Tesla Motors Inc (NASDAQ:TSLA) is thriving right now, but that hasn’t stopped investors from taking a large proportion of the company’s shares and holding them short. According to NASDAQ OMX Group, Inc. (NASDAQ:NDAQ), about 17 percent of the company’s shares were held short in the middle of September.
There are many reasons that investors are shorting Tesla Motors Inc (NASDAQ:TSLA), but it mostly comes down to the idea that a frenzy has built up around the firm’s stock resulting in overvaluation. Litchfield Hills Research, in a new report, attempts to answer the critics of Tesla Motors, and particularly Citron Research who wrote a recent short report on the company.
Dispelling myths of Tesla Motors
According to Theodore R. O’Neill, the analyst who authored this report, the Citron Research short thesis was flawed in many different ways. The report contained several facts that, while true, were presented as unusual and debilitating to Tesla Motors Inc (NASDAQ:TSLA) business when they were more to do with the regular flow of the automobile market.
The first mistake that the Citron Research report makes is to assume that the poor performance of the Chevy Volt and Nissan Leaf is indicative of a poor market for mainstream electric vehicles. Evidence of price cuts in a Toyota EV were debunked by O’Neill as regular price cuts heading into the release of a new model.
“Tesla is a complete redesign of the entire chain of manufacturing and sales that is focused on the best rewards for the consumer and not how to sell next year’s model,” according to O’Neill. This is the kind of reputation that Tesla Motors Inc (NASDAQ:TSLA) has built for itself and it may bear out, but O’Neill’s depiction of other auto companies is a little harder to defend.
The report states bluntly that big automakers, those named included General Motors Company (NYSE:GM); Volkswagen AG (ADR) (OTCMKTS:VLKAY) (FRA:VOW) (ETR:VOW) and BMW, are not trying in earnest to get into the electric vehicle market. They are just building cars in order to get into the California auto market. The State will require automakers to offer at least one EV in order to sell cars there.
In O’Neill’s view, there will not be any real competition for Tesla Motors Inc (NASDAQ:TSLA) in the next three years because none of the traditional car manufacturers are trying to compete with the firm in earnest. That is a fairly extreme accusation to throw at the industry, and there seems little way to verify it.
O’Neill also suggests that Toyota keeps the price of the Rav4EV artificially high in order to keep demand low. The Litchfield Hills Research imagines the complicated system of imaginary electric car companies with Tesla Motors Inc (NASDAQ:TSLA) the only true believer in the industry.
If O’Neill is right about the fictional electric cars, Tesla Motors Inc (NASDAQ:TSLA) will face almost no competition in the coming years. In general, however, discounting all of the competition in an industry as mirage is not a good way to invest, particularly if no proof makes itself available.