Will Tesla Shorts Face a ‘Tsunami of Hurt’?

by Jim Woods | September 17, 2012 6:45 am

It’s not often that you hear a CEO of a major company speaking his mind so forcefully about his doubters, but that’s exactly what Tesla Motors (NASDAQ:TSLA[1]) founder Elon Musk just did.

In an interview with Liz Claman of Fox Business News[2], Musk made a characteristically measured, yet forceful, statement about the high number of investors who hold short positions in TSLA shares.

Here’s the money quote from the brilliant billionaire:

“I think it’s very unwise to be shorting Tesla. I think there’s a tsunami of hurt coming for those holding a short position, and it’s going to be very unpleasant. I advise people to exit while there is time.”

Now that is the kind of CEO you want on your side if you are long Tesla shares.

Of course, a whole lot of folks aren’t heeding Musk’s warning, as they have been betting against the all-electric carmaker’s shares. As of Friday, the current short interest was 29.5 million shares. The total amount of shorts equates to a short-interest ratio of 30.28, which is one of the highest readings I’ve seen in a very long time.

The interesting thing here about TSLA shares is that they have surged more than 25% over the past year despite all of the naysayers betting against them.

Tesla 274x300 Will Tesla Shorts Face a ‘Tsunami of Hurt’?
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The chart here shows that while very volatile, Tesla shares have managed to fight back despite significant bouts of selling that took place in December, April and July. And though the shares aren’t anywhere near their 52-week high of $39.95, they are way above their 52-week low of $22.64, and firmly above their August low of $26.10.

To be certain, Musk’s warning against being short TSLA was telling, and taken as bullish by Wall Street. The shares finished up about 3% in Friday trading. But what I found even more bullish was the improving fundamental metrics Musk pointed out during his interview with Claman.

When asked about demand for the company’s new Model S sedan, Musk said Tesla continues to see order growth with every quarter, and continues to have a huge backlog of orders for the electric sports sedan. Moreover, Musk said that last week Tesla manufactured 40 Model S sedans, but that this week production will likely be closer to 80 cars. He also said the company has grown to nearly 3,000 employees, and in the last six to eight months, Tesla has hired more than 1,000 people.

Perhaps the most poignant remark by Musk in the interview came when he was asked about avoiding some of the past mistakes made by the Big Three automakers: Chrysler, Ford (NYSE:F[3]) and General Motors (NYSE:GM[4]).

“What are things that (the Big Three have) done that you say we will never do here at Tesla?” asked Claman.

“We will never make a bad product. Tesla will never ship a product unless that product is very compelling,” replied Musk, who added, “I think in a lot of the Big Three companies, the decisions have been made from the CFO’s office, and it’s all been about squeezing a penny here and there, and not worrying about whether it’s a compelling product. I think that’s a big mistake.”

In the past, I’ve said that Tesla is the growth story in the auto industry[5]. From what I heard from Musk last week, I’m even more confident in that prognosis.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Endnotes:
  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. In an interview with Liz Claman of Fox Business News: http://video.foxbusiness.com/v/1838765496001/ceo-tsunami-of-hurt-coming-for-those-shorting-tesla
  3. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  4. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  5. is the growth story in the auto industry: http://www.investorplace.com/2012/07/the-best-and-worst-auto-stocks-to-drive-now

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