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Sunday May 6, 2018 – Shorting Tesla
– Tesla released its results for the first quarter of 2018 and while these
results exceeded analysts expectations there has been a fall in stock prices.
This has been accompanied by another round of investors shorting Tesla stock.
First lets take a look at Tesla's first quarter results. Tesla posted a loss of $3.35 per share beating analysts estimates of $3.54 per share. Revenue was posted at $3.41 billion for the quarter, again better than analyst expectations of $3.22 billion in revenue. Tesla built 9,776 Model 3s in the first quarter and delivered 8,182. There were a couple of things that were a little bit of a concern, first the cash on hand fell to $2.7 billion although the company reported that they didn't need to raise additional capital as it wasn't needed. This lower number is a result of faster cash burn rates. The second thing is that production of the model 3 reached 2,020 for the last week in March which is way behind the 5,000 cars they had predicted. This number is still well ahead of analyst predictions.
Now, while the numbers for Tesla
are not great they did manage to beat analysts estimates on almost everything
but the stock fell anyway. I guess the old saying came to pass, buy on
rumor sell on fact. There are now a growing number of people who are
shorting Tesla. Elon Musk didn't exactly help this when he cut off a
couple of analysts who were asking questions about Tesla's
finances at the earnings conference call Q&A.
The question now is does shorting Tesla make sense - If my theory is correct, those that short Tesla may make some money in the very short term but it needs to be short term because if they short Tesla for too long they are going to get burned.
My theory is that Tesla is trying to avoid passing the 200,000 mark in sales until after the end of the second calendar quarter. There is a distinct advantage to them from doing that and it all relates to the way that the phase-out of the Federal tax credit works.
Most people think that the tax credit will begin to phase out immediately after the company hits 200,000 cars, so the poor guy that takes delivery of car number 200,001 will only get half of the tax credit, but this is incorrect. The wording says that the phase-out will begin at the start of the second calendar quarter after the calendar quarter where the company hits 200,000. If Tesla delivers its 200,000th car on June 30th, the last day of the 2nd calendar quarter, then the phase out will begin starting October 1. However, if they sell their 200,000th car on July 1, 2018 then the phase-out will not begin until January 1, 2019. This does not have much of an impact on Model 3 sales but will probably have a major impact on Model S and Model X sales as these vehicles do not have long wait times for delivery and have good profit margins for Tesla.
Here is what I expect to see. I expect that production in May will stay pretty low especially as Tesla are going to do a long shutdown this month to fix "issues that are causing production delays". We will then see production rates start to increase rapidly in June. Tesla will make its 200,000th delivery some time in early July after which production will really begin to take off. Investors who have short positions on Tesla at the end of June will get seriously burned.
Let's see if I am correct.
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