Zacks Investment Ideas feature highlights: Tesla, Alphabet, Caterpillar, Deere and Goodyear Tire

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For Immediate Release

Chicago, IL - Jun 25, 2018 - Today, Zacks Investment Ideas feature highlights Features: TeslaTSLA , AlphabetGOOGL , CaterpillarCAT , DeereDE and Goodyear TireGT .

Why Tesla Shorts Are Doomed

Make no mistake about it, the Tesla shorts are going to be covering. We saw the first wave of shorts cashing in on a recent share price tumble, but what followed was only the start of what could be an epic run.

The stock succumbed to a fabulous short ploy who called for bankruptcy in "a few months" - even though this was clearly a very low probability event. Still, you have to hand it to Vilas Capital and their CEO, CIO and CFA charter holder who went on a PR campaign to help increase the value of his puts.

That short term trade worked well for Vilas, but those that are short the stock are going to be feeling some pain soon. Let's take a look at the upcoming catalysts that will likely send shares of TSLA to new all-time highs.

Car Sales Data

The shorts won't be helped if Tesla misses sales estimates. I know that flies in the face of common sense, but the fact is that TSLA has come up short of expectations far more than it has beaten the number.

Tesla announces quarterly car sales on or about July 6, 2018 - but the numbers don't really matter. To be clear, the numbers kind of matter, but we already know they are pretty good. They will show solid growth for all models, but that isn't the story.

The story is all about getting the Model 3 to production levels of roughly 5,000 per week. As we get to the final two weeks of June, the company is ramping up its efforts to make more cars and meet this goal. But let's face it, Wall Street will not punish them if they don't!

5,000 A Week

Whether or not 5,000 comes in June or July or August, people want a new TSLA. There is demand for these cars, far more than any other model being built (at these price points).

The end idea is the cars are coming and buyers are there. So when the company announces sales and does… or more likely doesn't reach that level, the shorts will scream 'bloody murder!'

What the shorts seem to have forgotten is that 5,000 a week is only a stepping stone to 7,500 a week and then 10,000 a week. But let's not get ahead of ourselves. It was only a few short months ago that the Model 3 was breaking 1,000 a week consistently.

Sales Estimates

I would tell you that Model 3 sales numbers are the be all and end all if that were true, but they are not. Each and every Model 3 TSLA makes in the year 2018 is basically already sold. They will not be able to satiate the demand for the car.

News outlets like Bloomberg have produced a fancy model to track the VIN's and ask buyers of the car to register it with them so they can more accurately forecast the production level. If you go by their estimates you will come to around 24K cars made this quarter… give or take.

That give or take is the idea that the model isn't perfect and the numbers change on a daily basis. Plus there is the idea of the final two weeks of the quarter likely to be the strongest so even if they just average 4K per week in those last two weeks the number balloons to 32K for the quarter.

In Transit

It is important to note that TSLA is conservative with how it counts cars as actually being sold. They have to be delivered to the owner with all the paperwork being properly filled out. Over the last several quarters the in transit number has been a few hundred to a few thousand.

This time around we should expect to see a number closer to 10K. Maybe not more than 10K, but something close to that level. Why is that?

Well with the production ramping up at the end of the month, it is rather unlikely that more than 10% of the cars made in the final week of the month will be counted as sales. The week before will also have a solid production number but we should only expect 75% of those to reach their final destination.

That in transit number from the prior quarter will help, but next quarter it will become MEANINGFUL .

Summer Squeeze

So now that the shorts realize the number doesn't matter, let's focus on what is important.

It really comes down to production consistency. As that improves, and if the past is any indication that it will, then we could see another big squeeze.

With 39M shares short, we could see the stock blister over $400 before the end of July.

The 39M number was where we stood at the end of May. The next time the number is updated will be after the close on 6/26 for shares short as of 6/15.

Beyond that there is another update that will reflect the true panic of shorts as the sales number is about to hit. On June 29, expect a healthy cover trade as brokers will have to report shares short and then release that data on July 11.

There was a big cover trade day on June 12, the day after the most recent report was released. The stock closed at $332 the day before and rallied to close at $342 as volume spiked to 22M shares.

The reason for that rally was the idea that the shorts were still holding their positions, or as we like to say, they were keeping their shorts on. Fearing further exposure they covered in a blizzard of volume only to see shares continue to surge.

What Lies Ahead

Of course there is an early August earnings release, and that will likely be a positive catalyst. I say this because of comments from management that led Wall Street to believe the company will be nearly breakeven or better.

Elon Musk has also suggested that a massive squeeze is coming and he has done this before… and been right. But what else could come to propel those shorts to cover?

The small version of the Model X is coming, but that is further down the road. So I thought about some more immediate potential catalysts for Tesla.


I floated the idea that Google parent Alphabet could make a strategic investment in the company. GOOGL has its own autonomous driving unit, which hasn't had much in the way of breakthrough announcements. Google Maps is already a big part of the Model 3 so there are reasons to believe that they come in and buy any future debt or equity offering.

Caterpillar or John Deere also make sense from a partnership perspective. The heavy equipment makers have taken note of the potential for greater efficiencies for their vehicles, so a partnership would make a lot of sense.

Another idea would be a supplier in the ecosystem stepping up. I mean how ironic would it be if Goodyear Tire made a financial commitment to TSLA to remain the supplier of tires for the next few years … basically the complete opposite of what Vilas Capital proposed.

My guess is that Elon Musk has an even bigger bunny in his hat. The last few times he talked about massive short covering it came to fruition. At the end of the day, that is what investors should really be paying attention to.

Disclosure: Brian Bolan is long TSLA in his trading and retirement account.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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