Update on Tesla Motors

Tesla Motors

On this speculation, my fundamental thesis is still intact. However, I have also closed my position on this.

Paul Santos wrote an article detailing the precarious position of short sellers of Tesla Motors – it costs too much to initiate shorts, and those who had previously initiated a short are being forced out their positions simultaneously.

However, I drew an additional conclusion from the article: the shares short are rapidly decreasing. Once the majority of the shorts who are being forced to cover are driven out of the market, there will be a sudden drop in demand for shares. Simultaneously, Tesla has announced its biggest offering ever, which will flood the market with supply. Thus, I believe these two forces will combine to drop the share price in a correction.

I will likely buy on a pullback, as I believe the bull run has long legs. This offering will likely be soaked up by new long investors, and the tremendous injection of capital should allow Tesla to far exceed its previous expectations of sales.

I cannot justify holding my long position, as I believe that the pullback will cause the price to dip lower than its present position. I may be wrong, but I am willing to pay to see the effects of the end of the short covering. I believe that Tesla will see much higher prices than $92 in 2013 – the fervor surrounding this company is capable of doubling the shares yet again.


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