The mother of all short squeezes? Or the realization that it's a tech stock with big earnings capability that happens to transport people.
That's the Tesla (TSLA) dilemma. That's what we are all trying to figure out.
First, let's take the case of the short squeeze. Eighteen percent of the stock is shorted, according to the most recent data.
While that's a lot, it is not enough to cause what we are seeing each day, including today. So, is it possible that there is more sold short than we realize?
Absolutely. It is entirely possible that there are a number of derivatives that institutional investors have used to bet against Tesla. We can't see those positions but it makes a ton of sense to use some sort of instrument besides the stock outright. When lumped in with the common stocks short they could be expected to play a big role.
That said, I am not hearing about the fabled buy-ins, where the brokers have to deliver stock to the natural buyers and have no choice but to go into the open market and buy it and credit it to you,. So if you are short 10,000 shares of Tesla, and you can't deliver the stock, you lose control of the situation and whatever broker who needs the stock can't get it from you he goes into the open market and purchases the stock.
That means he might be buying it before the stock market opens as we see every morning. I have had a buy-in and the price is nowhere near where the stock was trading the day before. In that sense it sure feels like a gigantic buy-in. But it is not something that should happen day after day after day.
No, I think it is more likely that institutional investors, once they realized that insolvency was off the table, decided to reevaluate the stock not as an auto equity but as a tech equity.
What does Tesla do?
It's an electronic delivery vehicle. Right now others have cars that are electrified but they are not electronic delivery companies like Tesla is. That's right, it is not a car. It is a hybrid item loaded with tech that happens to get you from point a to point b. It has a seemingly endless amount of demand because it is not just an electric car. That's what keeps confusing people. Almost every car company has an electric car and almost none have any demand to speak of.
Plus, Tesla has a battery business that very well may turn out to have genuine earnings power given that batteries are the green way of the future.
Now, most people would never want to buy a tech stock that has no hope of ever making money. Only a few companies, namely, Netflix (NFLX) , Amazon (AMZN) and Tesla have earned the right to be earnings-free.
The shocking thing about Tesla is that it's about to have an earnings breakout, maybe as much as $5 this year and $10 next year. Go listen to the Netflix call last night. The company's crowing that it might one day be cash flow positive. One day!
I think that the recognition that this is Tesla's breakout year and that the breakout is coming from China because of a plant that was built in 10 months, and that there will be another plant built next year in Germany to meet European demand, gives you a roadmap for even bigger numbers in the outyears.
That means to me that all comparisons to Ford (F) and GM (GM) are fatuous. It's like saying that DRAMs should get the same multiple as micro-processors or CPUs like the kind Nvidia (NVDA) makes. So stop adding up the market caps of Ford and GM and comparing them to the market cap of Tesla.
Start thinking of companies like Intel (INTC) or Nvidia.
Those are much better comparisons.