Tesla (TSLA) short sellers finally got a little help this weekend. It's likely been a long, hard, cold road for them as they've watched the stock rocket over 600% in the last year.
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And, interestingly enough, the news that might move the needle for short sellers doesn't even have anything to do with Tesla - it has to do with the Ukrainian/Russian conflict overseas. I'm predicting Asia and Europe will telegraph a pullback in the U.S. Markets to start the upcoming week.
My history with Tesla? I've been bullish on the stock since I started writing about it in 2013. I really think they're cooking something up; Tesla has met or exceeded all goals they've set out for and, until CEO Elon Musk gives me a reason not to, I trust in the job he's doing.
But, enough wasting time on Tesla shorts that have had their heads stomped in. Let's talk bullish. A pullback as a result of a broad market pullback could present a great entry point for Tesla. It's just a matter of letting it play out, if a pullback happens.
In January of this year, about 7 weeks ago, I wrote an article called "Tesla's Hidden Revenue Byproducts", which laid out the bullish catalyst for Tesla's stock 7 weeks ahead of time:
In all of the valuations of Tesla, people are focused on the production and sale of vehicles. But, you have to ask - when pushing the front of a semi-emerging market (electric vehicles), what kind of price can you put on the solutions that Musk and his team are coming up with as they encounter challenge after challenge. And, furthermore, how many of these solutions will hold monetary value once Tesla is established and others start to follow in its path?
As a logical connection to Tesla solving its own production problems comes another benefit: Tesla could hold IP or patents on certain electrical car based problem that they could either license or outright provide to other electric car makers. For instance, the battery issue - if Tesla develops and engineers in house solutions for its battery, don't you think other electric vehicle makers are going to want to apply the same technology to their vehicles?
That brings us to the Gigafactory - a factory that is supposed to produce lithium ion batteries at a rate that will blow current worldwide production out of the water.
This is what Tesla says about the Gigafactory, from their own website:
As we at Tesla reach for our goal of producing a mass market electric car in approximately three years, we have an opportunity to leverage our projected demand for lithium ion batteries to reduce their cost faster than previously thought possible. In cooperation with strategic battery manufacturing partners, we're planning to build a large scale factory that will allow us to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead.
The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013. By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent. Here are some details about what the Gigafactory will look like.
Some analysts, like Joann Muller at Forbes, thinks the trickle down from the Gigafactory will be so substantial that it could save the U.S. battery business. Siddharth Dalal just penned a great article exploring, in depth, how profitable Tesla's SuperChargers can be. If you're looking for a little QA behind the estimates regarding Superchargers, give his article a read. He thinks that Tesla could have the highest margins per vehicle in the auto industry [more than GM (GM/Ford (F)] in the coming years.
It's interesting that it moved the stock as much as it did, considering there was a $1.6 billion financing in place to fund the operation. Perhaps some cues were taken from that, when it was announced that the bond offering was oversubscribed to the tune of an additional $400 million. From Bloomberg:
Bond investors rewarded Tesla Motors Inc. by snapping up $2 billion of convertible notes at funding costs that are lower than a five-year average as the luxury electric-car maker prepares to build the world's largest battery factory.
In an offering that was bigger than initially estimated, the company sold $800 million of 0.25 percent, five-year notes and $1.2 billion of 1.25 percent, seven-year securities, according to data compiled by Bloomberg. Both coupons are lower than the median for similar deals since 2009. A conversion premium of 42.5 percent more than Tesla's share price before the sale for each portion of debt exceeds the median for comparable transactions.
That shows investors are willing to accept below-market income while waiting for the company's stock to surge after delivering a more than 300 percent gain in 2013. The shares already exceed the 12-month price target among analysts surveyed by Bloomberg. Proceeds from the sale, which Palo Alto, California-based Tesla initially estimated to be at least $1.6 billion, will help co-founder Elon Musk build a plant with potentially more capacity than any other to make lithium-ion batteries.
The reason this note financing was likely oversubscribed is because investors are starting to come to the conclusions that I, and other Tesla bulls, have been screaming from rooftops; this isn't about just producing a couple of nice looking luxury electric cars. Tesla is about a massive paradigm shift in the entire automobile industry. That was the whole point of exploring why the company is well worth its multiple in my article, "Tesla: What Price Multiple Can You Put on True American Innovation?"
Depending on the effects of the Ukrainian conflict with Russia, those who have been waiting for a time to enter Tesla's stock, but have felt like it does nothing but simply go up, may have their chance this coming week.
I wouldn't go right out on Monday and buy it, even if the markets dip; I'd wait for this conflict to play out a bit. I don't think it's going to have any direct effect on Tesla like it will on natural gas (NGAZ) and oil (USO), but stocks with high multiples like Tesla are usually the first to snap back in the midst of a broader market pullback.
I could be re-entering long here (as well as on some other stocks) if we do see a broad market sell off. When and if Tesla starts to pull back, let it happen - embrace it. Count to 20 Mississippi, then buy into Tesla.
Best of luck to all investors.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TSLA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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