Elon Musk is a magician … but not in a good way. The founder and CEO of Tesla (NASDAQ:TSLA) is a genius at misdirection. He distracts with talk of solar power, of future products, of politics … of space.
But what Musk promised to do was make a lot of cars, quickly. The reason TSLA stock is worth nearly $59 billion as trade opens June 28 is its production promises. I called this the boring story you shouldn’t ignore almost two years ago, and you still shouldn’t ignore it.
Goldman Sachs is not ignoring it. Its latest “sell” rating on TSLA stock is based on the delivery number, which it expects will be 22,000 units of its Model 3 sedan for the quarter ending June 30.
TSLA Stock and Musk’s Misdirection
Musk is already playing misdirection, saying it is “quite likely” production of the sedan will hit 5,000-per-week by this week.
Remember, Tesla once promised to make 500,000 cars this year, and 1 million in 2020. A production rate of 500,000 for the year would be over 40,000 per month. Tesla is nowhere near that. It has a “burst rate” of 2,000 Model 3’s in a week. That’s just over 100,000 cars a year. Even if he’s producing an equal number of his older models, that’s 200,000 cars, not 500,000.
Musk has said in the past his fully roboticized factory would pump out these cars practically untouched by human hands, but that dream has gone by the boards. TSLA is getting a boost from “production hell” by building a second line outside its Fremont factory … in a tent.
In short, Musk is failing at his key promise, scaling car production. Everything else is spin.
Squeeze the Tesla Shorts
The reason Tesla stock hasn’t collapsed, despite the company’s failure to meet production targets, is that so many people have bet on failure.
When people believe a stock is worthless, they sell it short. In the middle of June, TSLA stock had short interest of over 37 million shares. The company has only 170 million shares outstanding.
With over one-fourth of his stock sold at the current price in expectation, its price will fall, all Musk had to do was buy $10 million worth of shares to create a short squeeze. That’s just what happened after another annual meeting/magic act. The share price went up to force the shorts out.
If people weren’t betting so heavily on Tesla’s collapse, the company’s stock would fall because of its failure to meet its production targets. But because so many people are selling short, the Tesla stock price continues to rise.
Elon Musk is parading down the street, buck naked, and investors are making money as though he were fully clothed.
The Bottom Line on TSLA
Elon Musk is worth nearly $20 billion because he is the perfect exemplar of our current Second Gilded Age.
Everyone knows he’s not fulfilling his key promise. But it doesn’t matter. There is a tremendous amount of pent-up goodwill in TSLA stock because of its past rise. Tesla can be worth more than General Motors (NYSE:GM) while having less than 10% of GM’s sales because investors who’ve already gotten rich on the stock continue to believe in it, and for no other reason.
When the present bull market ends, when the shorts throw in their hands because they’ve lost all they can and have to save their other investments, that’s when Tesla’s stock price will fall. A company with $11.7 billion in sales, growing at 30-40%-per-year but without a profit, is only worth $59 billion in Elon Musk’s dreams.
But the market hasn’t woken up yet. It will.
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Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
