Tesla Motors Inc (TSLA) Could Eventually Return To Earth

Page 1 of 2

Photo credit: Tesla Motors Inc (NASDAQ:TSLA).

Tesla Motors Inc. (TSLA)Tesla Motors Inc (NASDAQ:TSLA) is a stock that many people — including quite a few professional investors — love to hate.

Whether it’s because of the politics of electric cars, because billionaire CEO Elon Musk’s brash and snarky manner, or simply because its valuation sparks comparisons to the wilder stocks of the old dot-com bubble era, plenty of folks either don’t want Tesla Motors Inc (NASDAQ:TSLA) to succeed, or just honestly don’t believe that it can.

Many of those folks have put their money where their ideas are, by investing in a short position in Tesla Motors Inc (NASDAQ:TSLA)’s stock.

And at least this week, a lot of those folks got burned in a big way. Here’s what happened.

How a short position lets investors bet against a stock
First, let’s explain. When investors take a short position, what they’re doing is borrowing someone else’s stock and selling it, betting that they can buy it back later (to repay the loan) at a lower price.

If investors think that a company’s stock is overpriced, they can ask their broker to set up a short position that will give them a profit when the stock price falls. The farther it falls, the bigger the profit.

But whether the stock price goes down or up, the investor still has to pay back the loan. And the investor has to pay interest on the stock he or she borrowed in the meantime, which typically isn’t cheap.

If the stock skyrockets, the investor can lose a lot of money — far more than the original investment. And the longer that person waits to close their position, the more interest he or she has to pay.

In other words, selling a stock short is a risky move. That’s why smart investors save it for cases when they think a stock is wildly overvalued, where its price is so high that it doesn’t seem to make sense.

Where it seems like a sure thing to crash, in other words.

Now let’s look at Tesla Motors Inc (NASDAQ:TSLA).

From this perspective, Tesla looked like a classic short candidate
There’s a case to be made for Tesla, but it’s the case against Tesla Motors Inc (NASDAQ:TSLA) that we’re interested in right now. It’s easy to sum up: Here’s a company that has been around for a decade but hadn’t had a quarterly profit ever until this past week. It’s selling a new kind of product — electric luxury cars — that competes against massive global companies, and it’s unclear that enough consumers want that new kind of product to make the business worthwhile.

I mean, would you pick some unproven California startup to go up against the likes of Ford Motor Company (NYSE:F) or Toyota Motor Corporation (ADR) (NYSE:TM)? (Yes, Toyota Motor Corporation (ADR) (NYSE:TM) is actually a Tesla investor, but bear with me here for a minute.)

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!