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.


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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.