Tesla Shorts Getting Crushed This Week

Summary
  • Tesla rallying on positive delivery data, which implies Model S/X ramp, takes us within the ballpark of 100k deliveries in FY’17.
  • The recent stock rally is attributed to short interest covering as short interest as a percentage of float was hovering above 20% in 2016 and 2017.
  • However, we expect that figure to come down significantly as investors reallocate or close short positions on TSLA.
  • Furthermore, we anticipate the financial outlook to beat consensus estimates as there’s room for Model S/X ramp due to seasonality and continued rollout of Tesla dealership locations.
  • Finally, we reiterate our $306 price target, but we would be willing to revise estimates even higher, assuming financial outlook is better than expected.
It looks like Tesla (NASDAQ:TSLA) shorts are getting flushed out on Monday's trading session, and quite frankly, it doesn't surprise me. I've always felt the bearish investment thesis put forth was full of holes.

For those who need a refresher, here's a reminder of what I had stated coming out of prior quarter earnings:
I know it's going to anger many of you here on Seeking Alpha, I believe TSLA is merely a mirage designed to dupe the shorts into betting against the name, only to lose their entire bank account in the process.
That being the case, I'm not here to pick fights with everyone. But rather observe/analyze recent trends in price action, as the stock is moving awfully close to my target price of $306. Clearly, the momentum in the charts suggests that my price target was a little conservative.

Here's what seems to be driving the stock:
  • 13,450 in Model S deliveries
  • 11,550 in Model X deliveries
  • Auto Pilot 8.1 release
  • Capital Raise of $1.2 billion
  • Short interest remains elevated
  • Tencent (OTCPK:TCEHY) buys 5% of Tesla Inc.

OK, so the delivery figures were pretty solid, and I know many of you will debate to the ends of the earth to refute the data. But, basically, 24,890 car deliveries exceeds the low-end of consensus analyst estimates. With a better than expected Model X mix we can expect upside on ASPs, hence I'm sticking with my forecast of 97.4K car deliveries for FY'17, which may move higher assuming demand is healthy and supply constraints are worked out.

Short interest is trending lower, and I'd imagine with the stock now trading at new all-time-highs even the most patient of TSLA bears will start covering positions. Currently, the shares short as a percentage of total share outstanding hovers at 20%. I'd imagine this figure dropping, given how over-crowded the trade has been, and with the stock trending to new all time-highs, the shorts are now adding to their losses regardless of cost basis.

This is looking like a ticking time bomb for shorts and a well-timed entry for bulls.

Since, we don't have any additional data, until Nasdaq releases data on short interest (usually the second week, and last day of the month), we'll review the data once more, prior to TSLA's earnings announcement.

While there's been a near absent of news coming out of February, the month of March was a completely different story. The stock is now breaking out of a miniature symmetrical triangle on really heavy volume. Hence, the reference to short interest earlier in the article. That being the case, I'm expecting shares to sustain above $300 and could even push towards $350, assuming the data coming out of Q1'17 earnings report is positive in terms of financial outlook.

The stock moved up by 7% on Monday's trading session. Clearly, the stock is exhibiting this momentum as we move closer to Model 3 ramp and sustained 30% y/y growth in its aging Model S/X categories. Clearly, the consensus didn't believe the delivery ramp. But with confirmation of Q1'17 deliveries of 25k, we'd imagine the figures ramping-up on a q/q basis, given the seasonal impact of auto sales.

I'd also mention that TSLA remains the safest stock to own among automakers given sluggish sales on the industry aggregate and weakening data on car subprime loans. With write-offs expected to increase and diminished prospects of buyers buying on easy credit, we're best positioned in Tesla when pertaining specifically to auto stocks in general.

Furthermore, even if TSLA were to release Model 3 in 2H'17, I'd still imagine Tesla prioritizing the production of Model S/X assuming demand remains stable.

Therefore, investors should buy TSLA prior to its Q1'17 earnings announcement as there's some upside on the outlook commentary.

We continue to reiterate our buy recommendation and $306 price target. We may move our estimates even higher, assuming financial outlook is better than expected, or shares exhibit greater momentum on forward multiple expansion.

Source: TC 2000
Source: NASDAQ, Cho's Tech Research

Source: NASDAQ, Cho's Tech Research



Tesla’s stock (TSLA) reaches new all-time high on strong sales ahead of Model 3 launch

As we reported earlier today, the pre-market action on Tesla’s stock indicated that it could be testing new all-time highs, but it was now confirmed after the market opened with Tesla up as much as 5% for a new high of $292 per share.

It brings Tesla’s valuation past $47 billion. That’s more than Ford ($45B), Nissan ($40B), or Audi ($30B), despite each of those brands selling more vehicles in a month than Tesla does in a year.

Though as we reported last week, the comparison with legacy automakers is not exactly fair since Tesla is positioning itself more as tech and energy company than just an automaker.

The announcement of Tesla’s record deliveries for the first quarter was undoubtedly the biggest contributor to the surge this morning.

Several Wall Street analysts were predicting deliveries in the lower end of Tesla’s guidance for the first half of the year and they will need to adjust their models, which is likely contributing to the market’s reaction this morning.

Additionally, most of the same analysts are guiding for lower Model 3 deliveries in 2017-2018 than Tesla is guiding. The company’s current strong deliveries show that they can beat guidance and could result in higher confidence in its ability to deliver the Model 3 on time and in volumes.

It will be interesting to follow the market perception of Tesla over the next few months leading to the planned start of Model 3 production in July.


Tesla Stock (TSLA) Soars & Passes Ford (F) On Record Production, Model 3 Progress, & Maybe Some Fake News?

There’s been a long-standing argument that the Tesla Model 3 won’t arrive on time because Tesla (TSLA) had production delays with the Model S and Model X. That argument seems to be built on faulty logic, as Elon pointed out on a conference call a year or so ago.

The problem with that argument is summarized in this 3-point list:
  1. Model S was delayed because Tesla was just learning how to build a car.
  2. Model X was delayed because Tesla was trying to design and produce the most amazing production car on the planet (which I’d say it succeeded at) and the company put too many new bells and whistles into it.
  3. Model 3 has been specifically designed for mass production and ease of manufacturing, without introducing fancy new tech that hasn’t been used in other Tesla vehicles and doesn’t have a super secure and reliable supply chain. Furthermore, Tesla is apparently prepared to produce any key components itself if needed.
Get the point?

But hey, Tesla at least needs to show that it can ramp up production of its premium-class Model S and Model X, right? If it can’t demonstrate annualized production of 100,000+ of its existing Model S and Model X high-powered stunners, who’s going to believe it can get 500,000 units of a new model (Model 3) out the door within a couple of years? (Not to mention a similar number of Model Y electric crossovers not too long later.)

Well, as you probably read by now, Tesla has reported that it produced a record 25,418 vehicles in Q1 2017, delivered over 25,000 (also a record), and increased its production 69% in one year (Q1 2017 vs Q1 2016). In other words: game on.

Now, some of us who have paid attention to the 3-point list above haven’t stressed so much about the likelihood of Tesla meeting its Model 3 production plans and proceeding to demolish the competition in the bottom of the premium-class car market — just as it’s done in higher segments of the premium-class car market.

However, others in the investment community and auto world have been more cynical, or more cautious if you prefer that term. It seems a day can’t go by without Tesla cynics commenting on here that Tesla can’t achieve its stated goals, even though it basically nailed a Secret Master Plan within 10 years that nearly everyone considered to be an unrealistic fantasy. Frankly, it seems Tesla has succeeded beyond anyone’s wildest dreams from the time Elon published that “Secret Tesla Motors Master Plan.”

Now, Tesla is ready to bust through the roof of that first master plan and fly into the goals of the second. EV fans, solar fans, climate hawks, tech nerds, and Tesla looney tunes are excited. TSLA shorts, on the other hand, seem to be in for a disturbing wake-up call.

One thing people may be waking up to, a topic I focus many of my conference presentations on, is that disruptive technology seems to grow slowly in terms of market share for a long time … until it’s genuinely ripe, word of mouth starts to work its magic, and this disruptive technology quickly takes over the market. It’s basically disruptive because of the exponential growth trend that routinely surprises much of society.

The other thing people seem to be waking up to, or at least the investment community seems to be waking up to, is that electric cars are the latest example of disruptive technology ripening, and Tesla Model 3s are likely to start falling off the trees this year in large numbers. The beauty that I filmed for the video below approximately one year ago wasn’t vaporware. It’s really on the verge of production, and hundreds of thousands of people should have one by the end of next year.

I’d guess that it’s no coincidence TSLA soared just as Ford’s stock (F) collapsed. People don’t have much faith that Ford is prepared to compete with Tesla (and others) in the fast-approaching EV market.

Granted, some analysts and investors still think Big Auto has plenty of time to respond and match Tesla’s electric efforts. Others disagree and think such analysts/investors are again falling for the never-ending disruptive tech trap. For the sake of conversation, here are two quotes from analysts who don’t think Big Auto has much to fear and don’t think Tesla’s current valuation is justified (via a Bloomberg article on the topic):

Maryann Keller, an auto industry consultant in Stamford, Connecticut: “This is still the auto industry. It’s highly competitive and he will have to add plants and people just like GM and Ford do. There will be a day of reckoning at some point.”
Dave Sullivan, an analyst at AutoPacific Inc.: “[Investors] act as if Tesla has some sort of patented product that cannot be replicated. … By the end of this decade, there’s going to be some significant choice for consumers looking for an electric vehicle.”
Ah, yes, the whole “it takes time to scale” + “the big guys can always catch up” + “Tesla doesn’t have any special competitive advantages” argument.

For TSLA shorts, Tesla haters, and simply people who have more faith in Big Auto, those arguments get less and less convincing by the day. It’s not just about Tesla opening up the market with the Model S, getting the Model X into a similar position in the premium SUV world, and getting close to Model 3 production. It’s also that Tesla has been genuinely impressive when it comes to integrating technologies and processes from other industries (like the space rocket industry), improving manufacturing efficiency, improving EV battery chemistry, massively scaling battery production, slipping into related markets (most notably, stationary energy storage and solar energy) in hypercompetitive ways, and jumping into the future quicker than others (think Autopilot and coming robotaxis).

An April 1 story I wrote about “coming” #TeslaCities was a bit fanciful, of course, but it seems the integrated and futuristic vision matched Tesla’s brand so well that many people took it for real (at least initially) and the article has landed 177,810 views within a couple of days. I hope this fake news didn’t influence the Tesla stock surge, but I do think the same thing that makes #TeslaCities so believable and enticing is what has put Tesla above Ford on the stock market. One of those companies had tremendous vision and innovation in the 20th century, and one of them has tremendous vision and innovation now. (OK, being nice, perhaps Ford still has tremendous vision and innovation, but if it does, it apparently hasn’t shown that very well to investors.)

The future is now — in that, tech that will dominate the future is already here, it is ripening, and an insanely better new era is starting. “The future is now” in another sense as well: Each moment of the day, we are making decisions that will affect the future, that create the future. We may fail much more than we succeed, but I think we’re all trying to do things that lead us into a brighter future — and that even goes for investors.

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