TSLA - Tesla Motors

[JBird]

I am short via a deep ITM long term put. I prefer to lock in my downside, eliminate tail risk of shorting and have the flexibility to sell an OTM or ATM put against it as an exit strategy to extract premium.

 

Borrow is easy to get now, but I am unsure if that will always be the case; I do not trust Interactive Brokers to be my advocate in locating borrow on what has the possibility to become a difficult to locate stock.  Going up against a master manipulator of the capital markets such as Elon Musk is not to be taken lightly and I would much rather pay $10-$20 extra per share in option premium (and pay out cash for the option rather than receive the proceeds of sale on a short sale). I also think I will make this back eventually via aforementioned put sale.

 

It's important to remember the insanity of 1999, although I was 11 years old then : ) or Volkswagen circa October 2008

 

Ridiculously expensive can always get more ridiculous and I like having the option (pun intended) to just sit on my arse and take the loss rather than worrying about my short position. Of course the high share price does create a bit of a barrier to entry.

 

I'm with you on the short idea. I'm with you on the strategy. I don't have the balls to do it though.  :P

[TwoCitiesCapital]

Maybe this will be a good case study for me as I’m relatively new to attempting shorts – I’d like your inputs on the best strategy here. Take the following two strategies:

 

 

 

Enter a short position for $1050 – which would be short selling 7 shares.

 

The benefits of this are the following:

 

1)      Not time dependent

 

2)      If you’re wrong, you’ll most likely bleed a small amount (relative to market exposure) on a daily basis and can exit when you want.

 

 

 

The cons are as follows:

 

1)      Returns are capped at 100% maximum and it typically takes awhile to get there.

 

2)      Tail risk of shares going much, much higher and your loss being many multiples of your exposure

 

a.       I view this as being relatively remote if you are actively watching short interest, trading volume, etc. and adjust your position or hedge accordingly

 

 

 

Or you could enter a bearish put spread as follows – buy a $150 strike put for $42 and selling a $140 strike put for $37. Both expire January 2015. For the sake of simplicity, I’ve left out the time value component of return on the options given the timing is uncertain. This simplifies the calcs a little but keep in mind there’s a time value component.

 

 The pros are :

 

1)      Your loss is capped to a maximum of $500 and occurs at any price above $150

 

2)      You only need the stock to drop 6% to below $140 to make your maximum gain of $1,000 (which is 200% return on your capital at risk)

 

a.       This also could result in a rinse repeat where the same trade is put on again at different strike prices

 

 

 

The cons are:

 

1)      Time frame is limited – You have 1.25 years to be right about it dropping below $145ish to make money on the option.  

 

a.       This isn’t a high bar, but you’re risking a 50%. You’d be unlikely to lose this amount shorting barring the fat tail event.

 

 

 

It actually looks to me that the option spread may be better. Getting the price to fall below $140 for your maximum gain seems like an extremely likely event in the next 1.25 years even if the stock goes higher. Momentum stocks often have 15-20% dips meaning the stock could go as high as $175 before it looked unlikely that you’d be able to make your maximum amount at some point on the bet. Even then, your loss is pegged at only 50% as compared to 17% on the short at that point. What are your thoughts. Should I switch out being short the shares for a bearish put spread?

[enoch01]

Great company, great product, great founder and leader, overvalued stock.  I think there are easier ways to make money than to short this.  The money will be just as green.

[Liberty]

Great company, great product, great founder and leader, overvalued stock.  I think there are easier ways to make money than to short this.  The money will be just as green.

 

Agreed. The stock is overvalued, but people have been saying it was overvalued since the IPO ("how can they be worth billions having only sold a few hundred Roadsters?").

 

What's the catalyst for shorting? What if next quarter they sell even more vehicles than expected and pull out a few more surprise new features out from behind the curtains? What if they add a big partnership on top of Toyota and Daimler? As more details come out on the Model X, there could be surprises that will excite people even more. Then later Asian deliveries. I know they'll announce soon that they have an adapter that makes the Model S compatible with non-Tesla fast-charging stations, etc.

 

In other words, it could stay overvalued for a long time, and during all that time you'll have Elon Musk working against you, pulling more rabbits out of his hat.

 

As enoch said, there has to be easier ways to make money...

 

But then, now that I've written this, the stock will probably crater, so nevermind...  :P

[rpadebet]

I am pretty confident that this is an unnaturally priced stock with lot of emotions involved on both sides. However predicting momentum is a dangerous game. I still don't have a position on thi,s having considered most trade choices for a while now.

 

I don't like the naked short because of the margin % involved and also just 100% upside. Also it could go  100% or more the other way quite easily. If ppl are able to justify a 160 price, I am sure at 35% gross margin, higher unit sales, longer projections and lower discount rates, they will have no problem justifying 300+ price.

 

Regarding the option strategies, I like the downside protection of a simple long put (but it is expensive). So thought abt reducing the cost by selling deep OTM calls. While this limits my downside to some extent, if the stock goes crazy on the upside, I am pretty much screwed on the position.

 

That made me consider a bear call spread. Sell deep ITM Call and buy slightly ITM/ATM Call. This fixes my upside to the premium received and also fixes my downside to the Difference in Strikes less Premiums received. Some combinations seem to give a 3:1 upside to downside ratio. Of course most of the upside is near the lower strike and most of the downside is near the upper strike, so I will have to choose them wisely. At least I wont be paying margin interest, in fact I will receive cash from the premium and if I can put this on for 6 quarter term, I don't have to care abt the near term swings much. Helps me sleep better.

 

But then, I am also looking at some good long ideas with a nice business and decent price. The kind of businesses which have upside to intrinsic value and I can sit on it for a while because of dividends/earnings support. I keep having this nagging feeling that those long ideas are a better use of my time and money.

[rpadebet]

Great company, great product, great founder and leader, overvalued stock.  I think there are easier ways to make money than to short this.  The money will be just as green.

 

Agreed. The stock is overvalued, but people have been saying it was overvalued since the IPO ("how can they be worth billions having only sold a few hundred Roadsters?").

 

What's the catalyst for shorting? What if next quarter they sell even more vehicles than expected and pull out a few more surprise new features out from behind the curtains? What if they add a big partnership on top of Toyota and Daimler? As more details come out on the Model X, there could be surprises that will excite people even more. I know they'll announce soon that they have an adapter that makes the Model S compatible with non-Tesla fast-charging stations, etc.

 

In other words, it could stay overvalued for a long time, and during all that time you'll have Elon Musk working against you, pulling more rabbits out of his hat.

 

As enoch said, there has to be easier ways to make money...

 

But then, now that I've written this, the stock will probably crater, so nevermind...  :P

 

I feel the exact same way. The fact that making same money long some other stock is easier. And also the fact that this stock will tank once I make the decision to not short it!  :D

[ERICOPOLY]

I wonder if the shorts are new investors, or whether they experienced the Dot Com craziness.

 

[ItsAValueTrap]

I think it's hedge funds.  There's a lot of hedge funds which are 100% long 30% short, 130/30, 75/75, etc.  Tesla used to be an attractive stock because it was a hot IPO and they were losing lots of money (like A123).  Your ideal short is going to be a company that loses lots of money and is overvalued and has a catalyst (in Tesla's case, running out of cash and the DoE loan).

 

In my opinion, there are way too many short sellers right now.  There are a number of stocks out there where the borrow is more than credit card debt.  (Tesla used to be like this.)  People were shorting ATPG, one of this board's "favorite" stocks, at almost 100% interest at one point.

[ERICOPOLY]

I think it's hedge funds.  There's a lot of hedge funds which are 100% long 30% short, 130/30, 75/75, etc.  Tesla used to be an attractive stock because it was a hot IPO and they were losing lots of money (like A123).  Your ideal short is going to be a company that loses lots of money and is overvalued and has a catalyst (in Tesla's case, running out of cash and the DoE loan).

 

The catalyst was on the long side, as I argued back when it was a $30 stock.

 

Sure, they were bleeding cash... because the Model S hadn't been released yet!  I'm kicking myself for not spending more time to realize that the shorts couldn't see a few months down the road and were looking only at the prior quarter's results.

[gary17]

I'm not sure how to value TSLA - many value investors probably don't.

 

I like to think about this from first principle -  investing is about increasing your future purchasing power through the appreciation of asset prices or simply paying less than what you will sell for in the future -

 

If one buys anything today, there's some chance it'll be worth more and some chance worth less in the future since nobody knows the future.  So various investing approaches are out there that are aimed at lowering the risk of being wrong… 

 

I believe there are three conditions when stocks appreciate:

 

a) There’s a new product or technology or service that’s created a new industry hence the company has few or no competitors – the market likes it and price appreciation can be seen in a very short time if management can successfully capitalize on the competitive position in a new industry

 

b) Solid businesses that have a few competitors trading at fair value, but the intrinsic value will rise over time…. This is the good old ‘blue chips’ – if the time horizon is long enough, a investor would ultimately make a positive return… and better yet, if there’s panic in the market in general, these solid businesses could trade at a discount, providing a good opportunity for entry.

 

c) Cheap businesses that’s gone cheap because it’s business model has failed or close to failing – but the price could quickly appreciate if there’s a successful turnaround  - e.g, new management (APPL), better corporate governance, tradition to a new business model (e.g IBM)

 

The value approach can generally help us in situations 2 and 3 and is in my mind the best approach for investing in that we are paying for less than the intrinsic value, thus reducing the consequence of being wrong.  (Risk = probability of being wrong x consequence of being wrong).

 

When it comes to situation a) though, as it is difficult to gauge a company’s future and the dynamics of competition once other rivals start to copy, it is difficult to estimate the ‘intrinsic value’; therefore, it’s generally difficult to apply the ‘traditional’ value investing approach for risk management… i.e., the consequence of being wrong is very difficult to estimate…

 

However, I have been thinking though if looking at new industries / technologies, one can approach risk management in a different way, it may be possible to invest in situation a).  Take facebook as an example… (don’t mean to change the subject), the consequence of being wrong is great, but the probability of being wrong is probably not that great IF, IF, one can analyze the industry successfully – i.e., seeing that our society do prefer a more open, socially integrated way of living…. and Mark & company are very capable programmers that know how to develop a very good platform -  So facebook successfully provided this social network – and there’s tremendous ‘value’ to this solution that a traditional value investor would generally not want to attempt.

 

Same applies to TSLA.  IF someone can analyze the probability of high-end electric vehicles gaining momentum in developed nations, where their citizens are wealthy and want to make a statement about the environment, and that this analysis is as good as a value investor can analyze intrinsic values of businesses – then those efforts would have paid off quite handsomely.

 

I think many value investors including myself have probably setup this ‘boundary’ around certain companies to not invest - probably influenced by the tech crash in 1999 and Warren’s message that he doesn’t touch tech stocks – when in fact the same effort and careful risk management could probably have produced comparable results as traditional value investing.

 

While value investing is about careful management of risk through not over paying - I think it's more about risk management of portfolio and anything is game if one can be smart and have a way of avoiding significant risks.

[Liberty]

Elon Musk's hyperloop design is out (no patents, open source):

 

http://www.teslamotors.com/blog/hyperloop

 

http://www.teslamotors.com/sites/default/files/blog_images/hyperloop-alpha.pdf

[txlaw]

Not sure if this was posted, but here's a video of the Teslive event that occurred two months or so ago:

 

It's really interesting stuff.  Tesla owners are in love with the company -- it's very Apple-like in that regard.

 

If I were Elon Musk, I would try to raise as much equity capital as possible right now.  Then he could really put the pedal to the floor on building out the company.  After all, that's what the public markets are for, right?

[meiroy]

 

http://www.teslamotors.com/about/press/releases/tesla-model-s-achieves-best-safety-rating-any-car-ever-tested

 

"TESLA MODEL S ACHIEVES BEST SAFETY RATING OF ANY CAR EVER TESTED

SETS NEW NHTSA VEHICLE SAFETY SCORE RECORD

 

MONDAY, AUGUST 19, 2013

Palo Alto, CA — Independent testing by the National Highway Traffic Safety Administration (NHTSA) has awarded the Tesla Model S a 5-star safety rating, not just overall, but in every subcategory without exception. Approximately one percent of all cars tested by the federal government achieve 5 stars across the board. NHTSA does not publish a star rating above 5, however safety levels better than 5 stars are captured in the overall Vehicle Safety Score (VSS) provided to manufacturers, where the Model S achieved a new combined record of 5.4 stars."

 

 

Amazing.

 

[JBird]

Not sure if this was posted, but here's a video of the Teslive event that occurred two months or so ago:

 

It's really interesting stuff.  Tesla owners are in love with the company -- it's very Apple-like in that regard.

 

If I were Elon Musk, I would try to raise as much equity capital as possible right now.  Then he could really put the pedal to the floor on building out the company.  After all, that's what the public markets are for, right?

 

+1 +1

 

And thanks for the link meiroy

[ERICOPOLY]

 

http://www.teslamotors.com/about/press/releases/tesla-model-s-achieves-best-safety-rating-any-car-ever-tested

 

"TESLA MODEL S ACHIEVES BEST SAFETY RATING OF ANY CAR EVER TESTED

SETS NEW NHTSA VEHICLE SAFETY SCORE RECORD

 

MONDAY, AUGUST 19, 2013

Palo Alto, CA — Independent testing by the National Highway Traffic Safety Administration (NHTSA) has awarded the Tesla Model S a 5-star safety rating, not just overall, but in every subcategory without exception. Approximately one percent of all cars tested by the federal government achieve 5 stars across the board. NHTSA does not publish a star rating above 5, however safety levels better than 5 stars are captured in the overall Vehicle Safety Score (VSS) provided to manufacturers, where the Model S achieved a new combined record of 5.4 stars."

 

 

Amazing.

 

I like the comparison to the Apollo Lunar Lander:

 

For the side pole intrusion test, considered one of the most difficult to pass, the Model S was the only car in the "good" category among the other top one percent of vehicles tested. Compared to the Volvo S60, which is also 5-star rated in all categories, the Model S preserved 63.5 percent of driver residual space vs. 7.8 percent for the Volvo. Tesla achieved this outcome by nesting multiple deep aluminum extrusions in the side rail of the car that absorb the impact energy (a similar approach was used by the Apollo Lunar Lander) and transfer load to the rest of the vehicle. This causes the pole to be either sheared off or to stop the car before the pole hits an occupant.

 

[blainehodder]

http://www.teslamotors.com/modelx/

[JBird]

For those that enjoyed the Model S safety article:

 

 

Should be called the Tesla Tank S. My favorite moment starts at 1:02 where the roof bends and distorts then returns to original shape.

[CONeal]

How does Model X not turn into the current day version of the Delorean?

 

The Delorean back in the day was not a very well crafted car with the "Falcon" doors.  The problem was that parking in any parking lot did not allow for the clearance to open when a car was right beside it. 

 

I still have an issue seeing how the Model X would not have the same problem.

[Liberty]

How does Model X not turn into the current day version of the Delorean?

 

The Delorean back in the day was not a very well crafted car with the "Falcon" doors.  The problem was that parking in any parking lot did not allow for the clearance to open when a car was right beside it. 

 

I still have an issue seeing how the Model X would not have the same problem.

 

Elon Musk has addressed that in interviews. These doors are designed differently in significant ways that make them a lot more practical than past implementations.

 

But if they test them in the wild and it doesn't work, they'll just change to regular doors. They've shown that they're very nimble and can recognize and correct errors.

[CONeal]

Thanks Liberty must have been overlooking where he addressed this.

[Liberty]

Thanks Liberty must have been overlooking where he addressed this.

 

I wish I remembered the exact interview so I could point you to it, but I've seen so many lately.. It might have been the Teslive 2013 one, but I'm not sure.

 

Part of what makes these doors different is the way they are double-hinged and open in a very space efficient way, and have proximity sensors that will stop them from hitting people or roofs or whatever.

[JBird]

I wish I remembered the exact interview so I could point you to it, but I've seen so many lately..

 

+1

[value-is-what-you-get]

How does Model X not turn into the current day version of the Delorean?

 

The Delorean back in the day was not a very well crafted car with the "Falcon" doors.  The problem was that parking in any parking lot did not allow for the clearance to open when a car was right beside it. 

 

I still have an issue seeing how the Model X would not have the same problem.

 

Just watch a video of them operating and you'll see how they require less clearance than a regular car door.  Deloreans were an ego-driven disaster.  Teslas are logically designed from first principles.  The only similarity with a Delorean is that the doors do not open like a regular door and they both have four wheels.

[ERICOPOLY]

There are people who only buy white cars.  There are people who only buy black cars.

 

The Delorean was only available in stainless.  There seemed to be no serious attempt to sell the car.

[ERICOPOLY]

How does Model X not turn into the current day version of the Delorean?

 

The Delorean back in the day was not a very well crafted car with the "Falcon" doors.  The problem was that parking in any parking lot did not allow for the clearance to open when a car was right beside it. 

 

I still have an issue seeing how the Model X would not have the same problem.

 

Elon Musk has addressed that in interviews. These doors are designed differently in significant ways that make them a lot more practical than past implementations.

 

But if they test them in the wild and it doesn't work, they'll just change to regular doors. They've shown that they're very nimble and can recognize and correct errors.

 

The problem with the Falcon wing doors is that you can't have a roof rack.  So no ski box on top, no kayak, no surfboard... no Christmas tree!

 

They can't easily just change to regular doors without giving up one of their main goals, which is to be able to have an opening wide enough to be able to step in to the third row seats.  You can't go with a door that swings on a hinge -- it would be too long to fit in tight spaces.  This leaves you with the sliding door (minivans) as the only option, and they wanted to give you the feeling that you aren't buying a minivan (stigma).

 

So they are stuck.