Monday, August 29, 2016

Devonshire Research Group's Short Tesla Thesis, Part II (TSLA)

How can you not love it?
(See disclaimer at bottom) 

The stock is at $216.56 down $3.43 on a generally up day for equities.

From Devonshire Research Group, LLC, May 2016:
Notice of investment interests
As of the publication date of this report, the Devonshire Research Group LLC has a net short position in the stock, put options, bonds, and credit swaps of Tesla Motors, Inc. (“TSLA” or “Tesla”) and stands to realize gains in the event that the price of TSLA’s securities declines over the long run, or if investment sentiment improves the appeal of an expected decline in any of its securities.

Devonshire Research Group recognizes that while its strategy reflects a long term bearish outlook for Tesla’s security instruments, the short term implication of powerful marketing, including the power of social media tweeting by the CEO and his PR firm, well orchestrated and heavily blogged product launches, and a deep and powerful short term media control and attention span, suggests unpredictable short term volatility.

Devonshire Research Group LLC has a long term net short position across multiple security instruments.
Notice of non-affiliation
Part I of this analysis, released publicly in March 2016, was widely praised as effective and fact-driven. Critics of the analysis allege that the work of the Devonshire Research Group is unfairly biased, due to affiliations with industry players who seek to limit the market performance of Tesla. This is interesting, but untrue.

Devonshire Research Group hereby asserts that it does not have professional or business relationships with any of the following organizations:
General Motors 
Ford Toyota 
The City of Detroit 
Koch Industries 
Royal Dutch Shell
CB Insights 
The Illuminati 
Marshall Mathers, aka “Eminem”
On financial innovation and creative accounting...

...Tesla is not a car, battery, or tech company; it is an experimental financial services company and should be regulated as such...
...MUCH MORE (37 page PDF)

In places, this piece reads like a parody and probably shouldn't be relied upon as investment advice.
Additionally, for those who have followed the issue closely there isn't a whole lot that hasn't been raised by someone else, somewhere else.

Further, I have no idea who Devonshire is. They seem to have had an okay call on GoPro but I only came across them because of a post at the Tesla Motors Club forum where the first part of DRG's effort was mentioned:
1) I found interesting looking Devonshire Research article:
Tesla Motors Inc (TSLA): Devonshire Research Short
At first their analysis looked quite sophisticated, but their reasoning quickly falls apart once you look closely....
Garnering some thoughts from the commentariat: 
2) It's almost certainly a part of the Koch brothers campaign to undermine Tesla.
3) It does seem to look that way. Here's a list of sites that picked up the release and could be another proxy:...
4) If you actually read that report, it's pretty clear the author(s) are morons. 
For the longest time we had a Don't Short Tesla policy because it showed signs of being a cult stock and cult stocks can kill shorts. Plus it can be very hard to locate stock and very expensive to borrow when you do,
From an August 2015 post:

Morgan Stanley Gives a $465 Target For Tesla, Stock Jumps 5%...
We've publicly shorted Tesla twice on the blog, both times worked out because nothing like this happened during the holding period.
For the most part this April 2013 headline is operative "Why We Don't Short Tesla: The stock is up 16% On The Day (TSLA)". That was at $44.00, up $6.11.
Recently $255.30 up $12.15.
Morgan Stanley was one of the firms that sold the recent half-billion stock offering....
However, after the SolarCity deal and Elon's purchase of SCTY debt (on top of his SpaceX buying SCTY debt) I'm more open to betting against the company, at least tactically if not to zero.
Remember, your mileage may vary, close cover before striking etc.

Finally, don't be this guy (no, seriously, don't be this guy):