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Sandeep Rao

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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.

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:
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
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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This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.

By clicking you agree to the Terms and Conditions displayed.