When Tesla’s lockup expires Monday, will its stock drop? Short sellers think so

updated

Tesla’s IPO has been one a few super-successful cleantech public offerings this year, if not the most successful. But will the good news continue after the 180-day post-IPO lockup period expires Monday and new shares flood the market?

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Maybe not. There’s tremendous short interest in the electric car company’s stock — that means there’s a lot of buyers looking to bet that shares will fall. On Nov. 30, the ratio of short interest to available shares that day was 6 to 1, and at the end of October that ratio reached 22 to 1, ahead of Tesla’s most recent earnings report. It fell to 4.5 to 1 after the earnings came out, but current short interest in advance of the lockout’s end signals belief that the shares will fall after the lockout ends. In essence, the market is now anticipating a drop in the stock price. We also spoke to some venture capitalists who, in an office pool, were betting on TSLA’s stock price come Monday — the highest bet was only $18.

[Update: Capstone Investments analyst Carter Driscoll has just downgraded Tesla shares to a “sell” with a price target of $22, which suggests that investors should sell now. The news caused Tesla’s stock to slide 8 percent to $30.09 today. Driscoll wrote that the company faces tough competition from major automakers, and that lack of charging infrastructure will drive car buyers towards hybrids rather than the all-electric models that Tesla makes.]

Venture capitalists invested in Tesla upfront  have incentive to sell their shares because it lets them lock into profits, but at the moment, they’ve got a huge portion of the holdings, so new shares hitting the market are relatively high compared to the number of  shares already on the market. In fact, Morgan Stanley projects that shares available for public trading will triple on Monday.

Traditionally, the increased supply after a lockup period means the price comes down. Simply economics of supply and demand, right? But Tesla’s stock doesn’t always obey the rules. Despite posting losses in the third quarter — granted, smaller than expected losses — the stock closed at a record $33. And its blockbuster IPO — a $17 June offering that jumped 40.5 percent in the first day of trading — happened in the midst of a lackluster cleantech IPO season. And in a practically unheard-of aberration, the IPO bucked market trends with a successful debut the same day the Nasdaq and S&P had their worst days of the year.

“It’s definitely trading on sentiment,” says Eric Jackson, founder of hedge fund Ironfire Capital. He predicts the stock will trade down to the mid-20s in coming weeks.

Nat Goldhaber, managing director at venture capital firm Claremont Creek Ventures, agrees.

“Cars are sexy. It’s almost just about that. They got enough public attention early enough on. They had physical product that was kind of cool,” Goldhaber told me recently, referring to Tesla’s Roadster sports car. “[Cars are] the thing that captures the American imagination. It’s valued disproportionately to its actual utility.”

Ironfire’s Jackson has been vocal in the past about his short position on Tesla — but this week, he told me he’s now long on the stock. He still stands by his concerns about the company’s management, in particular, CEO Elon Musk and Elon’s brother and Tesla board member Kimbal Musk — but Jackson thinks the company’s plans for the Model S have real potential.

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“What they’re doing is just in a great little niche that is going to be popular and extremely attractive to a lot of people when and if they do get the Model S out on time,” Jackson said.

For now, Tesla has been ramping up on the positive press — perhaps to maintain the stock price to guarantee its investors a good return next week? It announced an aggressive timeline for the Model S electric sedan last week, promising a prototype would be built by the end of this year and deliveries to start in 2012. The company plans to build up to 20,000 Model S cars a year and currently has about 3,000 reservations for the car. (The reservations cost $5,000 each.)

A Morgan Stanley report last month said that the Model S (pictured, right) would be exhibited at the Detroit Auto Show in January. Tesla told the reports’ authors that it eventually plans to sell 100,000 vehicles per year on the Model S platform and ramp up to 500,000 in its new Fremont factory. CEO Elon Musk also noted plans for a cheaper “Model X” car that could sell 400,000 a year. “Those volumes are well in excess of what we have modeled in our bull case,” the report said.

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They’re also big numbers considering Tesla has only sold about 1,300 cars to date (or closer to 1,400 by some estimations). And while the pricing of the more-mainstream Model S sedan is considered attractive at $57,400, can Tesla live up to its promises? Or will it miss production targets? Or even raise the price, like its fellow luxury green car startup Fisker has?

“That’s a big question. I think it’ll be difficult to hit,” Jackson said. “It goes back to one of my fears about the company. They’re definitely overconfident. And that parlays down from Elon,” who Jackson has called narcissitic and argues has a track record of generating positive interest in his companies, then failing to deliver on promised dates.

“I am worried about whether or not they’re going to back that [Model S claim] up,” Jackson said. But not worried enough to change his position on the stock … yet.

How will Tesla’s stock fare Monday and in coming weeks? Will it make good on its Model S promises and prove naysayers wrong? Stay tuned.

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