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There is nothing wrong with shorting Tesla. Short selling is a necessary corrective to overhyped stocks. If the short sellers are wrong about Tesla being overp

There is nothing wrong with shorting Tesla. Short selling is a necessary corrective to overhyped stocks. If the short sellers are wrong about Tesla being overpriced, they will pay for it. They are taking all of the risk, and they are not hurting anything except Musk's feelings.

fouc 7y ago
Apparently there's a bit more to that. Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much, forcing Tesla to do some sort of liquidity event? So the big short sellers are trying to force the share prices down enough that Tesla is forced to deal with this, which would push the share prices down even more and let them profit hugely.
- JackFr 7y ago
  > Apparently there's a bit more to that. Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much, forcing Tesla to do some sort of liquidity event? Umm, yeah. There is nothing special about that. In fact that is the point.
- solveit 7y ago
  That kind of scheme fails spectacularly if people know it's happening. It's really really hard to make money by deliberately mispricing something.
- __blockcipher__ 7y ago
  > Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much In other words, the shorts are totally right to be taking their position? A company that depends on its stock price to stay afloat is not a healthy company. Let’s take AAPL as an example. Their stock could plunge to $1/share and they would be absolutely fine because they have positive free cash flow, and thus don’t need to rely ok raising capital via selling shares.
  - Ninjak2 7y ago
    In your example, Apple would not be absolutely fine. Key employees are compensated largely in stock and many would start looking for other jobs if their trailing four years of RSU grants suddenly became nearly worthless. Now Apple could step up and issue additional RSUs to employees to keep them onboard, but that has consequences too. So you can see how a tanking stock price is extremely disruptive, even if you don't need to raise capital.
    - firebones 7y ago
      Issuing additional RSUs for retention is something which, with their positive cashflow, they absolutely would do (handled by share repurchase) if the stock price dropped to the point it made rational sense. Who wouldn't stick around at Apple if they're printing money and your RSUs have a basis of $1?
  - Dylan16807 7y ago
    > In other words, the shorts are totally right to be taking their position? Many of the shorters just think the company's overvalued. But anyone aiming for that event to trigger is making a bet that enough people will make the same bet, in deliberate disregard of whether the stock's value is appropriate for the actual business. It's kind of like a prisoner's dilemma. Is it 'right' for someone to defect? That motive isn't saying anything about the company. It's a pure meta-move. That places outside of the normal "markets efficiently allocate capital" logic. It's profitable but very much not efficient to swing your weight around and make a company go out of business in a way that owes you money.
    - fouc 7y ago
      Yeah, good point, it's less an efficient market move and more of a profit-forcing move.
repsilat 7y ago
> they are not hurting anything except Musk's feelings Investors help companies, right? They add to the demand for the stock, and keep the price up. Stockholders have invested in the company. When shares are created and sold, the new stockholders inject capital into the company, and when shares are re-sold that property of "have injected capital into the company" is in some moral sense transferred at the same time. Short-sellers do the opposite -- they depress the price of the underlying. If short seller S borrows TSLA from holder X and sells to Y, two people are long TSLA (X and Y), but there is only one share between the two of them. If S hadn't been there, the stock price would be higher. From the perspective of market efficiency (and the economy) I agree that short-selling is important. I wish it were easier to do. From the perspective of individual companies, though, short sellers are directly harmful to their success.

fouc 7y ago

Apparently there's a bit more to that. Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much, forcing Tesla to do some sort of liquidity event? So the big short sellers are trying to force the share prices down enough that Tesla is forced to deal with this, which would push the share prices down even more and let them profit hugely.

JackFr 7y ago
> Apparently there's a bit more to that. Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much, forcing Tesla to do some sort of liquidity event? Umm, yeah. There is nothing special about that. In fact that is the point.
solveit 7y ago
That kind of scheme fails spectacularly if people know it's happening. It's really really hard to make money by deliberately mispricing something.
__blockcipher__ 7y ago
> Tesla is very leveraged right now and apparently it would be an issue if the share price dropped too much In other words, the shorts are totally right to be taking their position? A company that depends on its stock price to stay afloat is not a healthy company. Let’s take AAPL as an example. Their stock could plunge to $1/share and they would be absolutely fine because they have positive free cash flow, and thus don’t need to rely ok raising capital via selling shares.
- Ninjak2 7y ago
  In your example, Apple would not be absolutely fine. Key employees are compensated largely in stock and many would start looking for other jobs if their trailing four years of RSU grants suddenly became nearly worthless. Now Apple could step up and issue additional RSUs to employees to keep them onboard, but that has consequences too. So you can see how a tanking stock price is extremely disruptive, even if you don't need to raise capital.
  - firebones 7y ago
    Issuing additional RSUs for retention is something which, with their positive cashflow, they absolutely would do (handled by share repurchase) if the stock price dropped to the point it made rational sense. Who wouldn't stick around at Apple if they're printing money and your RSUs have a basis of $1?
- Dylan16807 7y ago
  > In other words, the shorts are totally right to be taking their position? Many of the shorters just think the company's overvalued. But anyone aiming for that event to trigger is making a bet that enough people will make the same bet, in deliberate disregard of whether the stock's value is appropriate for the actual business. It's kind of like a prisoner's dilemma. Is it 'right' for someone to defect? That motive isn't saying anything about the company. It's a pure meta-move. That places outside of the normal "markets efficiently allocate capital" logic. It's profitable but very much not efficient to swing your weight around and make a company go out of business in a way that owes you money.
  - fouc 7y ago
    Yeah, good point, it's less an efficient market move and more of a profit-forcing move.

repsilat 7y ago

> they are not hurting anything except Musk's feelings Investors help companies, right? They add to the demand for the stock, and keep the price up. Stockholders have invested in the company. When shares are created and sold, the new stockholders inject capital into the company, and when shares are re-sold that property of "have injected capital into the company" is in some moral sense transferred at the same time. Short-sellers do the opposite -- they depress the price of the underlying. If short seller S borrows TSLA from holder X and sells to Y, two people are long TSLA (X and Y), but there is only one share between the two of them. If S hadn't been there, the stock price would be higher. From the perspective of market efficiency (and the economy) I agree that short-selling is important. I wish it were easier to do. From the perspective of individual companies, though, short sellers are directly harmful to their success.