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How to Short Tesla: The Simpler Approach

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
2020 has been a stalwart year for Tesla. The company delivered 499,550 vehicles in 2020 and estimated profit per vehicle finally became positive in Q1 2020 at around the $3,000 mark. Its stock price climbed 743% over the year and its automotive segment – which accounts for 94% of the company’s total revenues – posted a gross profit of $6.6 billion (up 70.5% from the prior year).

However, underneath the surface, all isn’t as well as it should be: the company’s entire net income in 2020 was $721 million, which was boosted by sales of regulatory credits earning it over $1.5 billion (a 3X rise from the previous year).

Between 2015 and 2020, Tesla’s debt has grown from around $3 billion to $10.5 billion in 2020. Of this, $2.4 billion in bonds mature between 2021 and 2023 and a credit agreement of $1.8 billion matures between 2020 and 2023, totaling up to $4.2 billion in debt payments for this period. Tesla’s liquidity remains a problem – with over $700 million in interest expense reported for 2020, up 9% from the previous year.

In addition, Tesla’s contractual obligations – mandatory purchase obligations with regard to raw materials, components and services from suppliers and third parties – have been reported to be more than $18 billion from 2020 till 2025.

To combat the issue of interest expenses, Tesla CEO Elon Musk announced on December 8, 2020 that the company would raise $5 billion to retire debt and build up its cash reserves. This was accomplished by a $5 billion stock sale in a single day. But on the matter of contractual obligations, it will likely enter a prolonged standoff with its suppliers if it attempts to address this.

As 2020 ended, Tesla also announced its plans to move production from California to Texas. In addition to the plant under construction in Germany as well as plans for a plant in India, the increased cash outflow to accomplish these objectives is expected to impact the net income situation in 2021 as well.

Perhaps to stave off these points of financial uncertainty, Tesla invested $1.5 billion into Bitcoin (BTC) sometime in January 2021. Daniel Ives – an analyst at Wedbush Securities – reported that the company has earned more from the cryptocurrency’s appreciation by February (estimated at a whopping $1 billion in profit) than from sales of cars through all of 2020.

Short-sellers had a bruising start of the year as short positions in Tesla bled billions of dollars in the wake of the company’s continuing surge in stock price. However, Dr. Michael Burry, the investor made famous in the book and film, “The Big Short,” reiterated his strong belief in the company stock falling. In a now-deleted tweet on January 7, 2021 he said:
“Well, my last Big Short got bigger and bigger and BIGGER too. Enjoy it while it lasts.”

He went on to address Musk:

“Seriously, issue 25-50% of your shares at the current ridiculous price. That’s not dilution. You’d be cementing permanence and untold optionality. If there are buyers, sell that #TeslaSouffle”

Given these factors and despite Tesla’s BTC investment, the company’s adjusted earnings per share reached $0.80 – a little below the $1.01 expected by analysts. Tesla also faces increasing competition as other automakers like Ford and Volkswagen ramp up their plans in the EV space. After the announcement of the company’s fourth-quarter earnings on January 28, TSLA dropped as much as 8%, wiping out around $66 billion off its market value. After a brief recovery following multiple optimistic forecasts for Tesla’s future growth, fears of production and sales delays in China, along with concerns that the stock had become a speculative bubble began to pile up.

If an investor had purchased an inverse (short) -1x Tesla ETP (“Inverse TSLA”) – which is a one-click solution similar to shorting Tesla stock – on the morning of February 8 (which is when the aforementioned concerns bubbled over) and held it till the 19th, the performance of the 1-x Tesla ETP versus the underlying TSLA would have yielded a sharp benefit:
While a Tesla investor would have lost nearly 10% over these nine trading days while the -1x Tesla ETP would have made over 8%. The S&P 500 index (SPX) – of which TSLA has been a constituent of since December 20, 2020 – barely moved.

This highlights the value of shorting. When done right, it can bring valuable hedging cover to the long-term investor and tangible benefits to the speculator. Investing into a -1x Tesla ETP can provide a cost-effective means of entering into a short for both kinds of investors, with the added advantage that investing in ETPs neither impacts nor even requires a margin account. Based on the weekly volumes report from the London Stock Exchange, shrewd investors seem to be already savvy to the benefits peculiar to having a short view on Tesla. Interestingly, Tesla isn’t the only target of this increase: many other -1x ETPs have experienced increased volumes as well.

We had covered the benefits of investing into 3x and 2x Tesla ETPs in a prior article and had made a short argument in favour of investing into some other -1x ETPs in another article. Be it bulls or bears, ETPs help you stay covered.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

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Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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