Tesla – there is the short squeeze

Tesla Roadster
Tesla Roadster, © Tesla

In the previous H2-international issue, I wrote that the price rally from USD 250 to more than USD 430 already represented a short squeeze. However, I was quickly disabused of that notion when I saw Tesla’s stock hitting an intraday high of USD 1,000 before pulling back in recent weeks.

I was not able to find anything that could, even remotely, justify the massive increase in market capitalization to USD 180 billion. It’s not to the detriment of Elon Musk, to be sure, as he has achieved one of his milestones, a cap of over USD 100 billion. As far as I can tell, he could be rewarded with a payout of more than USD 300 million.

According to a list of stock market filings exceeding USD 100 million, multiple hedge funds invested big in the carmaker at or around the time of the rally. I can only speculate whether they all agreed on this, that is, if it was a joint, targeted effort, but I would not be able to prove it. I suspect, though, that the aim was to put pressure on short sellers, who had shorted over 22 percent of Tesla’s shares. The rally was losing them money. Still, even subsequent quotes of over USD 700 seemed inflated to me.

Mark Spiegel, a well-known and successful short seller, considers Tesla [Nasdaq: TSLA] to be a large stock bubble. He said he had often been wrong in the past, making losses from shorting the company’s stock, but will keep his short position. He also expects much lower prices in the future, citing the company’s debt and its purchase and lease obligations. These could be as high as USD 30 billion, including what Tesla owes its suppliers. Additionally, the electric carmaker was about to face a huge onslaught of competition.

In January and February, Tesla’s models no longer ranked among the top-selling vehicles in Norway. Model S, X and 3 cars came in 18th place or lower. And Adam Jonas, an analyst with Morgan Stanley, now believes General Motors will come out ahead thanks to an electric vehicle budget of more than USD 20 billion and batteries that reportedly enable a range of 400 miles (more than 640 kilometers).

read more in H2-international May 2020

Risk warning
Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Author: Sven Jösting, March 19th, 2020

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