I will cite this example in the future of the fact that the market can stay irrational longer than you can stay solvent. I find it incredibly fascinating that almost all the "smart money" has done hedges and shorted TSLA, while the flood of casual pandemic investors has bought into it.
TSLA as a stock is a fascinating example of how price discovery can fail in times of irrational exuberance and that, in the short-to-medium term, markets aren't efficient nor rational.
In 2014, I saw the opportunity to short a broader sector of the economy, we wrote up a white paper and identified market targets etc that would correlate with my observed trend. But I did not pull the trigger as I lacked the necessary knowledge to understand and time the trades.
My prediction came true. But sadly I was unable to capitalize on it.
The TSLA situation is similar. It's clear that the valuation has become disconnected from reality. But how do you time the inevitable collapse of the bubble? How do you model something as bizarre as this form of irrational exuberance?
Do you induce it through a Pershing Square/Bill Ackman style campaign? Do you fund research into the flaws of the product, highlight it, and hope to induce the correction? Or, do you use other signals to time the purchase and mechanics of your short?
In other words, what do you do when the world around you has gone insane?
I think Hertz illustrates your point better. They are a poorly managed company with mountains of debt. Their business model imploded short term with the pandemic, but they were on shaky long term footing without the pandemic. There is no hope of this company becoming successful in the near term. With all of this information publicly available, retail investors on /r/wsb decided it would be funny to pump the stock and try to flip it for short term gains, and a whole bunch of people who saw Hertz tending on the Robinhood app bought in. The demand was so big that Hertz, a bankrupt company that was about to be carved up and sold off to creditors, issued stock that sold like hotcakes. It's utterly bizarre.
A Tesla collapse isn't inevitable. It could simply stay flat as the company grows, becoming more reasonably priced over that period. Sort of like what Microsoft did between 2001 and 2011.
Otherwise, Tesla will crash when the whole market crashes. If & when the whole market crashes, the Tesla crash will be a lot bigger than the rest of the market.
It was totally seen, Tesla's stock simply wasn't that irrational at the time. Tesla's Feb-March drop was almost twice as big as the rest of the stock market drop. Tesla's stock is up nearly 900% since that low point. I don't think there is any reason to doubt bryanlarsen's point.
That was a pretty short crash though. Things did go down, but it wasn't for long enough that it might affect things like ability to get credit or business function.
If the market crashed for a prolonged period I would expect that to be more difficult to sneak through.
I think batteries will be annihilated by fuel cells in the near future. So in all likelihood the current business of Tesla will be wiped out. Tesla could only survive if it completely reinvents itself.
AFAICT, there is no metric by which a green hydrogen powered fuel cell car is superior to a BEV. It's more expensive to buy, at best is 3X as expensive to fuel, is far more inconvenient to fill up (a grand total of 39 stations in the US), lower range (300 miles for current models), and is far less reliable (hydrogen embrittlement).
That's assuming it's powered by green hydrogen (aka, hydrogen created via electrolysis). Grey hydrogen cracked from natural gas is cheaper than green hydrogen, but if you're not going green, why would you get anything other than a gasoline car?
These are backwards looking arguments. I'm talking about a future where: fuel cell cars are far cheaper, hydrogen is approximately as cheap and efficient as electricity, there is a substantial hydrogen infrastructure in place, and range is 400 miles or more (this has already happened). BTW the last statement was always wrong as modern fuel cell vehicles are more reliable than battery powered ones.
It will be green hydrogen too. I don't think anyone is seriously proposing grey hydrogen as a fuel.
> hydrogen is approximately as cheap and efficient as electricity
This is physically impossible. Green hydrogen is created from electricity and water and is converted back to electricity and water in a fuel cell. These are both lossy processes.
No more so than a battery. A fuel cell is in fact a battery of sorts, and it's not out of the question that it approaches the efficiency of a conventional battery.
It should also be pointed out that the lower weight of a fuel cell powertrain allows you to use less energy during operation. So even if fuel cells don't fully match the efficiency of conventional batteries, they can still use less energy on a final basis.
On the other hand, the Nexo is storing a much larger amount of energy. At 6.3 kg of hydrogen and at 33.3 kWh of usable energy per kg, that's 209.8 kWh. The Y only stores 75 kWh in comparison.
Fuel cells are around 60% efficient today. The system efficiency is probably around 55%. This is a number that will increase as fuel cells get more efficient. I believe the gap will eventually close altogether, or at least shrink greatly.
I think your focus is a bit narrow here, and physical impossibility is a really strong statement.
Advances in photocatalytic water splitting could easily make this a reality.
That said I’m under the impression that progress in battery tech is a lot more active right now, and it’s not really clear that finding an efficient and economical photocatalytic material is very realistic
Sure, I agree with you, it seems unlikely that fuel cell tech will overtake advances in batteries in the near future, and that compressed hydrogen doesn’t seem likely to become competitive.
My point is that there are many other hydrogen generation and storage technologies at various degrees of maturity and viability, and it doesn’t seem productive to write off a potential economical fuel cell system as a physical impossibility.
I do think there are many challenging engineering problems along that path, and I’m not convinced it’s tractable at all, much less likely to outpace advances in battery systems.
> I do think there are many challenging engineering problems along that path, and I’m not convinced it’s tractable at all, much less likely to outpace advances in battery systems.
I disagree on that last part. Fuel cell is moving at warp speed right now, and batteries are losing ground at a rapid rate. We're seeing fuel cells move into everything from e-bikes to aircraft. If there's any kind of disruptive event here, it will be fuel cells replacing batteries at a much faster rate than expected.
Not necessarily. You can store it in metal hydrides. It's also a small amount of energy comparatively, so it's not a big loss. Finally, you can recover a lot of the energy back.
It's the fundamentally superior technology. It's likely to be much cheaper than batteries in the long run, and I suspect will eventually equal batteries on efficiency too (fuel cells are technically batteries themselves). We can go into elaborate details on this, but that is the gist of it.
> I suspect will eventually equal batteries on efficiency too (fuel cells are technically batteries themselves).
Fuel cell vehicles also use batteries. The fuel cell charges the batteries, and the batteries power electric motors. So it's impossible for a fuel cell vehicle to be more efficient than a battery-electric vehicle.
Not to mention the massive losses generating the hydrogen, during electrolysis and compression.
Not necessarily. They can use capacitors instead. And the battery is only engaged when accelerating or braking. The car runs mostly on the fuel cell in steady state operation.
Those are just assumptions. There's no reason why you can't you reduce them to the point where they are non-factors. It's possible they go away completely, for instance if you use thermochemical production of hydrogen or store hydrogen in metal hydrides.
As I said previously, you don't need to perfectly match batteries on efficiency. If fuel cells get close to batteries, it's enough for them to succeed. The rest can be made up by a combination of lower upfront costs and light weighting.
To me, short sellers are like undertakers. No body wants to be one when they grow up.
That said, were I in your shoes, I'd spend a lot of time studying the theses of the shorts that have both profited and been buried by TSLA over the last 5 years. Tesla was savaged by them and endured one highlighted, publicized flaw after another. They are even well known and called into Tesla's quarterly calls, looking for responses they could use against the stock. If you're a player you might be able to get them on the phone and ask what did and didn't work.
I've been long TSLA for 8 years. I can't tell you how many times I've said to my wife, 'we really should sell some now'. I said it at $100, $250, $500, and now $700. We still haven't sold.
It's not rational, but even irrational behavior can have an explanation. 2020 was a hopeless year. Tesla, and it's older brother SpaceX, both engender hope and point to a better future. Maybe people need to buy in as a way to get through this time.
For goodness sake, take some damn profit! Sell 15%, 30%, or 50% -- whatever you want. It will be good for you and you will feel better after you do it :) It's good mental training to be able to sell a piece of your holdings.
You will still have skin in the game. You can still still keep tabs on new developments. But you will also have a more balanced portfolio.
How does the growth of TSLA compare to AMZN? For years, AMZN did not make profits as it built out and expanded. Were there people trying to short AMZN and predict it's doom? Nothing is new in the world, so are there other similar things in history to compare these decision indicators?
You can't really compare the P/S ratios between different industries. A lower margin business like retailing should have a lower P/S ratio than a higher margin business like retailing. OTOH, a crazy high margin business like AWS should have a higher P/S than a manufacturer...
I will go the other way around and say that doom and gloom about Tesla's future has been prominent in news coverage in spite of Tesla's solid position.
I will assume that short sellers not only lost the aforementioned amounts but also the amounts they used to promote their failing positions especially since those positions already were showing weaknesses.
May it be that TSLA won't crash spectacularly, but fizzle slowly until it matches the Tesla's performance better? Especially if Tesla improves its performance gradually, too. Now that it's got into S&P500, it has some amount of stock bought by conservative institutional investors, which are unlikely to do a sudden massive dump, to my mind.
I will cite this example in the future as 'a dumb headline' - we can't know the net positions of short sellers, some are required to disclose their shorts, but not vice versa.
Yes short sells lost. Short sellers lost? Probably. But an unknown amount.
I recommend selling options a month out, way out of the money, in either direction. This way it doesn’t really matter. February 19th $1000 calls are selling for $18 a share today. That’s easy money.
Until Elon Musk tweets that he's thinking of taking X public through an ESG SPAC and rolling out an update that will have idle Tesla vehicles mine Bitcoin.
He does this during market hours and the stock doubles within two sessions.
He, of course, faces zero consequences for this, even if it turns out to be 100% fraudulent.
Thanks I will! :) you can always delta hedge. This isn’t a money making strategy I’d recommend to anyone who doesn’t know what they’re doing and has a very high personal risk tolerance tbh.
Sometimes the whole world goes insane, but sometimes I find it was just me.
Perhaps they know something we don’t.
I mean, if internal combustion engines are RAPIDLY outlawed faster than the other manufacturers are able to complete, and those companies go out of business, and Tesla buys them... then Tesla would prove to be massively undervalued. As more and more people put their money on that, it becomes less of an insane possibility and more of a certainty.
I mean, why doesn’t Tesla buy the 2nd, 3rd, 4th, and 5th largest US manufacturers?
I just don't see this happening. Big Auto has waaaaay too much clout with Congress to allow them to be legislated into oblivion. Maybe I don't have the right kind of vision which is why I don't play these games.
Would it be undervalued though? If all other car manufacturers went bankrupt today, would $700 be undervalued for Tesla?
As far as I can tell we passed that point long ago. Tesla is now valued as if it's going to also take Uber and the taxi market, as well as the trucking industry... In its entirety.
This is called selection bias. You are cherry picking Amazon in the present and going back in time to a past where there were many more e-commerce contenders.
I'm sure you have heard about the dot-com bubble. Do you know what all those companies were doing? E-commerce. In some alternative universe Amazon is Pets.com
The problem with Tesla is that the opportunity for FSD is insane. Either the market is mispricing the risk or the shorts are, but the asymmetric upside if Tesla succeeds makes it a risky short. Asymmetric downside.
At battery day Elon said if they achieve FSD, their competitors will too in a couple years, and it isn't very valuable as a result. Now they said it all rides on batteries/energy storage and that's really their competitive advantage, a $218 million startup and another small one they bought with stock is now supposed to almost entirely undergird their $668 billion marketcap.
The parent commenter's point is specifically asking how an investor (such as a hedge fund) should actually pursue the short so that it's successful. Most TSLA shorts are institutional; just starting a hedge fund is insufficient.
As Buffett once said how markets behave like Cinderella at the ball. Everyone tries to stay until right before midnight, except you have no way of knowing when it's midnight.
The personality cult around Musk boggles the mind. He's a very advanced form of charlatan.
"Full self drive" is an obvious lie (and dangerously negligent at that) but Musk continues to not only promise it but literally sell it, and get away with it.
I think one day the chronic lying will catch up with him - but at this rate, it won't be soon.
I’ve driven a Tesla and found it completely confounding why people like them. It was a terrible experience. The build quality was worse than cars half the price and the driving experience was terrible.
I want electric vehicles to become mainstream and think Tesla is an important driver to that goal. I also have no direct position in their share price.
But to suggest that the cars themselves are transformative experiences is just wrong.
I've put 65,000 miles on a Model 3. Before this car, I drove a BMW 328i for 20 years. I loved the BMW dearly.
The Model 3 is better in every way. Crisper handling, punchier acceleration, and quiet. The electric part is wondrous: No gas stations. Electricity costs me 1/3 what the same miles on gas would cost.
Maintenance? Literally 2 sets of tires.
The battery? I bought the extended range with 310 miles. Tesla upgraded me, free over the air, to 325 miles after about a year of owning the car. 65,000 miles in and it still holds a charge good for 305 miles.
I have ridden all models of the Tesla, including the original roadster, and I believe Tesla should not be worth even a fraction of what any other car maker is worth.
If you have evidence of improper accounting or reporting, short the stock and publish the evidence. Otherwise, all US-based companies operate under the same laws and can take advantage of the same rules.
Note that Tesla doesn't just exclude R&D from gross margins, they also exclude unit marketing costs as well. (Tesla doesn't spend money on ads, but they spend $50-100 million annually on marketing.) Additionally, a number of QC-related costs (like taking back lemon cars, or paying for repairs before cars are accepted by customers) are excluded from the calculation of automotive sales revenues.
But that's not all: Tesla adds regulatory credit sales to their "automotive" gross margin figures.
Yes, that's right, Tesla's "automotive" gross margin isn't just vehicle sales like it is for other car manufacturers. For example, look at Q2 2020 filings. The clean-car credits that they sell to other manufacturers are treated as automotive revenue, and that accounting chicanery is entirely what lets Tesla claim a 20+% gross margin on their vehicles. (The clean-car credits are also what lets Tesla claim to be profitable, though it has yet to make a profit actually selling cars.)
Without treating the sale of clean-car credits as automotive revenue, Tesla's gross margins are at best in line with industry gross margins (and fall below industry margins once you apply automotive GAAP to standardize the financials).
So you're arguing that Tesla should apply R&D costs to vehicles but not count credits directly resulting from the sale of a vehicle?
The sale of a vehicle results in a credit that can then also be sold, so why can't that profit be tied to the vehicle?
On the flip side, the company can spend lots on R&D that never makes it way into a vehicle. Why should that then count against the profit from selling a vehicle?
Unlike parent, I agree credits should be included in gross margin, whether positive or negative. Companies in Europe facing significant CO2 fines should have that reflected in their reported margins.
I don't understand your R&D point though. It's perfectly logical either way to include or exclude it. There's nothing wrong with how Tesla does it, and there's nothing wrong with how the rest of the auto industry does it. It just means you can't blindly compare the figures.
Thanks, I didn't know that. For 2019, GM had R&D costs of $6.8B. They sold 2,887,888 cars in the US and 7,710,000 worldwide. Per car, that would be either $2,355 or $882 depending on whether the R&D number is a worldwide roll up (I'd think yes?).
Either way, adding the $6.8B to their gross margin number for 2019 would have increased automotive gross margins from about 10% to about 15%. Tesla's 2019 automotive gross margin was 21%. MRQ was 24%.
Your figures are correct, sorry, I did a quick back of the envelope and as you suspected compared worldwide R&D with US sales.
Yeah, I'm not claiming Tesla has bad margins, just that the figures on the balance sheet aren't apples to apples. 10% vs 21% compared to 15% vs 21% makes a huge difference. It's a 40% gap instead of a 110% gap.
Shorting is based on fundamentals, but Tesla has not traded on fundamentals in years. Tesla stock is proof that the market can remain irrational for a very long time.
As for the evidence, simply read Tesla's SEC filings. The financial parts, not the marketing fluff.
This an interesting view point and have to admit I've been in the situation where I thought everyone else in the room had lost their mind. Turns out they where on LSD and I was not.
TSLA as a stock is a fascinating example of how price discovery can fail in times of irrational exuberance and that, in the short-to-medium term, markets aren't efficient nor rational.
In 2014, I saw the opportunity to short a broader sector of the economy, we wrote up a white paper and identified market targets etc that would correlate with my observed trend. But I did not pull the trigger as I lacked the necessary knowledge to understand and time the trades.
My prediction came true. But sadly I was unable to capitalize on it.
The TSLA situation is similar. It's clear that the valuation has become disconnected from reality. But how do you time the inevitable collapse of the bubble? How do you model something as bizarre as this form of irrational exuberance?
Do you induce it through a Pershing Square/Bill Ackman style campaign? Do you fund research into the flaws of the product, highlight it, and hope to induce the correction? Or, do you use other signals to time the purchase and mechanics of your short?
In other words, what do you do when the world around you has gone insane?