Elon Musk: It’s “probably unwise” to short Tesla shares

Tesla Motors CEO and visionary Elon Musk has warned investors against shorting his company, a bold statement amid the recent sharp downturn in Tesla’s share price.

Musk – a South African-born Canadian-American business leader known for his outside-the-box thinking and incredible work ethic – was recently asked on Twitter what he would say to someone shorting his stock.

“Probably unwise,” [1] Musk responded in a tweet that has since been favorited over 500 times.

Tesla’s share price is down over 7% since the beginning of the year. Tesla plunged over 35% through the first six weeks of 2016 – a period known as the worst start to a year ever for Wall Street.[2]

Musk, who has made several bold claims throughout his illustrious career, is obviously standing behind his company at a time when short interest for Tesla is at the highest level since its initial public offering (IPO) in 2010. Short-selling essentially refers to the practice of selling shares on the expectations that the price will fall, enabling it to be bought back for cheaper at a later date.[3]

Not so fast, says Musk, whose company recently announced advanced sales of 325,000 new Model 3 cars in the last quarter alone. That’s the biggest consumer product launch ever, affirming that the electric car market has huge potential upside. Musk later told analysts that Tesla was planning to ship 500,000 cars by 2020. If those projections hold (and there’s strong reason to believe they certainly could), Tesla still has a lot of room to grow.[4]

Tesla’s upside is tied to the firm’s expectations for delivering stylish electric cars at affordable costs. In its recently released first quarter update, Tesla said it is aiming to make the Model 3 one of the world’s most affordable electric automobiles. [5]

“Our objective with Model 3 is to create the world’s best car with a base price of $35,000, before any incentives, with a range of at least 215 miles on a single charge, and with strong gross margins. We plan to incorporate our best technology into Model 3, yet keep it relatively simple to build at high volume and with high quality,” Tesla said in its quarterly report.[6]

Not everyone is convinced. For starters, analysts are unsure whether to mark Tesla as a motor stock or a technology stock. With a valuation of $37 billion, it’s certainly priced like a tech stock. The challenge with Tesla isn’t that it is valued at $37 billion, but that it’s only delivering 90,000 vehicles per year. By comparison, Fiat Chrysler – one of North America’s big three automakers – is producing around 4.6 million automobiles per year on a valuation of just $10 billion.[7]

Clearly, there’s something off with Tesla’s valuation – at least right now. Given its current share price, it will likely have to grow into one of the world’s biggest automakers in the near future. Of course, that’s part of Musk’s plan. As it now stands, however, it’s difficult to justify a share price north of $200.

Then again, who in their right minds would count out Elon Musk? Before you answer that question, remember what the man did with his $170 million proceeds from the PayPal acquisition (he was a co-founder of PayPal, by the way).

“My proceeds from the PayPal acquisition were $180 million. I put $100 million in SpaceX, $70 million in Tesla, and $10 million in Solar City. I had to borrow money for rent.”[8]

Solar City and SpaceX will probably be the subject of future articles. When it comes to Tesla, there’s still plenty of promise. Whether or not the company grows in the manner (and speed) that Musk envisions is a separate story.

Since bottoming at $143.67 on February 10, Tesla shares surged 84% over the next two months. They are currently trading around $208 a share, having gained 980% since the launching of the IPO. [9]

[1] Asam Samson and Mamta Badkar (January 18, 2016). “Wall Street makes worst ever start to a year.” Financial Times.

[2] Asam Samson and Mamta Badkar (January 18, 2016). “Wall Street makes worst ever start to a year.” Financial Times.

[3] Matt Clinch (April 6, 2016). “Musk warns against shorting Tesla shares.” CNBC.

[4] Robert Baillieul (May 12, 2016). “TSLA Stock: This Is Why I’m Not Betting On Elon Musk or Tesla Motors Inc.” Profit Confidential.

[5] Tesla (May 4, 2016). Tesla First Quarter 2016 Update.

[6] Tesla (May 4, 2016). Tesla First Quarter 2016 Update.

[7] Robert Baillieul (May 12, 2016). “TSLA Stock: This Is Why I’m Not Betting On Elon Musk or Tesla Motors Inc.” Profit Confidential.

[8] The Success Diaries (October 20, 2015). “8 Elon Musk Quotes Every Entrepreneur Must Read.

[9] MarketWatch (May 14, 2016). “Tesla Morors Inc. NASDAQ TSLA.

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