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

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

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!