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I shorted Tesla at $833.43

I have been thinking about making this move since the start of December, but I would not dare to do it before the inclusion to S&P 500. My initial fear was that it would fall right after, and then it would be hard to decide if it is a good moment to sell short. To be honest I thought that I would come back to this idea in February after the yearly report in the hopes that it has not fallen too much and the last days I had not thought about it at all.
So what happened?
[…]

I have been thinking about making this move since the start of December, but I would not dare to do it before the inclusion to S&P 500. My initial fear was that it would fall right after, and then it would be hard to decide if it is a good moment to sell short. To be honest I thought that I would come back to this idea in February after the yearly report in the hopes that it has not fallen too much and the last days I had not thought about it at all.

So what happened?
In short a lot of things came together perfectly.

1) A few days ago I sold some Bitcoin and other cryptocurrencies which meant that I had extra money to invest.

2) There have been many analysts who have raised their targets 100% out of the blue with crappy arguments like the margins have improved or that they can borrow money. First of them will come under heavy fire in the coming year as a lot of competition is ramping up and the second will start working against you the moment price starts to fall. As they say usually the bubble burst the moment the last skeptic starts to believe.

3) Tesla despite these bullish analyst upgrades fell 4%. If it had fallen 10% then I might have thought that I have missed the train and if it had fallen less, then I would have thought I can wait some more. Usually the bubble starts to burst with an unexplained price drop and today to me felt like that.

4) NIO had a very successful “NIO day” which should show even more that the competition is coming and fast and there is no real mote for Tesla. At the same time as a side note I am very skeptical about Chinese cars living up to the hype.

5) I saw questions being asked by not that experienced investor if they should buy Tesla in a forum. What made it meaningful is that for a year there has been total silence regarding Tesla as almost everybody knows that it is overvalued. Yet if a beginner investor is starting to ask if after a 1000% rally it still makes sense to buy then it means that the idea that this time it is different is reaching the masses and the upside is becoming very limited. He was replied to by not that experienced investors with strong certainty and that to me equaled with the idea that you should sell when you start hearing recommendations from taxi drivers. Right before the Bitcoin bubble bursting in 2017 a family member who is not into investing asked me what I think about Bitcoin, so I think there is some similarity.

6) Tesla thread in Yahoo Finance feels exactly like Bitcoin Reddit forum in December 2017. Basically Tesla will do everything in 5 years so might as well sell all other stocks and buy Tesla. It has gone up in the past, so it can not be a bad investment.

7) I thought investing at $700 would be a good idea so $800+ should be even better.

The safer bet would have been to wait until the end of the year financial report by Tesla, but my fear was that just like Bitcoin Tesla might fall 20% by that time, and that would make it really hard to decide whether to go forward or not with shorting. There is some kind of immense satisfaction in doing what other people are telling you not to do especially when it works. At the same time even if I fail which is still totally possible I will be able to take pride from the fact that I stay true to my plan even if it gets really hard to do so. In addition, I can show to the readers of the blog how to short stocks responsibly.

The main ways people get wrecked with shorting to my knowledge is either they buy a very volatile stocks or they do not stick to their initial plan.

As I am shorting Tesla then the first issue is mostly avoided. Yes there are safer stocks but in my mind Tesla has huge volume and a big market cap which both together make it is very unlikely that the price will open 20% + higher compared to the previous day close and thus in the most likely case your stop loss triggers quite close to the set price. Before shorting you should definitely think through those worst case scenarios, and you have to be ready for them to happen. For example for Tesla I am thinking the worst case is that due to crazy volatility stop loss triggers 30% higher in which case I lose roughly 3 times my initial investment. That would sting, but it is not the end of the world and at the same time a good lesson for the future.

Which leaves the other common mistake. Not sticking to the plan.
I am well aware of the danger. What if the stop loss price starts slowly creeping closer and closer to the market price, yet I know that the price can not stay at these levels for long. It will be very tempting to move the stop loss higher and higher, but you have to understand that the higher it goes the more painful the final close will be which would motivate you to increase the stop loss price even more and that is how people get those painful losses.

What is my plan? First I have a clear understanding where the money will come should the stop loss trigger. Part of it I have already on my account from selling cryptocurrencies but the rest of it will come with the February savings.
This means I know the exact total I am willing to lose. When the time should come it will be harder for me to change the stop loss as I would have to think what I am sacrificing. If there is no such clear link then it is very easy to you know “bump it just a little” and push the pain of the loss in to the future. I thought about giving myself some leeway by the amount of travel savings in February should the need come but as this is my first short position, and I am sharing this in the blog then I will stick to my initial stop loss no matter what happens. Even if the price goes $1 over and drops 60% afterwards then I will accept that possibility.

I opened my short position at the price of $833.43. Knowing the amount I am willing to lose I divided it by the number of stocks I sold and that gave me the stop loss of $1020. All the money I got from selling I am keeping idle in USD until I close the position so that I keep the connection between the stop loss and actual cash. Of course when I was thinking about it I did the calculation in reverse. I thought what is a price target that Tesla will not very likely pass and based on that I calculated how many shares I could buy by dividing the amount I am willing to lose with the price difference.

When it comes to closing when I am in the green, then I do not have a clear plan yet. What is certain is that I will not be touching my position before Tesla falls to $500. Probably once we get to the $650 range then I will lay down a clear strategy.

As you can see this is my plan and reasoning and of course it is not certain at all what will the outcome be, but I think I have a lot better odds than many great investors before me who jumped the gun earlier, so let’s wait and see.

If you have any thoughts of your own about Tesla or my reasoning regardless if you agree with me then I would happily read about them in the comments.

Stay tuned, stay awesome and stay invested
Yours truly
The Hobby Investor that could

37 replies on “I shorted Tesla at $833.43”

My two cents about TSLA technicals.. yes, price is overbought and over-extended to the upside. If you short here with the target of a pullback to $600-700 and consider the uptrend will continue at some point, then that could be a reasonable setup. But if you try to short a strong uptrend believing to nail the top of a trend change, then this could have a positive result due to luck rather than skill. B/c it’s your first short, it would be better for yourself to get a small loss here and not to create a belief to be able to nail tops. I’m long TSLA myself until the uptrend continues and will add to the position from a pullback if the trend does not turn. Good luck! And don’t let your trading plan get influenced by other opinions.

To me Tesla is overvalued and my whole approach is to buy low and sell high.
I believe in the long run I will win with this approach but for sure I will get it wrong sometimes.
Maybe it will be also with Tesla. You can not win them all as they say but last days of sideways movement give some hope that there might be something happening.

looks like you missed your opportunity to close your short at either a wash or minimal loss.
Did you factor in the new administration, the new Transportation Secretary whom is very positive towards EV’s?
Did you notice how fast the Shanghai factory took from beginning to pumping out MIC Tesla’s?
The speed of the German plant
The speed the Austin Texas plant and larger size?
“The machine that makes the machine” is the product, not just the car
Tesla is an _energy_ company that just happens to make vehicles

Have you looked at the margins in battery or solar panel makers? They are tiny and the competition is fierce.
The error you are making is that you assume that every wildest dream of yours regarding Tesla will come true.
That is called wishful thinking but not investing and the problem is that in order to justify the current valuation, not one or 2 of them have to become true but all of them and in a spectacular way.

I have no regrets about my position regardless of how it goes. Tesla growth was only around a third of Nasdaq-s today. I like what I am seeing.

thats because Market Makers are capping the price.
note the mandatory morning dip around 10:30 with the “icecicles” buyers vs sellers, the float is reduced 15% so far due to institutional buy and hold. you might want to check max-pain for options expiry.

https://www.youtube.com/watch?v=ZfkOftkDNCw

“How Elon Has Disrupted the World” – by “Now You Know” 5m 56s (but point made in first few seconds)

They argue that Elon Musk has disrupted more inductries than any person ever.

Paypal, SpaceX, electricity (every fossil plant is uneconomic now), online car buying & so much more. I agree with them.

I’ve seen so much FUD over the years, superficially attractive, but with no grounding in facts. Please educate yourself. Shorts get burned by the billions.

Do you not think that Tesla has disrupted car sector already? I sure do.
In order to justify the current stock price though you would have to prove why 60% will want to buy Tesla not any other car company.

Even if a single car company does not ramp up production fast enough. 20, 30 combined will already give Tesla a headache.
Just saying Tesla has the best cars is not enough to come even close to the burden of proof for the current price.

Regarding Tesla growth during pandemic. You do realize that the main buyer of Tesla cars is a tech person very likely working in IT.
Those people did not get hit at all during this pandemic and there has been a lot of pent-up demand recently due to low production volume in the past.

How much research did you do on Tesla and the EV market did you do before placing your short bet? Your analysis seems shallow and most of your justifications for taking a short position are common FUD talking points that have been repeatedly refuted by independent analysts – and by several comments above.

I suggest the following self-study. Consider revising your “plan” after deepening your knowledge on Tesla

Read every Tesla annual report.

What are Tesla’s automotive margins? How have they evolved over time, how do they compare with GM, Ford, Toyota, VW? Why would you expect automotive margins to go down with higher production and sales? What is Wright’s Law and how does it apply to Tesla?

How much does an EV battery cost? How much has that changed over 10 years? What further cost declines are forecast and how may that affect EV market share going forward?

What did Tesla reveal during Battery Investor Day? How might this affect their competitive footing in auto sales? How much does Tesla earn from energy storage? What are the margins and revenue forecasts ?

What is Tesla’s octovalve? What is Dojo? Who is Andre Karpathy? What is the stronger solution for full automotive autonomy – detailed street mapping worldwide paired with $10,000 LIDAR on every car or inexpensive vision systems interpreted by AI?
How will Tesla make money with autonomy? How much?

Some resources:
ARK Investment reports on Tesla and revenue/stock price forecasts

Solving the Money Problem YouTube channel

Sandy Munro Tesla Model Y tear down – YouTube

If you learn nothing else, please take the lesson to not invest in or bet against a company before gaining a deep knowledge of their business inside and out.

Cheers

I notice that the main reasons relate to finance/stock metrics.

None mention operational, engineering, efficiency excellence.

TSLA vs Tesla – Tesla is doing fantastically well and has won. TSLA might go up or down daily but long term will follow Tesla’s success. The recent rise in TSLA was because it was suppressed by FUD for years, shills & oil money used to try to break the company.

https://cleantechnica.com/2019/08/15/the-conspiracy-against-tesla-is-too-obvious/

“I was shocked to learn that Jeffery Epstein had a regular contributor to Forbes Magazine submit a story on him so laudatory as to be creepy. What was shocking was not that he did it or that the writer agreed to do it, but how cheaply he sold his soul. A couple grand goes a long way with today’s writers.

And so I am also a bit naive about online comments. I assume that they are all the true beliefs of the writers. So how does Seeking Alpha have 100% negative articles on Tesla with amazing collections of preposterous facts? There’s actually a very easy explanation. They get paid. And they get paid truly trivial amounts of money”

you left out Tesla has essentially zero advertising budget. I’ve been following them for around 10 years, first buy was in around the low $30’s. like the A/D line, it’s especially heartening that shortz lost $40 Billion in 2020, I expect 2021 will see a nice bite of their dwindling assets.

I would advise you to read the bear case as well.

FSD I already addressed with the link I shared. Tesla could even deliver, but regulations will not allow driving without being vigilant any time soon.
Same for margins. More competition smaller margins obviously. Tesla has had to cut prices already.

Could you please tell me what do you estimate is Tesla-s fair value and why if you have done all this reading, and you are such an expert?

I have the feeling that you have recently bought Tesla and you are so emotional because you want to prove to yourself that you did not make a bad purchase :D.
Loudness does not make you right you know. 😀
Usually people with the most certainty loose the most.

i have been following Tesla and EV’s for about 50 years. Some of us recognize things and have longer views and time horizons. My first EV was an El-Car, loosely based on a Fiat 500 chassis

Speaking about the bear case, I suggest you go on Seeking Alpha and read articles by John Peterson, Anton Wahlman, Mark B. Spiegel aka “logical thought” and Lawrence Fossi, aka “Montana Skeptic” all bears.
John Peterson wrote negative articles about Tesla and positive articles about Axion power, starting back when Tesla was well under $100/share.
Tesla is now around $4,300/share and Axion did 3 reverse splits before delisting for 1:700,000 (1 share for 700,000 shares), going from around $200/share to under 1 cent per share
Anton Wahlman writes Tesla articles, usually negative for a penny or 2 a click
Mark B Spiegel (Logical Thought) wrote articles about Tesla going to zero, especially after the Robinhood Conference on 11/30/2016, when Tesla started moving up and the Accumulation/Distribution line, an indicator of buy/sell pressure was at 10 million, over the ensuing 4 years, the A/D line has climbed to over 3 Billion, _meaning_ people are buying. Mark essentially called the _bottom_ of that sideways movement.
Mark used to be an extremely vocal short that few hear anything from now
Lawrence Fossi, (Montana Skeptic) wrote constant negative Tesla articles, garnering literally 100’s of thousands of clicks/comments,
he _used_ to say he was short i think with long dated options, which may have expired worthless, eh
I think he has retired

You may want to reconsider your short before you get burnt more.

Europe is just starved of Model 3 – as soon as ships come, they are delivered to eager customers. Tesla don’t have the supply to keep up with demand. Tesla sensibly prioritised USA deliveries after being shut down & to minimise shipping problems

Starting to get USA & China Model 3 – soon Berlin Model Y in a factory initially sized at 500,000 but capable of 2 million. Texas this year & phase 3 of China being built. Plus new China Supercharger factory with capacity of 10,000 superchargers per year. 4680 cells using dry process (Berlin) can be built in non-specialised small buildings at fast speeds, cheaply.

Model 3 position in December 2020
UK – Number 1 (of any powertrain) (again) – relatively big market – https://www.smmt.co.uk/vehicle-data/car-registrations/
Switzerland – Top EV (1809 vs 599 for Renault in 2nd)
Denmark – EVs – Tesla 1644 vs VW (2nd) 758
Ireland – No 1 in Evs
Finland – 2nd (EVs) by 9 cars
Norway – Number 1 of all fuel types
Norway Top 3 for YTD (as reported, but numbers since revised up)
Tesla Model 3 – 4,232 (7,770 YTD)
Volkswagen ID.3 – 2,303 (7,754 YTD)
Audi e-tron – 454 (9,227 YTD)
https://eu-evs.com/bestSellers/NO/Month/2020/12

Yes Tesla is doing well in most markets because just like Tesla the competition is also just starting to ramp up.
If Tesla was so much better, then people would put off buying anything else yet that is not happening.

In Norway ID.3 started to sell only in September. Potentially you would have to multiply it by 3 because of that.

Tesla’s valuation demands that no other car company has even a chance and that is not happening.

People ARE putting off buying anything else, all other OEMs sales are lower, ICE collapsing. Ford, Porsche making 20-50,000 is tiny. Only Tesla have addressed the bottlenecks, cell production mainly.

VW ID.3 deliveries are much higher initially as
1) They’ve been built for a long time waiting for firmware updates being done slowly (very low bit rate comms cables)
2) VW aimed at Norway for PR purposes
3) Huge backlog of orders – now mostly fulfilled (hence why 17% off prices can be found in UK).
This will settle down to a lower figure.

But Tesla is mainly competing with ICE. All of the rest of the top 10 ICE cars are small (as small hatchbacks plus some small SUVs are preferred form factors in Europe). Tesla Model 3 is selling despite it being too large, much more expensive, not being a hatchback. Model Y while larger is a SUV hatchback & won’t have 10% import tax.

Still a lot of FUD in media, which disappears as neighbours & friends get EVs.

Tesla use their money so much better than legacy. Decisions are fast, progress fast & much more is done for every $

Only car company to have grown during Covid. Growth is 56%+ and accelerating. Huge cash on hand, bought many of the key automation companies to work exclusively for them. Many people have been fooled by not understanding Tesla’s efficiency, engineering prowess & long term, strategic thinking. Past sales & financials vs future opportunity & tech dominance eg Dojo

If “Montana Septic” is “Montana Skeptic” aka Lawrence Fossi, you would do well to heed his advice about Tesla/TSLA. shorting TSLA into earnings is financial suicide. People shorting Tesla lost $40 BILLION in 2020. (by the way, thanks for the money) The float is rapidly decreasing

In general, I fully agree that it would have been safer to short after earnings but at the same time you are making one fundamental mistake in your logic.
The more people think that investing into earnings is suicide the more priced in this knowledge becomes until at one point it stops working.

Regarding thanking me for the money I would quote the “Big Short”, “Enjoy it while it lasts.”

Consider what will happen to your short as the SP rises, you are further underwater, and your drowning position has a stock split announced and you are liquidated out of your position with a forced buy. 60+ million shares having to be covered, not a slow squeeze,

Been watching Tesla since long before it was TSLA and still can’t understand why people would choose, OF ALL COMPANIES IN THE WORLD, to short TSLA. At any point. Is it overvalued today? Perhaps. Is a $1T valuation high for 2023? I would say absolutely not. That’s quite a narrow target for a short bet in an ultra-high liquidity market.

Again, this is clearly the most innovative company, most popular brand, and top target for engineering talent in the world. Why not short freakin’ Nabisco? Or Chevron? Or literally any other company?

People blame the long time TSLA longs for it’s temporarily inflated share price. Clearly it’s………^^^these people^^^

With Chevron I think I know what it will do in 10 years but I have no certainty that it can not rise in the near future. Same with a lot of other stocks which will fall in the long term.
Doordash and Snow are even more insane when it comes to valuation but with both of them I have no guarantee that a good earnings report does not push the price 30% or more higher.
Tesla has massive volume which is key for safe shorting as misinformed investors have less impact on the stock.

You are saying that one trillion is fare value in 3 years. Based on what? Last time I checked the level of argumentation in Tesla camp is “Well we produced 300K cars at a market cap of 100 billion,
so if we increase the production 2 fold then the price should be 200 billion”.

Give me one example in the past of a company that lived up to its hype? Every time the story is the same. You have tons of hype, stock price goes to the moon. Then reality kicks in and stock price gets destroyed and 8 years
later when nobody is really talking about the stock anymore you see fundamentally supported price increases. Would like to hear about a counter example.

Your trade could be profitable, no doubt about that. But your thesis is flawed. Don’t be greedy and get out while you can (better yet when profitable).

Why should I? There are plenty of resource you can research you are open minded and willing to spend some time to your homework. I’m not going to spend more 5′ to write a thesis to elaborate why. I’m random to you, same as you to me. Just make one or two quick comments here

What you are describing is not ‘investing’ as you call it, but ‘speculating’. An investor will put money in a growth stock hoping the company will grow its sales and earnings and that the stock price (and in the end dividends) will reflect this. You are just speculating that the stock price is a bubble and that you will profit from it deflating.

I agree that this is speculation but it is based on fundamentals.
I see no problem in having a small speculative position in your portfolio.
As long as you buy low and sell high then you should be a net winner most likely.

I see a clear fault in your plan.

You havent really considered that the current rise was caused by S&P500 index funds taking shares off the market. That got $tsla to $600+.

The next climb to $880 have been ETF index tracking funds buying, taking shares away from the free float. These funds are not yet done buying.

When ETF funds are done.. why should the stock price go down?

These fund hold.. its not a trade.
With significantly less shares in frer float… who do you expect will sell, all the way down to $500?

I do not expect the stock to fall 40% tomorrow. I would expect a 20% pull back by spring and once the competition is starting to ramp up in spring then I would expect the big plunge to start.
I would ask in return who the hell would buy besides small investors and index funds at these prices.

Take a look at
https://www.nasdaq.com/market-activity/stocks/tsla/institutional-holdings
and see how big institutions are trimming their positions by 40% etc and that was already in September.

A lot of them I would argue are holding on until the rapid price increase stops. Once that happens then what is the value of holding this when this is a momentum stock and there is no momentum?

Have you done the math on what FSD wide release will mean on recognized previously deferred revenue (100%) will mean.

And put some thought i to what a start of robotaxi as a service (2T market) would bring in sp impact?

$800B is cheap. With the above, this will become obvious.

Best of luck on you gamble.

I guess easy come easy go.. great that youll only gamble btc winnings, and not your house. 🙂

oh.. and a jump to $1100+ may happen during the next 3weeks, as Q4 ER approaches…and then you are out.

If I were to enter a bearish position on Tesla, it would be the day after ER, NOT just before ER are announced and we start a two week long run up to Earnings.

Tesla ofte go crazy with anticipation.. and sell the news.

You really havent done your home work on this short position.

If it happens then it happens. Not the end of the world. What is equally likely is that Tesla reports worse then expected margins due to the race to sell 500 000 cars or that
whatever they report is already priced in. The difference here is that I do not pretend to know exactly what will happen yet you do. Which means I am ready to be wrong but are you?

Also Tesla has been dethroned in Norway and that is just the start as the build quality is not up to bar with old automakers. Once that starts to sink in that Tesla will at best have 10% or even 20% market share then we will see a proper correction.
I am seeing signs of weakness in Tesla price rally so I do not regret my decision to short.

You are citing here an extreme bull case. Due to regulations FSD and robotaxies will not be a thing for at least 5 years if not more and by that time I do not think Tesla will have an edge.

Tesla had its second best month in December in Norway. You buy into fud my friend.

FSD, Norway are ready. half the states in US are ready.

And last but not least.

As soon as FSD is solved, this will lead to a re-pricing if the stock. Wont be dependent of regulations.

Can you provide sources?

The argument is not that Tesla will not sell cars, that has never been the argument.
It is that they will not dominate. In Norway they are not dominating already and the competition is only starting to roll their models out.
I think the picture will look even bleaker in a year. Tesla probably will improve sales numbers but not improve the market share.

Regarding FSD. What makes you say FSD is around the corner for Tesla?
When it comes to regulations as much as I read they are quite limiting. So even if they pull it off the value proposition is not as great as you think it is.

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