11/19/18

Chicken Little is embarrassed

Chicken Little admits to shorting Tesla at $364



December 3, 2018 update: I exited the short at $360/sh. the trade produced an infinitesimal profit. I am still negative, but I was not willing to allow the trade go negative. 

It is embarrassing to short Tesla because it is among the most shorted stocks in the world. So with all my alleged financial sophistication, wisdom, training, and ability, I come up with the most obvious position in the world. And my super bowl pick - The New England Patriots (kidding on this one -- I pick Tom Brady for the Senior Bowl). 

Shorting TSLA is consensus, and consensus usually fails

Why short Tesla when it is so obvious? First, let me report that I do not agree with the most common reasons to short Tesla. 

Incorrect Bear reason #1 - production difficulties. 
Tesla bears frequently recount horrors from inside the factory. Reworked parts, late nights, etc. These may all be true, but making cars in high volume is a solved problem. The world is very good at making cars. 

Making a lot of cars is easy

Incorrect Bear reason #2 - Car quality. 
I believe that Tesla makes the best electric car, for most people, in the world. They seem great to me, and I would consider buying one. Especially if I could drive in the carpool lane in California. 

Teslas are awesome (even the Mercedes Teslas)

So if Tesla will make an enormous number of awesome vehicles, why short the stock? The explanation is that Tesla lines up terribly with the macro trends that I predict. I see a deflationary depression where people hold on to their cars longer, where financial conditions tighten, and where gas price stay low. 

In the depression TSLA will sell neither cars nor stock

The problem for Tesla is not making great cars in high volume. It is raising the capital to make those cars, and selling cars into a frugal environment. 

AttributeHurtsTESLA impact
Poverty & ThriftinessDurables and Luxury goodspeople defer buying cars, buy inexpensive cars
Tight financial conditionsFirms that need to raise moneyTough to sell more equity
Bear MarketFirms with Frothy ValuationsValuations will come down for all firms, more for high-flyers like Tesla
Deflation including lower oil priceselectric car manufacturersRemoves the gas prices incentive to buy electric cars
Debt CrisisDebtorsTesla has a lot of debt, will find it hard to refinance, and hard to service existing debt. 
Government deficits will riseAny entity receiving subsidiesTesla subsidy from Governments already on its way out.



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