One day ahead of Tesla's Q3 earnings which overnight were unexpectedly pulled forward to Wednesday, Oct 24 and shortly after Elon Musk's twitter account was temporarily locked amid speculation it had been hacked, a bigger surprise hit on Tuesday morning when noted short seller Andrew Leff's Citron Research reversed its multi-year bearish call on Tesla (and as a reminder, Citron recently joined a class action lawsuit against Tesla) saying "as much as you can’t believe you are reading this, we can’t believe we are writing this!" and explaining that "Citron is now long Tesla", as the Model 3 "is a proven hit and many of the TSLA warning signs have proven not to be significant."
$TSLA dropping earnings on top of $F tomorrow might be a bad sign for shorts. After reviewing all recent info on $TSLA dominating its categories, Citron is LONG Telsa for this quarter. Full report https://t.co/eZLSbtL0kg— Citron Research (@CitronResearch) October 23, 2018
What has changed, Leff asks rhetorically and answers: "Plain and simple -- Tesla is destroying the competition."
These few charts illustrate what is happening in the car industry the past few months:
While the model 3 is completely dominating its class amongst mid-size luxury, let us not forget the Model S, which is by far the largest seller in the large luxury car market.
Leff then counters that Critics will say "of course Tesla is selling a lot of cars, there was a backlog of 2 years of demand" and notes that "we’re seeing that demand is new this year and pulling directly from TSLA's competitors."
In addition to the allegedly rising demand for Tesla vehicles, Citron also lists the following reasons "Why be Long" Telsa:
This is a critical quarter for Tesla and there are many reasons we want to be long (and would certainly not want to be short) into this print:
- Tesla will, finally, after 10 years of unprofitable existence, have the ability to prove that it can be a sustainable, highly cash flow generative entity that is no longer reliant on the capital markets.
- A strong quarter removes the overhang of a necessary capital raise – we suspect that Tesla will be generating more than enough cash to both fund aggressive growth plans and build cash on the balance sheet.
- It transitions Tesla from a “proof of concept” story to a “TAM / how much can this grow” story, attracting a whole new growth-oriented investor base.
- It makes the bear case solely about Valuation and Demand.
- Short interest is at the same (high) level as five years ago though risk is heavily skewed to the upside in the near-term.
Even if Tesla does not...