Tesla bears throttle up on lower oil, China skepticism

Inyoung Hwang
Bloomberg News

Slumping oil prices have restored Tesla Motors Inc.'s status as a favorite among short sellers and bearish options traders.

Speculation that a 58-percent plunge in West Texas Intermediate crude since June and competition from General Motors Co. will hurt demand have pushed short sales to a one-year high. The difference in the cost of bearish options versus bullish ones has almost quadrupled from September, reaching the highest level since November 2012, data compiled by Bloomberg show.

The electric-carmaker trails the Russell 1000 Index by about 8 percentage points this year. Investor concerns were compounded this month after Chief Executive Officer Elon Musk cast doubt on sales growth in China, the world's biggest automobile market.

"Until there's greater evidence of a further acceleration in sales in U.S., Europe and China, the shares will probably struggle," said Nick Skiming, who helps oversee about $10 billion at Jersey, Channel Islands-based Ashburton Ltd. "The fall in the oil price has also undoubtedly made something of an impact on the perception of future sales of energy-efficient vehicles."

A supply glut in crude has sent the commodity into a bear market. U.S. sales of the main version of Toyota Motor Corp.'s Prius, the bestseller among hybrid electric vehicles, plunged 15 percent last year.

Prove appeal

While Tesla plans to start selling its smaller, more affordable Model 3 sedan by 2017, it has yet to prove its mass-market appeal. Musk said this month the company won't become profitable until 2020, when annual deliveries reach 500,000. In November, the carmaker trimmed its forecast for vehicle sales in 2014 to 33,000 from 35,000, citing the inability to make cars fast enough to meet demand.

"The quality of the cars, or the business, isn't in doubt, but the valuation investors place on the company will play a much greater role than it has over the past few years," Skiming said.

Since its initial public offering in 2010, Tesla rallied as much as 18-fold to a record on Sept. 4. Shares trade at 104 times estimated profits, compared with 8.7 times for carmakers in the Standard & Poor's 500 Index, data compiled by Bloomberg show. Shares slid 0.6 percent to $198.25 at 9:55 a.m. in New York.

High Valuation

The high valuation has made it a target for short sellers. Bearish bets have jumped to 18 percent of shares outstanding, up from 9.7 percent in August and within the top 5 percent among stocks in the Russell 1000, according to Markit data. Short wagers climbed to a record 25 percent in 2012.

Ricardo Reyes, a spokesman for Tesla, did not reply to an e-mail seeking comment on the options trading and short sales.

Waiting times indicate demand for Tesla cars still outstrips supply, according to Andrea James of Dougherty & Co.

"I'm not concerned about China long term," James, a senior research analyst with Minneapolis-based Dougherty, said of Tesla's luxury sedan. "The Model S had a warm reception there and it is priced favorably to peers. As production will increase steadily in 2015, generating better operating leverage throughout the year, I'm bullish."

Even so, some investors are hedging. Four out of the five most-owned Tesla options were bearish. The cost of contracts with an exercise price 10 percent below the shares was 7 points more than calls, according to one-month implied-volatility data compiled by Bloomberg. That's near the 10 point-level reached last month and compares with a one-year average of 4 points.

"Can they get significant traction in China?" said David Whiston, a Chicago-based analyst at Morningstar Inc. "If they can't, it's a problem. Like any start-up, you're paying for potential. That potential can be really far out and putting a price on it today is incredibly difficult, so the stock will fluctuate quite a bit."

With assistance from Dana Hull in San Francisco.