2012 Tesla Model S

With Goldman BUY, Model S and Tesla shares zooming, what will short sellers do?

The huge short interest in Tesla says many think Tesla is a goner, while most are excitedly waiting for the Model S launch, and anxiously watching the reaction.

The Tesla Model S is one of those "bet the company" moves that can make or break a company. It is Tesla Motors' second car, following its iconic Tesla Roadster, and is the first car Tesla's engineers have designed themselves. There are a lot of questions about the success of the Model S launch and what it will mean for Tesla's success, or failure, as a company, as well as Elon Musks personal standing as a CEO and Investor. The huge short interest in the company, 43% of the "floating shares" have been sold short, speaks volumes about the number of people who see Tesla as a goner. On the other hand, Elon Musk predicted that by the end of 2013 Tesla would be cash flow positive based on Model S sales of just 8,000 vehicles, and Goldman Sachs Analyst Patrick Archambault issued a BUY recommendation and raised the target price, prompting a stampede for TSLA shares.

The Tesla Model S is an all electric luxury car built to Tesla's "no-compromise electric car" strategy. That means its acceleration and top speed can, depending on the options installed in the car, match many sports cars, while offering a 300 mile electric driving range, backed up by the most flexible charging system imaginable, the potential for integrating solar electricity with Tesla's proprietary fast charging system, and other amazing features in every corner of the car.

The company had sold 2400 or so Tesla Roadsters (built on a car body provided by Lotus Engineering) and hasn't sold a new car for many months because Lotus stopped making the donor car. That's left Tesla with very little income, largely from components sales to Toyota and Daimler, and financials that's bleeding red ink from all the losses.

Losses in 2011 were over $250 million, up from $154 million in 2010, and the company has never been anywhere near solvent. By the end of March 2012 accumulated losses had built up to $759 million. Instead it has traditionally relied on deep pocketed investors such as Elon Musk, as well as the Department of Energy loans that helped Tesla put together the capital to bring the Model S into production.

The company has over 10,000 orders in hand for the Model S, and at the annual shareholders meeting two weeks ago Elon Musk showed projected sales of 5,000 cars in 2012, over 20,000 in 2013, and over 35,000 in 2014. By the 2014 model year the company expects to have the Model S, Model X, and its first "affordable" electric car on the market. If Musk is correct, and the company requires sales of only 8000 cars in 2013 to reach Cash Flow Positive, it appears corporate salvation is in the bag. But that depends on the actual sales, versus predicted sales.

In short, the company's primary hope is that the Tesla Model S is a success. The company has bought a huge factory from Toyota, outfitted it with the latest manufacturing technology, designed a beautiful car with awesome features, but it could all come crumbling down if the Model S is not a hit with the customers.

Tesla's recent stock price is $33.78, and has risen sharply since June 14 when the stock opened at $30.18 and closed at $29.39 for a slight loss that day. Archambault's price target is $50.

Archambault's analysis is that "with the right execution" Tesla's sales volume could reach 90,000 cars a year by 2017, based on the luxury and middle market automobiles Tesla will be selling by that time frame. While the Tesla Model S and Model X are both targeted at the luxury market, Musk said Tesla's Gen 3 platform will closely follow these cars, and will be the basis for the long-promised "affordable" cars, and that those cars will be aimed at the middle range BMW's. He wrote in the research note that, “We see significant positive catalysts ahead. The company is approaching a number of critically important benchmarks that we expect to be supportive to the shares." Of those upcoming events is the Model S launch event on Friday, at which the public and press will have their first opportunity to test drive the Model S, followed by the cross country tour allowing even more people to take test drives, and finally the Model S sales to real customers who will then start posting in the forums about their experiences.

Short sellers often have strong reasons for taking a short position in a stock. The large short interest in TSLA is a negative signal on a company that otherwise looks like it will be successful.

News Categories: 
Carmakers: 

Comments

The shorts have been short for a long time, most of which was during the last couple of years where there was extreme doubt that the Model S would even reach production, or would end up hopelessly compromised by price increases or downgrades in quality. Much of that analysis has already proven wrong, the foremost of which is that the Model S is in production and about to be delivered. The prices are set and are fairly competitive at the various trim levels vs equivalent gas powered cars. We already have government ratings on safety and electric range, which are two critical metrics, both of which are extremely attractive. The only remaining doubt is about actual performance and build quality. And anyone who thinks that Goldman Sachs doesn't have solid reports about the first production models is smoking something. The car looks awesome, and there are extremely good reasons from a basic physics standpoint to think the car has gangbusters performance. This is completely aside from the fact that Tesla is already the most experienced producer of high performance electric drive trains (See Roadster) in the world. So unless the state of the art Tesla production line manages to put out cars with terrible quality (fat chance with that bet), the only hope of the shorts at this point is that customers will refuse to buy one of the best looking and performing cars in the world, simply because you have to plug it in at night. The shorts look to get burned badly on this one absent a major negative media effort by Fox News.
There is little doubt Tesla Motors will not make it in the long run. Musk has done a good job and the company is delivering better and better performance while bringing down price. What Goldman Sacks says is highly irrelevant these days. They have done enough damage with our current recession and have given poor advice to countries that are now defaulting and threatening global economy. The less we talk, think or mention these companies, the better off the world will be. In the meantime, I'm enjoying a little start up using everyday laptop battery technology thumbing its nose at bigger carmakers.