.

That leaves those who already own the stock, which I would say to just hold and see. If you're already in knee deep, you've got nothing to lose at this point, and quite possibly something big to gain.... There was a rally. The rally is gone, but the market held its pre-rally value, if not a little above. So, that's actually "good news" with some possible upsides that have yet to arrive? Who knows, we'll see. Today is a brand new week.

Oh yeah, and if you are a day or swing trader, trading on this news is already long since been over (from back in August 9). While the story itself is far from over-- and I am sure we will hear more about it later, and more trades will result from that-- trading based on Elon's infamous tweet is at least over for now, and I think it's time to move on. Let your technicals and your pre-programmed TSLA buy/sell orders do their thing, while you scour for your next big score.

(Insert typical warnings about day/swing trading, and trading on news here.)

[rennigade]

https://nypost.com/2018/08/11/elon-musk-sued-by-investors-over-proposal-to-take-tesla-private/

I guess Elon isnt as smart as I thought. A ceo should choose his words/tweets more carefully. I dont think anyone would deny that...at least I hope not. And yes...someone more powerful than him should also choose what he tweets more carefully.

[Nutria]

https://nypost.com/2018/08/11/elon-m...tesla-private/

I guess Elon isnt as smart as I thought. A ceo should choose his words/tweets more carefully. I dont think anyone would deny that...at least I hope not. And yes...someone more powerful than him should also choose what he tweets more carefully.

You can get sued by anyone for any imaginable reason. If he really does have financing arranged, then the suit will fail prima fascia.

[james.hendrickson]

Musk's job as Tesla CEO must be tremendously difficult. The guy is a national celebrity, divorced, owns two major companies both of which are potentially transformative and he is also involved with a number of smaller spinoffs. On top of that he's under extreme media scrutiny regarding Tesla's production numbers, and Wall Street Analysts hate Tesla and think it will fail.

Part of me wonders if he isn't taking Tesla private out of personal reasons - he is probably super tired of the headaches of running a public company.

[Singuy]

Musk's job as Tesla CEO must be tremendously difficult. The guy is a national celebrity, divorced, owns two major companies both of which are potentially transformative and he is also involved with a number of smaller spinoffs. On top of that he's under extreme media scrutiny regarding Tesla's production numbers, and Wall Street Analysts hate Tesla and think it will fail.

Part of me wonders if he isn't taking Tesla private out of personal reasons - he is probably super tired of the headaches of running a public company.

If you read his post about why he wants to take Tesla private, you'll find all your answers there. A lot has to do with taking Tesla out of the media's spot light as he sees it as a source of distraction. Also he feels a lot of the media and short sellers having ulterior motives, trying to tank Tesla for monetary gains. There's a reason why every reported death or fire in a Tesla car ends up on CNN while we hear nothing about the other 30k auto deaths/year from other manufactures.

[Singuy]

Please remember that, no matter how this story pans out, Tesla's production woes remain hellish. That is the one fundamental constant here that will not change. Also please keep in mind that what Tesla is facing is not a money issue, but a technical one (mass production scaling). So, extra cash injections wouldn't help him that much at all (and this funding isn't for that anyways).

This is where I was going to long Tesla anyways because his production woes are behind him.

Bloombergs M3 production tracker pinned Tesla production at 5800/week as of last week. Numbers are improving significantly with burst rate becoming the normal rate.

[disneysteve]

I don't follow Tesla at all but I know I see more and more of them showing up on the road. And they recently opened a showroom near my house.

What is the main production problem? What has prevented them from making more vehicles?