MorningWord 5/10/16: Capital Hill – $TSLA

by Dan May 10, 2016 9:59 am • Commentary

Sometimes the shorts get it right. Take SolarCity (SCTY). With 38% short interest, a relatively small float, 64 million shares of the 98 million outstanding (where their Chairman Elon Musk owns 21 million of those shares).  Usually this sort of battle between longs that have no intent to sell and shorts who will trip over each-other to cover at the slightest bit of good news is an adult swim.  This morning SCTY is down 26% after offering forward guidance that was worse than expected.  To highlight this cage match between longs and shorts, just look at the chart of the stock over the last year. Massive swings, but a fairly clear trend from top left to bottom right, with the stock down more than 70% on the year:

From Bloomberg
From Bloomberg

I would add that back in early February when  the stock was trading not too far from these levels, Musk added to his SCTY by purchasing $10 million worth, which at one point last month was worth more than double as the stock rallied more than 100% from its 52 week lows to its late April highs.

And its not just SCTY that Musk has been adding too. In early February he also exercised stock options in Tesla (TSLA) increasing his 22% stake in that company which he is the CEO of that has a similar set up with high short interest nearing 30%, per Fortune:

In an SEC filing disclosing the transaction, Musk converted 532,000 stock options at $6.63 each, their value on Dec. 4, 2009, before Tesla went public.

This ups Musk’s total shares in the company to 28,903,342, or 22% of the company. At today’s market value, his shares would be worth around $5.6 billion.

Musk exercised his options with his own cash and reportedly had to pay around $50 million in taxes for the exercise, according to MarketWatch.

Since April 6th when the stock made a 2016 closing high, and Musk suggested in a tweet that it was “probably unwise” to short TSLA, the stock is down 20%:

I don’t pretend for a second to know what Musk is thinking about today, tomorrow or next week with his purchases, exercises or Twitter comments on the stock.  And to be very fair, Musk has been an active buyer on TSLA’s capital raises.

Since TSLA’s June 2010 IPO of 15.3 million shares at $17, TSLA has raised capital in every year since their IPO, here is the list of offering’s per Bloomberg, not including the $2 billion in convertible notes issued in February 2014:


On the their latest raise of 3.1 million shares offered to investors at $242 back in August Musk bought $20 million worth, with the largest purchase coming in May of 2013, Musk bought $100 million of the 3.9 million shares offered at $92.24. Here are Musk’s TSLA purchases since the IPO, per Bloomberg:



What’s shocking about this purchase is the about-face Musk had done on TSLA, going from potential forced seller of the company to make payroll, to doubling down.  For those of you who read Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future by Ashelee Vance, you’ll recall that in the Spring of 2013, Tesla was on the verge of bankruptcy and Musk had a handshake deal to sell the company to Google, before his luck quickly turned (excerpt here).

So it’s fairly clear that the company will need to raise capital to fund their ambitious goals of delivering 400 to 500k Model 3s by the end of 2018, ramp of Model X, stationary storage, gigafactory etc etc.   I’d expect another dilutive equity offering sooner than later to keep up with what appears to be ever increasing projections for car deliveries.

When the next secondary comes (likely very soon), it will be telling where it is priced, how oversubscribed it is, and whether or not Musk buys on this deal as he has done in offerings past.  This may be the tell for the stock that could be devoid of catalysts between now and the new year, aside from Model S & X deliveries, which I suspect could disappoint as the company shifts focus to the mass market opportunity.

Lastly, TSLA is once again that important technical support level just below the nice round number of $200, with little support to the prior 52 week lows:

From Bloomberg
From Bloomberg