Shorting any company comes with a whole set of specific risks, many of which are potentially more costly than simply investing in each company. Since one’s potential downside is unlimited with short plays, one must be very sure said company is likely to decrease in value over a specific time frame.
Margin calls and associated financial risks are not for the faint of heart; any short seller targeting automaker Tesla, Inc. (NASDAQ:TSLA) is almost certainly aware of this.
Tesla’s meteoric rise this past year in the face of a global pandemic and concerns around "peak auto" taking its toll on the entire automobile manufacturing sector is a testament to the faith of Tesla afficionados.
The Electric Vehicle (EV) movement is strong, and the Chinese auto market is indeed huge. Other large American auto manufacturers such as Ford Motor Company (NYSE:F) have announced cuts in capital spending related to EV investment, another bullish factor in Tesla’s favor. High levels of penetration in domestic markets in the EV space combined with high potential for Asia growth may simply make a short position seemingly untenable.
That said, there are a number of serious questions around the propensity of Asians to buy American-made cars of the Tesla brand rather than supporting domestic industry/brands. The partnerships CEO Elon Musk has made globally to build new production facilities requires a political dance that could turn out terribly in the end if the U.S.-China trade dispute heats up further.
Weak employment globally and declining auto sales around the world, combined with the other previously mentioned bearish catalysts, show Tesla’s stock is overvalued and may be an attractive short, at these ridiculous levels.
Invest wisely, my friends.
