Tesla Motors (TSLA): Bears Are Betting Big… Should You?

| September 28, 2012 | 0 Comments

Electric cars.

Love em’ or hate em’, they’re slowly making their way into garages across America.

Of course, just like any emerging technology, there are plenty of speed bumps on the road to widespread adoption.

Perfect example… the Chevy Volt.

Thanks to General Motor’s (GM) well-publicized fiasco with the car, Americans are associating the Volt with wasteful government spending.  According to Reuters, government owned GM currently loses an astounding $49,000 on each and every Volt it sells… ouch.

But GM isn’t the only automaker with the battery blues…

Electric carmaker, Tesla Motors (TSLA), is having their fair share of troubles as well.  Founded by Paypal wonder-kid, Elon Musk, the Silicon Valley start-up is falling behind on production of its highly anticipated Model S sedan

In case you’re unaware, the Model S is Tesla’s follow up offering to the Roadster.  After developing battery and drive train technology in the Roadster, Tesla’s betting the sleek and luxurious Model S will put the company on the road to profitability.

But as Tesla’s finding out, building a high-quality electric car has its challenges…

Earlier this year, Mr. Musk promised investors Tesla would pump out 5,000 Model S sedans by the end of 2012.  But according to a SEC document filed earlier this week, the company now anticipates producing no more than 3,225 cars by year-end.

What’s going on?

According to Tesla, suppliers are missing deadlines.  And that’s throwing the Model S production timeline behind schedule.

While a few delays here and there may not be so bad, Tesla’s situation is a bit more complex…

With the Model S production in the slow lane, sales will come in weaker than previously thought.  In fact, Tesla slashed Q3 sales guidance from $83 million down to approximately $45 million earlier this week.

The company also revealed they’ll need to raise additional capital via a secondary offering of 4.3 million shares.  By the looks of it, cash is getting tight at the most critical time in Tesla’s short history.

But wait, it gets even more interesting…

Back in 2009, Tesla received a hefty US government loan to develop the next generation of fuel-efficient transportation.  But with headwinds growing, some investors fear Tesla may have trouble repaying the $465 million loan to US taxpayers.

And that has bears betting big on Tesla’s downfall…

As a matter of fact, Tesla is one of the most highly shorted stocks in the marketplace with an eye-popping 60% short interest.  In other words, over half the investors holding Tesla shares are betting the stock is about to veer into oncoming traffic.

Will it happen?

It all depends on how Mr. Musk handles this critical stage in his company’s development.  If he can get Model S production back on schedule, and more importantly, get cars rolling into customers’ garages, Tesla could grow into an extremely profitable company.

But a few more missteps and Tesla could run out of juice.

Should you join the fun and short Tesla?

Not on your life.

Even if you could find the shares to short, I wouldn’t recommend it.  There’s simply too much risk in shorting such a speculative name.  What’s more, highly shorted stocks have a tendency to catch bearish investors off guard.  If you’re on the wrong side of this trade, it can get painful in a hurry.

Bottom line…

If you short Tesla, you’re essentially betting on the failure of Elon Musk, one of the most successful entrepreneurs of our time.

That’s a bet I’m not willing to make.

***Editor’s Note*** It’s no secret that technology stocks have been on fire this year.  And that only looks to continue now that QE3 is in place.  Click here to read a report on why this is one sector you MUST be invested in…

Until Next Time,

Justin Bennett

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Category: Stocks

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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