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Company founder and CEO Elon Musk may not mention Tesla Motors Inc's (TSLA.O) stock price when his electric car company gives its latest financial update on Wednesday, but it will be front and center for investors divided over its seemingly rich valuation.
After a rally that ended in April, Tesla's market capitalization is currently about $31 billion - equivalent to $620,000 for every car it delivered last year, or $63,000 for every car it hopes to produce in 2020.
By comparison, General Motors Co's (GM.N) $48 billion market value is equivalent to about $4,800 for every vehicle it sold last year.
Tesla's heady valuation - about 125 times the next 12 months of expected earnings - and the implication that shareholders may be overpaying for Musk's small but fast-growing luxury car company have made the stock a favorite of short sellers.
Source: Reuters
(Score: 1, Insightful) by Anonymous Coward on Thursday May 05 2016, @04:45AM
After today's better than expected numbers, the resulting price bump may be partially the result of a "short squeeze" which is a sort of self-reinforcing price increase when short sellers are forced to cover their short positions which drives the price up which causes more short sellers to cover their shorts which drives the price up, rinse lather repeat.
On the other hand, future valuation of a company based on past sales is a reductive analysis. GM is a titanic, its had decent growth satisfying all the pent-up demand for new cars since cash-for-clunkers knee-capped the market in 2009. But there are only so many customers that have been sitting on old cars, that growth rate is unsustainable. When that demand peters out, GM's inertia is going to ram it right into that iceberg. Tesla's got massive potential for growth, well over 300,000 people put down $1000 deposits on Model 3 pre-orders. And that 2020 projected sales volume was bumped up to 2018 today. The chevy bolt (or volt?) just isn't in the same league in terms of customer interest and sales growth - the very fact that they choose such easily confused names as volt and bolt shows GM can't get their marketing shit together.
(Score: 3, Funny) by tftp on Thursday May 05 2016, @06:14AM
the very fact that they choose such easily confused names as volt and bolt shows GM can't get their marketing shit together.
Don't forget also Chevy Colt, Chevy Dolt and Chevy Jolt :-) Hey, they are all perfectly cromulent model names!
(Score: 2) by Capt. Obvious on Thursday May 05 2016, @06:47AM
I thought shorts were timed. So a short lasted until a certain day, regardless of the price. Am I wrong?
(Score: 2) by rondon on Thursday May 05 2016, @12:19PM
Some investors with short positions will get nervous and buy the underlying stock if they think they have taken a losing position. Usually via automated buys at certain price points, in the circumstances I am familiar with.
(Score: 0) by Anonymous Coward on Thursday May 05 2016, @03:27PM
Shorts are not timed, you are probably thinking of options contracts which have expiration dates but can be freely traded up until they expire at which point their value goes to zero.
Many people short on margin, that means they borrow money (that is secured by the other securities they own) in order to purchase their short positions. When the price goes up, that short position becomes more expensive because the cost to close it out goes up. That cost increase means an increase in the amount of money they are risking on margin. At some point their 'credit limit' runs out and they must either come up with more cash to make up the difference or close their short position (aka buy actual shares). Which, in a heavily shorted stock, can cause a cascade effect known as a "short squeeze."
(Score: 2) by Capt. Obvious on Thursday May 05 2016, @08:43PM
So, if the price remains flat forever, I can hold a short position at no cost forever? And the only limit I have is that I put up, say 10k in cash and credit. So if the delta between my short price and the actual price becomes 10k (in aggregate over my shares), I have to make good. But other than that, it's all good?
(Score: 2) by legont on Friday May 06 2016, @12:24AM
You'll still have to pay dividends if any and interest on borrowed funds, including shares themselves.
This is why it is much easier to bet on rising market. You are always timed when you are short regardless of actual instrument be it borrowed shares, options, futures or whatever over the counter thing, while long position can be maintained with no costs.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by Capt. Obvious on Friday May 06 2016, @01:37AM
Okay, so if I borrow money to fund the short, I pay interest. Sure. But if I put that 10k in, I'm presumably just losing out on the opportunity cost of that capital... Except I have to match whatever dividend the stock issues? So, for... what stock never pays dividends, Amazon?, it would essentially be a long term bet?
And yeah, it's obvious that the betting on a rising market has a structural advantage.
(Score: 3, Informative) by legont on Friday May 06 2016, @02:54AM
You need to borrow the stock to sell and the owner will not let you do it for free.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by Capt. Obvious on Friday May 06 2016, @06:17AM
Ah, it's a real loan of stock you sell. You're not just selling a contract which obligates you to buy back the stock later.
Thanks for the help, I never really understood shorting before. I mean, I got the concept at a high level, but not the mechanics.
(Score: 3, Interesting) by legont on Friday May 06 2016, @10:18PM
Real is a shaky concept when one talks about financial innovations, but yes, in this particular case broker has to have real securities on somebody's account that he will loan to you. Conspiracy theorists claim that they in fact violate the rules, especially when commodity such as gold is concerned. There are also contracts without any underlying securities involved, but they are usually in futures/forwards/swaps fields.
Nevertheless, they will charge you for keeping short position.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 3, Insightful) by bitstream on Thursday May 05 2016, @09:32AM
This is it. The value of Tesla car manufacturing are their abilities and the future. Otherwise it's like valuing a computer by the weight price of the metals used. It won't give any good hint on what's really going on.
(Score: 3, Insightful) by Phoenix666 on Thursday May 05 2016, @01:41PM
People who only look at Tesla's sales and pre-order numbers to value the stock are missing the bigger picture. Elon Musk is a deep, strategic thinker. He's several steps ahead of everyone else in the industry. When he was building the roadster, his naysayers were carping, "Nice car, pal, but where you gonna plug it in? Who's gonna sit around for hours waiting for their car to charge?" So when they announced the Model S, they also simultaneously announced the supercharger network to shut those people the hell up, and announced that the supercharger network was powered by solar panels to shut up the jackasses who would inevitably come along and whine that the supercharger network was only shifting the fossil fuel load to coal-fired powerplants. Musk has founded another company, Solar City, to provide the residential solar angle. He's building a battery Gigafactory to supply all the vehicles he means to build, thus avoiding the bottleneck that will hobble all his competitors. Meanwhile, that factory will churn out home energy storage batteries to go along with the solar panels that Solar City is supplying. That's all the context around Tesla, the car company.
Inside the car company, you have an outfit that sends over-the-air software upgrades to help people who have already bought the cars get more range out of their existing batteries, find other recharging locations that are not on the supercharger network, and to enable "ludicrous mode" for people that want to accelerate 0-60 in 2.8 seconds and blow every other car off the road. You have rapid battery swapping stations for people who don't want to wait 30 minutes for a recharge. You have battery upgrades on existing cars. So even just within the car context, they're many leaps ahead of their competitors.
I think when you consider all that, that stock valuation doesn't seem so outlandish. I know when I invested in Tesla, it wasn't for the cars so much as that strategic mind. Honestly I am kind of surprised the oil industry or the auto execs in Detroit haven't had him assassinated yet.
Washington DC delenda est.