Not that there was any risk of it happening, but never let it be said Tesla Inc (NASDAQ:TSLA) isn’t a perpetual source of news. Indeed, TSLA stock holders have something new to process nearly every single day, and the occasional weekend day to boot.
This week was no exception, and three of this week’s developments are doing most of the driving right now:
- Tesla is taking a big step toward Model 3 production starting as planned.
- Tesla wants to enter India later this year.
- Short sellers are increasingly betting against Tesla stock as a rather amazing rally has unfurled since the end of November.
Here’s a little more perspective on all three matters owners of TSLA stock may want to digest, for better or worse.
Model 3 Production Beginning Soon
The details on the matter are scant to far, but on Thursday morning, Tesla announced it would shut down its California plant this month to get ready to produce Model 3s, and might begin building the prototype Model 3 as early as Feb. 20. The company anticipates full-scale production beginning later this year … in July, as initially suggested by Musk.
The market knew it was only a matter of time, but to see it happening can elate current and would-be owners of Tesla stock. Somehow, the goal of producing 500,000 vehicles per yer by next year doesn’t seem out of reach.
The company is believed to have received nearly 700,000 reservations — complete with deposits — for the Model 3, which is expected to sport a sticker price of around $35,000.
The news came as a tweet on Tuesday — a response to a question to CEO Elon Musk via Twitter, actually. In less than 140 characters, Musk said he hopes to enter the Indian market by this summer.
The knee-jerk response is optimism; entering new markets means more revenue potential. It’s the second thought that raises questions, though. India is a poor country, per capita. The average annual income in India is $5,630. Worse, median income is $616. It’s not likely many of those consumers are even thinking about buying a TSLA vehicle.
There’s a curious nuance with the way India’s income is distributed, though.
In India, the richest 1% of the country controls 58% of the nation’s wealth. That’s one of the world’s most extreme levels of wealth disparity. And when you’re talking about a country with a population of 1.33 billion, it doesn’t take a large proportion of the population to create a decent-sized pool of potential buyers.
And for what it’s worth, the more manufacturing Musk can do in that country rather than import vehicles into India, the better, in terms of marketability. At the same time, though its consumers still aren’t as flush as they are in other parts of the world, that’s changing. Manhattan Venture Partners’ Santosh Rao recently opined, “The market opportunity is too compelling to ignore. India has a growing middle class with rising disposable income. The manufacturing cost will also be relatively lower.”
The Wall Street Journal’s Ben Eisen was right about one thing this week: Tesla’s short-sellers are a persistent bunch.
Thing is, they may be a little too persistent for their own good.
The 44% gain that TSLA stock has dished out since the first day of December, amazingly enough, wasn’t a short-covering one. As of mid-January, 35.04 million shares of TSLA stock were held as a short position, up from the total as of the end of December, and well above the mid-November tally of 31.5 million shares. That’s essentially a $9.2 billion collective bet against Tesla, according to calculations from S3 analyst Ihor Dusaniwsk.
The bears aren’t backing down, betting against Tesla stock as it ticks higher. The mid-January reading is almost a record-high short interest.
This is a stock that the market still loves to love, and though it has been a love-hate relationship at times, there’s been more love than hate. That hasn’t changed recently. Indeed, if anything, as production of electric vehicles scales up, margins should improve. Don’t forget that Tesla swung to a profit last quarter, and may well surprise again later this month. It shouldn’t take much more upside in TSLA stock to flush these bears out of their short trades, augmenting any rally — the only way to close out a short trade is by buying the stock.
By the way, Dusaniwsk estimates that the collective short positions entered of late are have translated into unrealized losses of $2.27 billion. Those traders are apt to be getting very antsy.
Bottom Line for Tesla Stock
Tesla still has plenty of hurdles ahead. Namely, it’s still spending heavily on … well, pretty much everything, and it remains to be seen if the integration with SolarCity will bear fruit.
But, the potential of India is a positive for Tesla stock, as is what is ultimately an ill-advised wave of short-selling of TSLA shares. The prospect of the Model 3’s production beginning soon. of course, is a show-stopper.
Although a technical dip in the near-term may be in the cards, this week’s news can be scored as a pair of wins in the ledger.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.