Why You Should Short Tesla Stock Now

I'm Jack Rickard, and this is EVTV. I wanted to say a few words about how Tesla is crushing it, or as I say, hitting on all cylinders, so to speak.

And today, they announced their fourth quarter deliveries of 112,000 units. Their stock went to $450 a share. We're going to talk about that a little bit.

But I wanted to talk a little bit about some of the things that are kind of backgrounders. One of them is the China-Shanghai factory, which you've all heard about. They're doing 1,000 cars a week.

They have about 1,000 on hand, they said. They actually have a capability of assembling about 3,000 cars a week now. They can't do the batteries that quick.

And so there's some reports that they're already able to make 3,000 cars a week at Shanghai. That's not entirely true. They can make about 1,000, but they can assemble the cars at a line rate of about 3,000 cars.

They don't have the battery manufacturing capacity there yet to do that. And their partner there is LG Chem. One of the things that some of the Chinese management was saying I think has been missed that's quite important.

One is that right now, about 20% of the components in an assembled Model 3 in Shanghai is made in China. And they expect by the latter half of the year to have nearly 100% of the components of the car made locally in China. That means replacing the vendor for the sun visors and for the console and for the seats and for all the people that have been a big pain in Elon's ass in the ramp up of the Model 3 were really vendor issues.

Everyone's focused on his factory, but it's like herding cats to get everybody from all over the world to send in components and get them at the right location at the right time to support the line. And they're going to have to duplicate that again, but this time in China, probably at a lower cost and a faster speed and maybe a little bit more satisfying situation. They have also qualified for the waiver on a 10% sales tax in China and for the EV subsidy, which is still in effect there, but like here going away eventually.

And so Tesla has announced a price drop of 16% on the Chinese made Model 3s as opposed to the ones they were importing. Saves the shipping costs, saves the tariff, and also qualifies for some subsidies, which should make the Model 3 very attractive in China. The future with Tesla is a very funny thing, I think.

It's got me kind of intrigued, and that is the absolute silent introduction of the Model Y. They had a very low key unveil of the Model Y in March last year, and virtually nothing said about it since then. And I find that remarkable. I was looking at some comparisons in the size of the Model 3 and the Model Y, and the Model Y is 5.4 inches taller than the Model 3. Now what does that mean? It'll be a lot easier for me to get in and out of.

So I am trading my Model 3 in at the earliest availability of a Model Y. And that's why you haven't heard but about it. I have heard almost every Tesla fanboy assure me that the Model 3 is not going to be cannibalized by the Model Y. There's just two people that don't believe that, and one of them is me, and the other one is Elon Musk. And that's why we've had crickets is all you hear about the Model Y since March, really.

He's hardly spoken of it. There's no descriptions of it. It's just been crickets and chirps about the Model Y so far.

I expect that to change, but on a very short chain. I'm hopeful at the fourth quarter earnings call at the end of January, he will announce a very imminent shipment of the first Model Y quite ahead of schedule. More likely it'll be at the first quarter earnings call, which should be about April 31st, April 30th, talking about it.

But I'm hopeful for the first quarter earnings call, January 31st, first week of February perhaps, where he'll be talking about initial shipments in April or May, and full speed shipments in, or a significant ramp up, significant numbers of deliveries in by June. And I believe that the reason, and we've heard crickets about Model Y so long, and we're going to have a very short period from his next update on when it will actually ship to when it ships, is going to be on a short chain because he doesn't want to halt the sale of the Model 3 by people waiting on the Model Y. And the concept of a crossover SUV is quite powerful. I think there's a lot of people buying Model 3s that would buy a Model Y instead if it was available, and I'm one of them.

And it's simply the size of the door. I don't have seven kids. I'm not going anywhere off-road.

I don't need an SUV at all, but I like them. You can haul a lot of crap around in the back, but the big deal is getting in and out of the vehicle. Until I can get my Cybertruck, I think the Model Y will be a lot easier to get in and out of than the Model 3. And when we were up in St. Louis having the drive unit replaced on our Model S, I tried a Model X, and indeed it was much easier to get in and out of than a Model S. And so I expect the same thing, particularly with the specification of about 5.4 inches higher profile on the Model Y than the Model 3. Hopefully we can avoid the use of emergency medical personnel to get me in or out of the car.

And so I'm quite, I haven't really said much about the Model Y, wasn't terribly interested in it. Well, I am now. And I think this is all per Elon's plan in that he needed to show continued sales of the Model 3 in the face of evaporating federal subsidies, and he has.

So I expect a great earnings report with higher earnings than he had in the third quarter, in the fourth, and 112,000 deliveries when he really only made 105,000 cars in the fourth quarter. And what that actually exhibited was we had Tesla stores and service centers where there was no stock. You couldn't go in and buy a car for Christmas.

They simply didn't have them. And some people trying to beat the first of the year deadline to get the $1,800 that was still left on the tax credit, that failed as well. And so I think that avoiding cannibalization of the 3 is what has driven the silence on the Model Y, and I think it's much more imminent than yet said.

And I'm excited about it. I still want a Cybertruck, but that's a couple of years off. But the bottom line is that Musk is crushing it on all fronts after a couple of years of work in the wilderness.

It's starting to come home for him, and in a lot of ways. The issue that I want to talk about today is Tesla's stock movement and price, and where that's gone. Let's take a look.

How about a long rambling diatribe about Tesla's stock performance over the past few months, and what I think it's going to do in the very near term in the future. There has to be 30 people out there doing YouTube videos and becoming amateur Tesla stock analysts. And why should I be left out? I've actually got some skin in the game, and I think I know some of what's going on here, and it may not be what you think.

Tesla's had a pretty good quarter as we can see here. Late October, Elon Musk put out a memo that they had a shot at 100,000 unit deliveries in quarter three. The actual announcement was 97,000.

And so we had a pretty good run up through November. It's kind of wandering a little bit, and then December got to be pretty good. And a lot of news about Tesla's China factory, and the Cybertruck was a big element of it.

But some of this is only indirectly related to the stock price. I mean, I suppose it's related, but it really has to do with short interest. And I've been talking about, Elon Musk has been talking about a short squeeze at some point.

In August, I described how the short squeeze had a little problem in that a large number of the shorted shares aren't really classic shorts. They have to do with fear, uncertainty, and doubt over Tesla and the future of electric vehicles as it affects the oil industry. And I outfloated the concept that there might be some short interest that really wasn't about making money in the stock market.

It was about trying to sow fear, uncertainty, and doubt to prevent other OEMs from being too avid in their pursuit of the electric vehicle. And I still think that was a big part of it. But let's take a look at the short interest and relate that a little bit to our stock price.

In July, we still had 39.5 million shares shorted as of July 31st. There was about 43 million in May. So they've been coming down slowly until October 15th.

We had 37,186,793 shares short. And by October 31st, that had dropped a significant 6 million shares to 31 million. So I think that was kind of a washout of some of the shorts who may have been following the herd here in shorting Tesla as a play to make money in the stock market by the 15th of November.

That hadn't really dropped a full million yet. And what's astonishing is that by December 13th, we still had a little over 19% of the float, the 142 million shares outstanding and are tradable. Still 19% or 27.5 million shares are still outstanding short.

So while we have had a decrease in shorts, I call this tiptoeing towards the exits, we don't have a short squeeze yet. And I'm sure we've lost a few between 13th of December and the first of the year. I don't think it explains our stock price activity.

And so my thesis is that the short run is still yet ahead of us with some 25 million shares, still outstanding, could indeed be oil companies, but they don't have an unlimited appetite for loss. And they're in danger of blowing their cover if they don't make some rational moves here pretty soon. And so we kind of have a long fuse on a short run.

And the way short runs work is that as the stock price rises, a few start tiptoeing toward the exits, and getting out, often liquidating part of their position each week until they get out. But as that progresses, if the stock price doesn't come back down, they face increasing pressure from margin calls, etc, to cover their position and take their haircut. The problem is that in doing that they have to buy shares.

There's really only about 1000 shareholders of Tesla stock out there. And a lot of them are kind of buy and hold kind of guys like Galileo, Russell, and so forth. They're in it to win it in the long term.

And so there can be kind of a shortage of shares to buy to cover your short interest. As that curve accelerates, of course, the pressure increases. And while a few were tiptoeing toward the exits, it turns into a steady stream, and then a panic.

And that can drive a stock price to a ridiculous levels that don't have anything to do with the valuation of the stock. And the wannabe analysts are trying desperately to cheerfully connect a lot of good news. And Tesla is hitting on all pistons that is ultimately what drives this.

But what we're seeing now and what we're going to see in the very near future, hasn't got much to do with valuing Tesla as a company, or even what future scenarios you bring into play. But it's going to be grossly distorted by this very high level of short interest in the stock, and how that works this out. So let's take a look at what I'm doing about it personally, and see what we can do here.

I had a position going back several years that had gotten to about 1101 shares of Tesla stock. And I sold 801 of them at the point where we reached $404 in December. And that might seem a strange activity to get out before it reached a peak.

It allowed me to take quite a bit of profit and raise quite a bit of cash, which I'm going to need for this next phase, which I think we're going to see enormous volatility in Tesla stock. It's going to go up and down and every which way. And so I've got another strategy at the moment, and it has to do with stock options.

There's really no need to short Tesla stock. You can buy put options that give you the right to sell Tesla stock at a certain price in the future, or any time between now and the future. And you can buy call options at to do the same thing buying Tesla stock.

And these are very leveraged, and they don't take a whole lot of money at any one point. But they can be very useful. And I've done what I call bracketing.

And that is I bet both directions. I bought some February 21, 2020 $600 calls, and some March 20, 2020 $600 calls that are way out of the money, obviously at $450. And by being way out of the money, they're quite low in cost or value.

I've also bought some February 21 $300 puts and some $350 puts. And of course, they're way out of the money too. And that gives me an acquisition prices quite low.

So let's take a look at the March 20 $600 call, you'll see the price listed as $4.85. $4.85. That is the per share price and you buy options as contracts for 100 shares. So one option contract at $4.85 really costs about $485. I've got 40 of them, I actually bought them at $2.75 basically, on average, and I bought them at different times.

But I've got about 40 of those, I've got 300 of the lower cost February 21 $600 calls. The value of these is based on time and they go down in value with each day that passes approaching your exercise date. So this is this is truly casino gambling.

But the question that you're going to ask is, why am I bet both ways? Well, there's an interesting thing that happens with options. I find it very interesting. I also when I sold the 1100 shares or the 800 shares, I also sold I don't even remember how many 100 contracts maybe of Tesla 380s calls at $38 where I paid about $6 for those.

And so made quite a bit of money on that and got at the same time $404. So now I'm bracketing way out of the money to get the cost way down. So you can see I've bought 70 contracts at $2.79 or $279 a contract at for February 21 300s.

And I paid a bit more for 350s of course $596 a contract. I have 30 of those. So I'm betting both ways.

Well, how does that work? Because it's going to go in one direction or another. Actually, it's probably going to go in both directions several times. And I'll be trading almost daily on this.

And so it's going to work out. But let's say I just bought and held these and the stock kept going up. Well, I can't go down on my puts beyond my original investment.

If they expire worthless, I lose $279 per contract. Similarly on the 350 puts, I'd lose $596 per contract, but my losses can't go above 100%. But my gains can.

And as I say, my 380s, I sold at $38.40, I think $38.40. I have six and change in them. Well, that's six or seven times a little over six times my original investment. And so either of these, the one that loses can't lose but 100%.

But the one that gains can gain five or 600%. And so that's the basis of bracketing as you're not, you don't have a positive bet and a negative bet that equals out. The one that loses can't lose more than you put into it in the first place.

And so that's 100%. But the one that gains could be four or five, six times the amount. And that's only true if the stock is volatile.

Well, Tesla has always been volatile. I've made quite a bit of money in options in Tesla simply because it tends to be a volatile stock. And in this case, we see that it's gone from $250 to $450 in the last three months.

It had been as low as $190 in May. So it's already a volatile stock. But this volatility is going to get worse in the event of a short run.

And the way the short run will play out is that as the tip-toeing toward the exits accelerates to a steady stream, and then finally into a panic run on the bank, the stock is going to go up heroically. I could easily see $700 a share. And at the end, they have to get out.

There's no limit to your losses on a short. On a put, I'm limited to the loss of my investment. On a short sale, there's no limit to the losses.

And so they have to cover at some point. Now, once all of them have covered, and this haircut's been taken by all 25 million shares, there's no underlying value in the stock supporting this ridiculous price that was caused by the run. And so the price will then collapse.

And so we're in, I think, over the next couple of months. And this is like the most slow-motion short run I've ever seen. But it is going to happen.

And so over the next two or three months, I see enormous volatility in Tesla's stock. And it's not based on anything Tesla's doing or not doing or its prospects for the future, other than the background of positive news is going to fuel the short run. And so that is important.

And as I've said, they're hitting on all cylinders, so to speak, in some amazing ways. The China factory, the fourth quarter deliveries. And you'll notice my timing here, February 21.

Well, they're going to announce their earnings at the end of January. Well, that's why I wanted to be out of my January 17 call options at $38. My calendar was running out.

Well, they'll announce their earnings at the end of January for the fourth quarter. Typically, sometimes a few days before that, but not very much after the 1st of February, they'll have their earnings call. I expect them to deliver further good news at that point, predominantly a update on the Model Y delivery date.

And I think that's going to be heralded as extremely good news. And I would expect hopefully sometime in the same time period, their battery presentation, which I think is going to be a huge issue. And so the short run, I really think has to happen between now and February 21.

As it goes up, I'm looking pretty fat here right now. I've got 300 contracts on the $600 call February 21, and 40 on the March 20. I'm a little short on balance here on the puts.

Well, I've got a bias toward the upside. But as the stock gets into the true short run, the price of these will fall and I'll be a buyer. Let me show you what I mean by leverage today.

Tesla stock has gone up $20.14 or $4.68, 4.68%. But the February 21, 2020 $600 call, which is way out of the money, we're at 450, it has to go up $150 to get into the money on this call option. But it went up $1.16, which is 82%. The longer March 20 didn't have quite that leverage because it has a longer expiration date, but it went up $1.93, which is a bigger number, but it's only 59.69%. Either of those is fairly dramatic compared to 4.68, which is what my other 800 shares would have got me today.

Of course, you notice the puts are down by 30 and 33%. Why are they down less than the up? Well, again, it can only go down by up to 100%, which is my $5.96, my $2.79. So by bracketing way out of the money, calls and puts out past the fourth quarter earnings call, and hopefully out past the battery presentation that Elon Musk has provided. And again, I think they're going to announce initial deliveries of the Model Y by May, April or May, and in some numbers by the 1st of June.

And that'll come out on the fourth quarter earnings call probably around the end of January. And so we have good news coming. But more importantly, it's just going to put the shorts out of business.

And there's still 25 million shares, 19% of the float is still out short, and they have to cover. So we're going to have volatility, we'll have initially a huge volatility up. And then we're going to have huge volatility down.

And I'm kind of betting in both directions, because I have the option of selling whenever I want to, up to February 21. Really the last week or two of an option, they're not worth very much, simply because the expiration date is so near. And so timing has a lot to do with options.

And, and where you choose to play, the further out of the money you are, the greater the gains if there are large stock moves. If I bought a $475 option right now, first place is probably be 30 bucks. But it's potential to go up, even if it goes to $475 is much lower as a percentage than these longer options at way out of the money, because it's it's a pretty cheap bet.

Right now $2.55 that I bought it, but 95 that Tesla's going to reach $600. I happen to know it probably will, because of the short run, but I'll be long out of it before it ever does. I will have sold most of my 300 contracts by the time it gets to five or 550.

Simply because you can't really hit the peaks. If you try to usually get slaughtered. Now what's my real risk factor here? Well, the the one that would kill me is if Tesla has gotten to 450.

And everybody decides that's the price it should be. And it stays at $450 until February 21st. That would absolutely be a disaster for me.

A stable price for Tesla stock. What are the odds of that happening? What's your bet on Tesla having found its proper place in the universe and staying at $450 a share? I think that's a pretty low risk. But that's what I'm doing is bracketing the volatility of the stock price as a leverage play that is going to change and change several times.

And I'm going to buy and sell along the way accordingly. When it goes up, I'll be probably buying puts. And when it goes down, I'll probably be buying calls.

And that'll continue for some time. As I say, I can't really hit the peaks. But I believe we'll go probably to the $600 level.

Perhaps beyond as part of the short run. And then it'll collapse. And it could go below the current $450.

After the shorts are out of the game, we have to value the company. And I think there's a lot of good news there. But I would probably see this going the current $450 up to $600 to $700 and back to $450.

That would be my best bet on what's going to happen. If you notice, I don't know if you all follow Seeking Alpha, but they used to have three big, long, tortuous diatribes on the short position per day. And they essentially disappeared in December.

I don't think they published two or three in the whole month. And again, I felt those were paid positions that were being funded by people to pay writers to write them. And I still think that's the case.

But it almost didn't make sense to continue to do that in the face of the ongoing onslaught of good news about Tesla Motors. And so I think we're going to see increased volatility, not decreased volatility. I don't think we found a value point for Tesla.

And I don't think we can until we wash out the short interest down to the typical four or 5% level that you actually need for a healthy market in a stock. But 19% is ridiculous. 34%, which it was at at one point, was simply absurd.

And so I think they've made some gains in getting rid of shorts over the last six months. But there's still a stupid amount of short sales out there that do affect the stock. Tesla's float is not very big.

147 million shares is not much. They could split this stock 10 for one, and probably should at some point because it's simply not many shares out there to trade. And the short interest has had a dramatic impact on that.

And so I would advocate after this washout, a 10 to 1 stock split and get that price back down around $45 a share to increase the number of shares in the float, where people could play whatever game they wanted to without having such a dramatic impact on the stock price. But for right now, it's very volatile and likely to become more so. And so I've moved out of the stock ownership.

And I'm actually shorting the stock, but not with a short sale, but rather put options, but at the same time bracketing it with call options. And in my perfect world, I'll make a bundle on the call options while buying put options and then make a bundle on the put options when it comes back down. I expect the stock market game is a bit rigged.

I received a notice December 31st of an inexplicable change in the margin requirements for Tesla stock. It seems they have dropped from 55% to 35%. This reduces dramatically the number of margin calls for Tesla shorts and will actually ease their pain.

I found this inexplicable and strangely coincidental with the angst of the shorts that they would suddenly receive relief. I'm not sure what to think about all that, but it's rather strange. That's kind of the casino gambling approach to dealing with the stock market.

And I can tell you that I've probably lost more money than you've ever met. I've made more money than anybody you've ever met on the stock market. But I've given that back and more and that over the last 20 years have lost a bundle.

I'm kind of addicted to the gambling side and those that are buying and holding are the ones that are going to win in the long run. But I can't help myself. This game is too much fun and right now Tesla is just hilarious.

It's just more fun than you can have. I would bet $2 on a card game or a roulette wheel when you got this kind of action going on. It's just too much fun.

Long term I'm already on record twice. I said in August of 2017 I called Tesla at $950 within five years and begged your patience and your permission to extend that in February 2018 to $1,500 within five years. And so I expect Tesla to have a true valuation of $1,500 by February of 2023 and the Galileo Russells and the value investors and so forth are going to be amply rewarded.

At that point it kind of takes off. This is forming the base by 2023 at $1,500 a share as I said. I hope they split it several times along the way but that's what you're looking at.

The blue sky for Tesla with the solar roofs, the power walls, the automotive, and a few other things that I think they could get into. Certainly an Uber network. But it's becoming apparent now that the perceived coming competition is a big fizzle and the moats around Tesla and the advantages that they have built on while the original equipment manufacturers, the other automotive manufacturers, have dithered and and twiddled and talked about Tesla killers and all they're going to do with their big bad self has been a big bad big bad state pup marshmallow man.

And they will actually, you're going to see some shocking and disturbing things in this five-year period with actually a loss of hundreds of thousands of jobs and and perhaps economic dislocation as many of these OEMs go out of business. I was intrigued to watch another YouTube channel called Real Estate Archaeology and this guy goes around and films the tragedy of malls in America and he does one mall after another and apparently has a limited number of subjects of malls that were just booming in the 80s and 90s and flourishing and are essentially ghost towns today with no stores in them, no people, literally archaeological ruins still with the fountains splashing and tables out in the courtyards. And he makes a series of videos, you ought to take a look at this, that that bring home how the mighty who couldn't possibly fall the invulnerable can become simply a dead man walking.

And in the case of the malls they're not even walking. Amazon and Walmart have, Costco and Sam's Club have simply eliminated retail sites in malls in a very short period of time. These were still booming in the 90s and guys they're gone, they're ghost towns today.

And I mean hundreds of them, it's astonishing. And so I know you believe that Volkswagen and General Motors and Ford or BMW are forever. They're not.

They could be out of business by this time next year. I mean bankrupt, everybody taking their stuff off their desk, putting it in little cardboard boxes and doing the perp walk to the parking lot with their their pathetic little box of things. And I don't take any joy in that actually, maybe a little bit, but it's going to be a tragedy and it's going to be a tragedy for hundreds of thousands of families worldwide.

Hopefully some of them can get on with Tesla, but I'm astonished that they let Tesla get away with this. Their level of humorous and cluelessness is beyond anything I saw in the development of the internet with the phone companies or really any of it. It's just astonishing.

The oil companies will do fine. They're going to sell oil for a lot of things for a long time. But the nature of the business, the capital intensive nature of these auto manufactories is so knife-edge, it's so thresholdy.

You don't make any money until you pay off your mile-long machine that makes the machine. And I'm where Elon got that term. We coined it shortly after the 2008 meltdown and bankruptcy of General Motors the first time.

It's so thresholdy that it rains money after you pay off your machine, your mile-long machine, but until that you're simply at a loss. And these companies are much more fragile than you imagine. They're aware of it, but you're not.

Their image is they've been around forever and they always will be. They could be gone quicker than a mall. And unfortunately, I think that's probably going to happen.

The Model Y is Tesla's sleeper car. Elon Musk has said very little about it because he doesn't have to. We already buy SUVs.

I've not been excited about the Y, but I will inevitably trade my Model 3 in for it simply because one of my personal issues is egress and ingress. And they're four and a half inches taller than a Model 3. And so it'll be easier for me to get in and out of. I'm not a soccer mom, but I have got a history of driving SUVs anyway.

And they are the most popular form for a car. And Tesla has really kind of played that a sleeper, I think deliberately to avoid cannibalizing Model 3 sales. And so that's part of the reason you're going to see the announcement kind of for shortened between when we're going to be shipping them and when we actually ship them is going to be the shortest period in the history of the company.

I think the end of January, they're going to be talking about first deliveries one May and maybe one April with quantity deliveries in June. And the reason is to maintain Model 3 sales. There will be inevitably some cannibalization of Model 3 by the Y, but the net effect will be again a 50 or 60 percent increase in the number of total cars that Tesla delivers in 2020.

And they will dominate that area as much as they did the medium-sized luxury sedan. And almost instantly all that will be left is the people that need a Lincoln Navigator or a big Honda SUV because they've got seven kids or something. But for most of us, the Model Y will be ideal.

And of course, what has fueled a lot of this, as you know, we've been very positive on the Cybertruck, which is another year out there. So we've got several years of huge growth opportunity, blue sky for Tesla in the automotive market. And in the end, I think we're going to find that they're a technology company, not an automotive manufacturer after all.

But they've proven some just things that weren't taken into account. The importance of the over-the-air updates, the fueling network, and so forth has just not been taken into account. And so I think this is Tesla entering its salad days, but much to come.

And again, I have them at $1,500 by very early 2023. So stay with us. It's going to be a fun ride.

And thank you for all the letters and emails from people who are now buying Teslas on their winnings from the Tesla stock market. I don't talk about it very much. I don't view myself as a stock analyst, and I don't even play one on television.

But we have mentioned it several times in the past. A number of our viewers has acted on that to their benefit. And I just recently got a guy, a letter from a guy who was delighted he'd bought at $280 and it was then $335.

I would say he's probably happier yet today at $450. He had sold his long-held Exxon stock and put it in Tesla. And I'd say that's worked out for him pretty well.

So stay with us. There'll be more to come on the Tesla stock front and what's going on there. And as always, I do have to caution you.

I am the last guy remaining left on the internet who could actually be wrong. Everybody else is guaranteed 100% to be correct in their analysis and their take on these things. I'm the only one left out of four and a half billion people left on the internet who could technically actually have it all dicked up and be wrong.