12 ms·

Elon Musk vs. Short sellers

74 points by lazydon 8y ago

tw1010 8y ago
TLDR?
- Tepix 8y ago
  It's a good read. It argues that short sellers want to kill Tesla and they have a chance because Tesla somewhat resembles a financial company.
- faitswulff 8y ago
  The argument goes that bad actors are trying to tank TSLA by using massive short sales as a signal to the rest of the market that Tesla is a bad investment. That's not entirely a surprise. The surprise is that there's a historical precedence for it, from the very same bad actor investors. This pattern has played out with a company in the early 2000's called Fairfax, and then with SolarCity a decade later. The same thing is happening to Tesla - the graphs are striking. Tesla's response is to cut costs and become self-sustaining, wean itself from dependency on investors, and break the short-sellers' strategy.
  - ringshall 8y ago
    Why are they trying to tank it? Short term profit or some conspiracy theory?
    - Robotbeat 8y ago
      Because short sellers profit when the stock price goes down.
      - superhuzza 8y ago
        And they stand to lose money if the prices go up.
    - DiabloD3 8y ago
      Largely, afiact, they're trapped between their shorts and a hard place. They can't buy shares back at or below what they sold the shorts for, so unless they can manipulate the media, they will surely go bankrupt.
    - jessaustin 8y ago
      For a (quite plausible IMHO) "conspiracy theory", look upthread: https://news.ycombinator.com/item?id=17522791 https://news.ycombinator.com/item?id=17522791 and downthread: https://news.ycombinator.com/item?id=17522820 https://news.ycombinator.com/item?id=17522820
  - compcoffee 8y ago
    >then with SolarCity a decade later. SolarCity failed because it was a bad business. Shorts believe the same about Tesla, which may or may not be true. Do you think short-sellers randomly choose companies to sell, or do they look at fundamentals and decide the company isn't viable? This idea that you can simply short a company until goes out of business is asinine. It's far riskier. The downside of shorting is unlimited. Fairfax still exists. People like to bring up Chanos and Farifax when talking about Tesla, but they rarely mention he was also early on Enron.
    - ameister14 8y ago
      Did you read the post? He mentions Chanos was early on Enron right away, as part of his bio, and goes into SolarCity in some depth. I didn't invest in SolarCity, and don't know the specifics of what made it a bad company. Most of the news I read a few years ago was about how solar itself as well as their model specifically was failing, and that clearly hasn't happened. Is there another reason? Could you enlighten me?
      - compcoffee 8y ago
        >I didn't invest in SolarCity, and don't know the specifics of what made it a bad company. My evidence is that it had to be bailed out by Tesla, then wound down. They spent vast amounts of money to grow; you know the old selling a dollar for $0.80. Borrowing short, lending long. Most of the time, that doesn't work. Solar power is a commodity, and prices are rapidly falling. I think the onus is on others to prove that it was a good business that couldn't handle short-sellers. Again, if it was so simple to destroy a company through shorting, why isn't it happening everywhere, all the time? Furthermore, who is "they"?: >They are not shorting because they think Tesla will go bankrupt. They are shorting during specific periods when Tesla is most vulnerable, and covering when they fail to achieve their targeted goal. They are shorting to bankrupt Tesla. I've been short TSLA twice (but net long through ETFs). The first time was early, and I lost money. The second time was in the recent run up after the 5k/week news, when I made a few bucks. Was I trying to bankrupt Tesla?
        8y ago
  - imglorp 8y ago
    Continuing the hypothetical short conspiracy idea, would Big Carbon interest also be involved? How would they relate to the shorting activities?
- dwighttk 8y ago
  “I used to think Elon should just stop worrying about short sellers. But then I read a story about how short sellers conspired against a company to drive its stock down and limit access to financial markets and then that company sued the shorters and its stock went from $100 to $700”
- chrisbennet 8y ago
  The article draws a parallel between what Chanos (or the guy who worked for Chanos) did to Fairfax and what Chanos is doing now i.e. trying to tank the stock with unethically: ”Incredibly, over the next three years was stories of harassment of Fairfax workers, the CEO Prem Watsa, his wife, even his pastor. While this was happening Fairfax was besieged by accusations of fraud sent to rating agencies, regulators, even Fairfax's own business partners. Nearly all of these troubles could be traced back to Spyro Contogouris, a man hired by Chanos, Loeb, and Sender to "bring down Fairfax". Contogouris’s strategy would be to sink Fairfax by “closing access to the capital markets”—cutting off its access to funding by undermining its reputation. This was old-school Sun Tzu stuff, isolate-and-destroy tactics, “attacking by stratagem”: General Contogouris would cut off his enemy’s supply lines by, among other things, sullying the firm’s standing with ratings agencies and shareholders and others in a group he termed “FoF,” for “Friends of Fairfax.” He wanted to “get them where they eat,” cutting off their credit lines, particularly going after their ratings by agencies like A. M. Best. All this Contogouris promised to Chanos, Loeb, Sender, and others from the start. He pledged to “get the message of what I think is a massive fraud to these long term value holders” by creating a “crisis of confidence” that would frighten investors and “shake them out of the stock.”
deleted 8y ago
[deleted]
21 8y ago
Overall short sellers are a good thing. They have skin in the game. They are like the people searching for software vulnerabilities motivated by big bounties.
- Robotbeat 8y ago
  Very good of short sellers have good ethics. But what if they don’t? What if they start INTRODUCING bugs to collect the bounties?
  - 21 8y ago
    Wouldn't that mean that you have bad security anyway, since you were easy to infiltrate (it cost less than the bounty)?
    - freerobby 8y ago
      This analogy only works if you view the economics through the singular, zero-sum lens of Tesla. Imagine you have billions of dollars in big oil, or traditional auto manufacturing. If you can take a few percent of your net worth to establish a short position on Tesla, and in so doing create market weariness that could help bring down the company, then that would be a good investment for you overall even if you are unable to recover any of it (because your external holdings stand to benefit or be harmed accordingly). The fact that you stand to benefit directly on the short if you succeed is just icing on the cake.
      - 21 8y ago
        This works both ways. Your short position depresses prices below "value", which means that for example an eco-friendly sovereign fund could move in and buy the shorted stock with a discount, if they believe that it's unfairly targeted.
        jessaustin 8y ago
        Why would the hypothesized petroleum/automotive tycoon care about that? She doesn't care if a sovereign fund prospers. She just wants to hurt Tesla.
ckastner 8y ago
The article makes an interesting case for the influence of short sellers on Tesla's stock and calls out some specific hedge fund managers. However, even if these "bad actors" (as the article calls them) do indeed influence the stock price: missing goals by a year, dwindling cash reserves, etc. are valid reasons for concern, but the article only mentions them for context, without addressing them.
- forkerenok 8y ago
  I think the author closer to the end makes it clear that the short sellers ride on real problems with the company. And he doesn't label all short sellers as "bad actors", but only those that engage in opinion manipulations at scale.
vivafrance 8y ago
Short sellers are playing the same game against bitcoin right now.
anonu 8y ago
Lengthy article. But good review of how we got here. Shorting is as natural as going long... It's an important characteristic of any market. But the articles point is that the shorts might be clustered in the hands of some influential hedge fund guys... Who basically wage an information campaign to crush the stock... Whether they're right or wrong. In that sense, I disagree with the articles premise that Musk should ignore the short sellers. Fight fire with fire... Or a flame thrower. Musk's company is a super speculative one at this stage. So a lot of it runs on gut feelings and perspective. Not actual fundamentals.
- deleted 8y ago
  [deleted]
- deleted 8y ago
  [deleted]
- ricw 8y ago
  It’s actually not that speculative. Model x and a have 25% profit margins, unheard of in an industry that typically has mid single digit margins. It’s something only Porsche is able to achieve. They’ve announced that they Yer aiming for similar margins for the model 3. In short, the core business is extremely profitable. What is “speculative” is the aggressive expansion tesla is engaging in. It’s why they need cash and what is making them a target.
  - CPLX 8y ago
    Their ability to maintain and defend those margins against established luxury car makers over time of course is severely in doubt.
  - thomaskcr 8y ago
    > Model x and a have 25% profit margins Part of the short thesis is that they are hiding warranty repairs in "Services and Other" - underreserving for warranty would make those margins artificially high. They reserve $3000/car - considering that just the 3 people I know with Model S's have all had a drive unit replaced, one had a battery replaced, between them I have lost count of the number of door handle replacements - I think there is something to that. Even if their per car margins are high, they still have a negative operating margin. If you can't make money selling cars, does it really matter what your automotive gross margin is? I think the focus on those margins is a major misdirect away from the fact that the capital they've been raising has been used for operational costs as well as capex - which implies that they aren't "reinvesting profits in growth" but dependent on cash infusions for survival. And it seems to have worked based on the TMC and Reddit TeslaMotors threads - people think that the gross margins on the cars means they are making money if you ignore their investing in the future, which just isn't true. Aside: My favorite bull response while sharing this information so far was "source" on my claim they had negative operating profit from someone who was "heavily invested in the stock" -- it's those stripey pages at the beginning of those reports you should be reading as an investor. I try to follow the bull reasoning as much as possible but it's really hard when a lot of it is just based on faith in Elon - I don't really know how to model that.
DiabloD3 8y ago
I'm surprised this guy didn't bring up the famous story of Overstock.com around 2005-2006, where at one point there were more shorts in existence than actual shares. The CEO of the company sued a bunch of large investment banks (who all heavily shorted his company). For those that don't understand, that is called "naked shorting", and that constitutes fraud by NASDAQ and the major investment banks. In the end, all of the investment banks that he sued, except for two (Goldman Sachs and Merrill Lynch) settled. The banks that did settle? Ended up getting their junk kicked in when their shorting scheme failed to work, and they lost a lot of money because the suit against them signaled there was no truth to their claims and the Overstock.com price went back up. I have no reason to believe that is not what is happening to Tesla currently. Given that this example and the example given on the forum post are very similar, and both turned out appropriately, maybe Elon Musk should consider suing the largest firms shorting his company.
- snarf21 8y ago
  Interesting. It seems like there should be a cool name for this (ala pump and dump) where you take a short position and then bad mouth a company until it self fulfills and then flip your shares. Maybe clip and flip?
  - telotortium 8y ago
    I think I've heard short and distort before.
  - irq-1 8y ago
    Short to Mort (death)
- koliber 8y ago
  Shorting a stock involves first borrowing it from someone, and them immediately selling it. Everyone who is short stock does not own it! Naked shorting is selling stock you have not even borrowed to create a short position. The scenario you describe did not require naked shorting in order to exist. To keep things simple, imagine a corporation that has 100 outstanding shares on the public market. Bob owns them all. Mark wants to short them, so he borrows all 100 from Bob and sells them to Mary. At this point, Bob is "owed" stock from Mark, and Mark owes Bob stock. Mary owns all 100 shares of stock. No one shorted anything naked. Now say that Craig wants to short this company as well. He borrows 100 shares from Mary, and sells them to Sally. At this point, in addition to the above positions of Bob and Mark, Craig is short 100 shares of stock, which he owes to Mary. Sally owns all 100 shares of stock. Looking from the perspective of any one person, they are not short more shares than there exist in the company. No one shorted anything naked. And yet, on the macro level, there are 200 short positions, and one person owns the 100 shares of the company. No one shorted anything naked. And yet, the situation you described arose. Should the need arise for Craig and Mark to return the stock they borrowed (someone calls in their shorts), they will probably need to pay a lot to convince the people who own the actual stock to sell to them, especially if the owners are aware of the macro situation.
spookybones 8y ago
Is there any concrete evidence of this, and, if so, shouldn't this be big news? I guess we would need leaked emails.
fhood 8y ago
Hell of an article, I think it is clear that Tesla has had serious production problems with the model 3, but, then again, Tesla has never met their production goals on time, and only recently(ish) are we seeing shorts at the magnitude.
calyth2018 8y ago
I take exception to the part about how the crashes and the fires are trying to stoke up some kind of self-fulfilling short sentiment. The majority of the article is backed with references and evidence, but there's no escaping of the reality that a lane-keeping cruise control being marketed as autopilot has and will take lives. That's not just some negative sentiments being drummed up, it's reality and human beings that are being harmed or killed. And all of that is very much on Tesla.
addicted 8y ago
The best reason to short Tesla would be that it has the same Market Cap as GM and a larger one than Ford. Or they have a history of missing production and profit targets. Or that you believe that the existing car industry can learn to make electric cars faster than Tesla can learn to scale profitably and consistently. Or that you believe that Tesla will be unable to maintain its premium pricing once it has luxury competitors who take EVs seriously, because their actual QC is pretty poor.
- freerobby 8y ago
  I think the last two are good reasons to short Tesla. I wouldn't touch those bets with a ten foot pole, but they are entirely rational depending on what you believe. If you don't believe those things, then Tesla having a greater market cap than GM or Ford makes sense, because Tesla's future cashflows would be greater than GM's or Ford's. Production deadlines aren't very compelling to me except to the extent that they starve a company of its operating budget. Heck, other car companies routinely show off concept cars that aren't only late but in fact never ship. It's not a big deal though, because those companies aren't betting the farm on those cars, whereas Tesla has needed the Roadster, S, and 3 to be successful to continue operating. That will be less the case on future cars though. So it may have been a reason to short up until now, but not so moving forward.
tim333 8y ago
I held Fairfax shares through much of the shorting incident the article mentions and there are significant differences - Fairfax was a basically profitable company and the shorts were arguing that their accounting was fraudulent which turned out not to be. In the case of Tesla the arguments are different - that it won't make much money because model 3 production is delayed and Porsche and BMW are launching competing products. Time will tell I guess. I haven't seen them do anything outrageous like sending a private investigator to harass Prem Watsa's pastor. Prem sued them for $8bn after that and quite rightly I think. While he lost, it probably gave the shorts second thoughts about those kind of tactics https://www.vccircle.com/prem-watsa-led-fairfax-loses-8-bn-lawsuit-filed-against-us-hedge-fund-billionaire/ https://www.vccircle.com/prem-watsa-led-fairfax-loses-8-bn-l...

74 points by lazydon 8y ago

tw1010 8y ago

TLDR?

Tepix 8y ago
It's a good read. It argues that short sellers want to kill Tesla and they have a chance because Tesla somewhat resembles a financial company.
faitswulff 8y ago
The argument goes that bad actors are trying to tank TSLA by using massive short sales as a signal to the rest of the market that Tesla is a bad investment. That's not entirely a surprise. The surprise is that there's a historical precedence for it, from the very same bad actor investors. This pattern has played out with a company in the early 2000's called Fairfax, and then with SolarCity a decade later. The same thing is happening to Tesla - the graphs are striking. Tesla's response is to cut costs and become self-sustaining, wean itself from dependency on investors, and break the short-sellers' strategy.
- ringshall 8y ago
  Why are they trying to tank it? Short term profit or some conspiracy theory?
  - Robotbeat 8y ago
    Because short sellers profit when the stock price goes down.
    - superhuzza 8y ago
      And they stand to lose money if the prices go up.
  - DiabloD3 8y ago
    Largely, afiact, they're trapped between their shorts and a hard place. They can't buy shares back at or below what they sold the shorts for, so unless they can manipulate the media, they will surely go bankrupt.
  - jessaustin 8y ago
    For a (quite plausible IMHO) "conspiracy theory", look upthread: https://news.ycombinator.com/item?id=17522791 https://news.ycombinator.com/item?id=17522791 and downthread: https://news.ycombinator.com/item?id=17522820 https://news.ycombinator.com/item?id=17522820
- compcoffee 8y ago
  >then with SolarCity a decade later. SolarCity failed because it was a bad business. Shorts believe the same about Tesla, which may or may not be true. Do you think short-sellers randomly choose companies to sell, or do they look at fundamentals and decide the company isn't viable? This idea that you can simply short a company until goes out of business is asinine. It's far riskier. The downside of shorting is unlimited. Fairfax still exists. People like to bring up Chanos and Farifax when talking about Tesla, but they rarely mention he was also early on Enron.
  - ameister14 8y ago
    Did you read the post? He mentions Chanos was early on Enron right away, as part of his bio, and goes into SolarCity in some depth. I didn't invest in SolarCity, and don't know the specifics of what made it a bad company. Most of the news I read a few years ago was about how solar itself as well as their model specifically was failing, and that clearly hasn't happened. Is there another reason? Could you enlighten me?
    - compcoffee 8y ago
      >I didn't invest in SolarCity, and don't know the specifics of what made it a bad company. My evidence is that it had to be bailed out by Tesla, then wound down. They spent vast amounts of money to grow; you know the old selling a dollar for $0.80. Borrowing short, lending long. Most of the time, that doesn't work. Solar power is a commodity, and prices are rapidly falling. I think the onus is on others to prove that it was a good business that couldn't handle short-sellers. Again, if it was so simple to destroy a company through shorting, why isn't it happening everywhere, all the time? Furthermore, who is "they"?: >They are not shorting because they think Tesla will go bankrupt. They are shorting during specific periods when Tesla is most vulnerable, and covering when they fail to achieve their targeted goal. They are shorting to bankrupt Tesla. I've been short TSLA twice (but net long through ETFs). The first time was early, and I lost money. The second time was in the recent run up after the 5k/week news, when I made a few bucks. Was I trying to bankrupt Tesla?
      - 8y ago
- imglorp 8y ago
  Continuing the hypothetical short conspiracy idea, would Big Carbon interest also be involved? How would they relate to the shorting activities?
dwighttk 8y ago
“I used to think Elon should just stop worrying about short sellers. But then I read a story about how short sellers conspired against a company to drive its stock down and limit access to financial markets and then that company sued the shorters and its stock went from $100 to $700”
chrisbennet 8y ago
The article draws a parallel between what Chanos (or the guy who worked for Chanos) did to Fairfax and what Chanos is doing now i.e. trying to tank the stock with unethically: ”Incredibly, over the next three years was stories of harassment of Fairfax workers, the CEO Prem Watsa, his wife, even his pastor. While this was happening Fairfax was besieged by accusations of fraud sent to rating agencies, regulators, even Fairfax's own business partners. Nearly all of these troubles could be traced back to Spyro Contogouris, a man hired by Chanos, Loeb, and Sender to "bring down Fairfax". Contogouris’s strategy would be to sink Fairfax by “closing access to the capital markets”—cutting off its access to funding by undermining its reputation. This was old-school Sun Tzu stuff, isolate-and-destroy tactics, “attacking by stratagem”: General Contogouris would cut off his enemy’s supply lines by, among other things, sullying the firm’s standing with ratings agencies and shareholders and others in a group he termed “FoF,” for “Friends of Fairfax.” He wanted to “get them where they eat,” cutting off their credit lines, particularly going after their ratings by agencies like A. M. Best. All this Contogouris promised to Chanos, Loeb, Sender, and others from the start. He pledged to “get the message of what I think is a massive fraud to these long term value holders” by creating a “crisis of confidence” that would frighten investors and “shake them out of the stock.”

deleted 8y ago

[deleted]

21 8y ago

Overall short sellers are a good thing. They have skin in the game. They are like the people searching for software vulnerabilities motivated by big bounties.

Robotbeat 8y ago
Very good of short sellers have good ethics. But what if they don’t? What if they start INTRODUCING bugs to collect the bounties?
- 21 8y ago
  Wouldn't that mean that you have bad security anyway, since you were easy to infiltrate (it cost less than the bounty)?
  - freerobby 8y ago
    This analogy only works if you view the economics through the singular, zero-sum lens of Tesla. Imagine you have billions of dollars in big oil, or traditional auto manufacturing. If you can take a few percent of your net worth to establish a short position on Tesla, and in so doing create market weariness that could help bring down the company, then that would be a good investment for you overall even if you are unable to recover any of it (because your external holdings stand to benefit or be harmed accordingly). The fact that you stand to benefit directly on the short if you succeed is just icing on the cake.
    - 21 8y ago
      This works both ways. Your short position depresses prices below "value", which means that for example an eco-friendly sovereign fund could move in and buy the shorted stock with a discount, if they believe that it's unfairly targeted.
      - jessaustin 8y ago
        Why would the hypothesized petroleum/automotive tycoon care about that? She doesn't care if a sovereign fund prospers. She just wants to hurt Tesla.

ckastner 8y ago

The article makes an interesting case for the influence of short sellers on Tesla's stock and calls out some specific hedge fund managers. However, even if these "bad actors" (as the article calls them) do indeed influence the stock price: missing goals by a year, dwindling cash reserves, etc. are valid reasons for concern, but the article only mentions them for context, without addressing them.

forkerenok 8y ago
I think the author closer to the end makes it clear that the short sellers ride on real problems with the company. And he doesn't label all short sellers as "bad actors", but only those that engage in opinion manipulations at scale.

vivafrance 8y ago

Short sellers are playing the same game against bitcoin right now.

anonu 8y ago

Lengthy article. But good review of how we got here. Shorting is as natural as going long... It's an important characteristic of any market. But the articles point is that the shorts might be clustered in the hands of some influential hedge fund guys... Who basically wage an information campaign to crush the stock... Whether they're right or wrong. In that sense, I disagree with the articles premise that Musk should ignore the short sellers. Fight fire with fire... Or a flame thrower. Musk's company is a super speculative one at this stage. So a lot of it runs on gut feelings and perspective. Not actual fundamentals.

deleted 8y ago
[deleted]
deleted 8y ago
[deleted]
ricw 8y ago
It’s actually not that speculative. Model x and a have 25% profit margins, unheard of in an industry that typically has mid single digit margins. It’s something only Porsche is able to achieve. They’ve announced that they Yer aiming for similar margins for the model 3. In short, the core business is extremely profitable. What is “speculative” is the aggressive expansion tesla is engaging in. It’s why they need cash and what is making them a target.
- CPLX 8y ago
  Their ability to maintain and defend those margins against established luxury car makers over time of course is severely in doubt.
- thomaskcr 8y ago
  > Model x and a have 25% profit margins Part of the short thesis is that they are hiding warranty repairs in "Services and Other" - underreserving for warranty would make those margins artificially high. They reserve $3000/car - considering that just the 3 people I know with Model S's have all had a drive unit replaced, one had a battery replaced, between them I have lost count of the number of door handle replacements - I think there is something to that. Even if their per car margins are high, they still have a negative operating margin. If you can't make money selling cars, does it really matter what your automotive gross margin is? I think the focus on those margins is a major misdirect away from the fact that the capital they've been raising has been used for operational costs as well as capex - which implies that they aren't "reinvesting profits in growth" but dependent on cash infusions for survival. And it seems to have worked based on the TMC and Reddit TeslaMotors threads - people think that the gross margins on the cars means they are making money if you ignore their investing in the future, which just isn't true. Aside: My favorite bull response while sharing this information so far was "source" on my claim they had negative operating profit from someone who was "heavily invested in the stock" -- it's those stripey pages at the beginning of those reports you should be reading as an investor. I try to follow the bull reasoning as much as possible but it's really hard when a lot of it is just based on faith in Elon - I don't really know how to model that.

DiabloD3 8y ago

I'm surprised this guy didn't bring up the famous story of Overstock.com around 2005-2006, where at one point there were more shorts in existence than actual shares. The CEO of the company sued a bunch of large investment banks (who all heavily shorted his company). For those that don't understand, that is called "naked shorting", and that constitutes fraud by NASDAQ and the major investment banks. In the end, all of the investment banks that he sued, except for two (Goldman Sachs and Merrill Lynch) settled. The banks that did settle? Ended up getting their junk kicked in when their shorting scheme failed to work, and they lost a lot of money because the suit against them signaled there was no truth to their claims and the Overstock.com price went back up. I have no reason to believe that is not what is happening to Tesla currently. Given that this example and the example given on the forum post are very similar, and both turned out appropriately, maybe Elon Musk should consider suing the largest firms shorting his company.

snarf21 8y ago
Interesting. It seems like there should be a cool name for this (ala pump and dump) where you take a short position and then bad mouth a company until it self fulfills and then flip your shares. Maybe clip and flip?
- telotortium 8y ago
  I think I've heard short and distort before.
- irq-1 8y ago
  Short to Mort (death)
koliber 8y ago
Shorting a stock involves first borrowing it from someone, and them immediately selling it. Everyone who is short stock does not own it! Naked shorting is selling stock you have not even borrowed to create a short position. The scenario you describe did not require naked shorting in order to exist. To keep things simple, imagine a corporation that has 100 outstanding shares on the public market. Bob owns them all. Mark wants to short them, so he borrows all 100 from Bob and sells them to Mary. At this point, Bob is "owed" stock from Mark, and Mark owes Bob stock. Mary owns all 100 shares of stock. No one shorted anything naked. Now say that Craig wants to short this company as well. He borrows 100 shares from Mary, and sells them to Sally. At this point, in addition to the above positions of Bob and Mark, Craig is short 100 shares of stock, which he owes to Mary. Sally owns all 100 shares of stock. Looking from the perspective of any one person, they are not short more shares than there exist in the company. No one shorted anything naked. And yet, on the macro level, there are 200 short positions, and one person owns the 100 shares of the company. No one shorted anything naked. And yet, the situation you described arose. Should the need arise for Craig and Mark to return the stock they borrowed (someone calls in their shorts), they will probably need to pay a lot to convince the people who own the actual stock to sell to them, especially if the owners are aware of the macro situation.

spookybones 8y ago

Is there any concrete evidence of this, and, if so, shouldn't this be big news? I guess we would need leaked emails.

fhood 8y ago

Hell of an article, I think it is clear that Tesla has had serious production problems with the model 3, but, then again, Tesla has never met their production goals on time, and only recently(ish) are we seeing shorts at the magnitude.

calyth2018 8y ago

I take exception to the part about how the crashes and the fires are trying to stoke up some kind of self-fulfilling short sentiment. The majority of the article is backed with references and evidence, but there's no escaping of the reality that a lane-keeping cruise control being marketed as autopilot has and will take lives. That's not just some negative sentiments being drummed up, it's reality and human beings that are being harmed or killed. And all of that is very much on Tesla.

addicted 8y ago

The best reason to short Tesla would be that it has the same Market Cap as GM and a larger one than Ford. Or they have a history of missing production and profit targets. Or that you believe that the existing car industry can learn to make electric cars faster than Tesla can learn to scale profitably and consistently. Or that you believe that Tesla will be unable to maintain its premium pricing once it has luxury competitors who take EVs seriously, because their actual QC is pretty poor.

freerobby 8y ago
I think the last two are good reasons to short Tesla. I wouldn't touch those bets with a ten foot pole, but they are entirely rational depending on what you believe. If you don't believe those things, then Tesla having a greater market cap than GM or Ford makes sense, because Tesla's future cashflows would be greater than GM's or Ford's. Production deadlines aren't very compelling to me except to the extent that they starve a company of its operating budget. Heck, other car companies routinely show off concept cars that aren't only late but in fact never ship. It's not a big deal though, because those companies aren't betting the farm on those cars, whereas Tesla has needed the Roadster, S, and 3 to be successful to continue operating. That will be less the case on future cars though. So it may have been a reason to short up until now, but not so moving forward.

tim333 8y ago

I held Fairfax shares through much of the shorting incident the article mentions and there are significant differences - Fairfax was a basically profitable company and the shorts were arguing that their accounting was fraudulent which turned out not to be. In the case of Tesla the arguments are different - that it won't make much money because model 3 production is delayed and Porsche and BMW are launching competing products. Time will tell I guess. I haven't seen them do anything outrageous like sending a private investigator to harass Prem Watsa's pastor. Prem sued them for $8bn after that and quite rightly I think. While he lost, it probably gave the shorts second thoughts about those kind of tactics https://www.vccircle.com/prem-watsa-led-fairfax-loses-8-bn-lawsuit-filed-against-us-hedge-fund-billionaire/ https://www.vccircle.com/prem-watsa-led-fairfax-loses-8-bn-l...