The TSLA Saga Jan 31

TSLABUYSELLSo, I have superimposed 5 years of TSLA stock price from 2011 to 2015 in one graph to give you a view of the cyclical nature of TSLA. This is nothing groundbreaking, but something that’s overlooked by most people. Except for 2012, most of the data conforms to one story and that is of the March ~ April ramp up and a significant slow down after October. And if you look at this chart carefully, there is almost always a crash in January ~ February area. Which is where we are now.

I have a few theories on why this is happening and it has something to do with Asia. Most of asia, operate in a lunar calendar cycle which centers around the lunar new year. The lunar new year changes each year, but it can be approximated by “sometimes around February”. It is a two week to one month ordeal where all factory workers go home to spend time with their grandparents and parents. Which means that, one month before the event, only maintenance works are scheduled into the queue. Any new production, or retooling will be marked for after the year.

This calendar has a lot of synergy with western world’s Christmas season, allowing production to ramp up for western holiday season and ramp down during Q1’s strategic decision making. In any event, if you believe the same cycle will play out again this year, which so far it has, then I’d start gathering cash to arrive in the March~April time frame.

With regards to TSLA

Those of you expecting a surprise ramp up in Q1 will probably be disappointed as this means that even if TSLA wants to ramp up, they will not be able to because most of its suppliers have shutdown their production during the holiday season. Unless TSLA manages to bring production of every single part in-house, they will be hostage to the lunar calendar.

The recent passage of anti dumping tariff in USA on Asia Steel has the effect of increasing the accuracy of my information network on this sector as steelmakers and automakers increase their orders from my network of contacts while simultaneously decreasing their orders from the rest of Asia. I had mistaken this as increasing orders from automakers when in fact, it is a simple shifting of contracts to different suppliers. In 3~ 4 months, I’ll get a clearer picture of whether or not production is increasing or not.


The TSLA Saga Jan 25

Today is about Elon’s debt and how it relates to events

Digging into several hundred pages SEC filings was not what I had in mind for my weekend, but once I combed through the numbers the first time, I felt that it is important enough to drop all my other activities. Remember this as you read on. The reality is grey.

In the beginning

Elon’s Paypal payoff was $165 million which translate to approximately $80 million after tax (more if spread out over time). Then an interesting thing happened in 2003. On 2003 July 22,  Elon got a loan from Goldman Sachs in the tune of 125 Million with the intent to purchase TSLA stock. ( Filing )

Then the following series of events happened ( TSLA seed funding histories ). The exact details of the seed funding rounds have been removed from the Internet. I am a bit sad that I did not save the details. So they are approximately as follows:

TSLA series A investment round of 7.5 million (12,880,324) by Elon 2003 July
TSLA series B investment round of $14million by Elon
TSLA series C investment round of $30million May 2006
TSLA series D investment round of $45million  May 2007
TSLA series E investment round of $40million December 2008

Musk’s investment in TSLA after 2008: $70 million

Musk’s investment in SpaceX after 2008: $100 million

Which approximately translate to the $205 million in total capital if we factor in living cost of $10million per year + divorce cost.

Even though the realization that Elon’s take over of the company from Eberheart was done with the blessing of Goldman Sachs might leave a bad taste in some. The fact that he went more than all in, 150% more than all his net worth into both SpaceX and Tesla, is what stood out in my point of view. I have not heard of this in my life up until this point.

Goldman’s blessing, in my opinion, is probably better than the alternative of a super slow progression to bankruptcy. Having Goldman Sachs as your ally means things gets smoothed out for you everywhere you turn. It does, however, sucks for Eberheart the original founder since, in a normal world without loans, nobody would’ve been able to wrest control from him.


Elon’s TSLA share 28 303 34 at unknown prices.

Elon’s ownership percentage at 28.4%

Elon’s cash reserve at almost 0, sleeping at Sergey’s place.

Goldman Loans $125 million

All funds everywhere else locked up in divorce proceedings to force him to give in to Justine’s terms. On top of having to pay monthly legal fees for himself and his ex-wife Justine. This further exacerbated TSLA and SpaceX’s financial turmoil.

This. This is rock bottom.


June 29 2010 TSLA IPO at $17, Elon’s ownership stood at 28 303 341 shares = $481 million USD and he sold 908 958 = $15 452 286 in cash.


Elon’s TSLA share 28 303 34 at unknown prices.

Elon’s ownership percentage at 28.4%

Elon’s cash reserve at $15 million.

Goldman Loans $125 million

TSLA capital raise

The following events are more muddy and hard to evaluate.

Elon’s option grant

12/4/2009           3,355,986           6.63           12/4/2009
12/4/2009           3,355,986           6.63           vesting

2013 May 16 ELon borrows 150 million from Goldman to buy tsla $91.5, of which $99 197 803 is used

2013 May 16 Elon borrows 25 million from Morgan stanley to buy TSLA $91.5

2015 May  83 974 shares purchase @$248 which is $20 million

2015 May 175 million borrowed by Elon from Morgan Stanley

2015 August TSLA sold 2.7million shares @ $242 to raise capital, generating 642 million. Elon buys $20 million worth


Elon’s TSLA share 35,001,294

Elon’s estimated living cost since 2008 at $10mil per year = $70mil

Goldman Loans $275 million

Morgan Stanley Loans $200 Million

Elon’s Free cash reserve at $130 million.

The Goldman and Morgan Hedge

A very simple game theory about what Goldman would do goes as follows:

Banks as market makers do not want to assume any risks. Therefore, everything that they take on needs to be balanced. Giving the equivalent amount of $175 million loan to Elon means that they need to hedge it somewhere. The simplest way to hedge it is to naked short sell the stocks. This way, they get the cash from naked shorting TSLA stocks, and then make a loan to Elon from these stocks to generate income from the interest. Goldam may very well have the ability to naked sell short shares that are pre IPO, but if we assume no such ability and they sold short the shares during IPO at $17, the following should occur.

Since Goldman lent Elon $150 million they need to sell approximately 9 million shares to balance out the loan. If Elon posted all his shares as collateral, then they will proceed to write covered calls for 21millon more shares which should result in 210 000 call contracts at various strike prices.

The 2013 capital raise means that a further 1.6 million shares needs to be shorted to balance out the loan. With Morgan Stanley further shorting 0.27 million shares to balance out a $25 million loan.

In May 2015, Elon further borrowed $175 million. The share prices around that time averages around $230. So to offset that 0.75 million shares needs to be short.

From these, we can draw some conclusions:

  • The base shares short of a TSLA stock should be: 9 + 1.6 + 0.27 + 0.75 = 11.62 million shares short
  • Adam Jonas, as a Morgan Stanley analyst, has skins in the game and should not be considered a neutral voice. His firm has $200 million in the game.
  • Until Elon repays all his loans, the short interest will remain elevated.

Something in the future

I find it strange that Elon left $130 million cash reserve on the table. I do not believe he is about to fund another venture since he already have too much on his plate. Therefore it is in preparation of adding to his share holdings in a future offering. Elon has a habit of adding at least 10% to any offering if he is not a major investor in that round so as to not dilute his % ownership. At $200 per share, Elon will probably buy in 500 000 shares. Which makes the potential next offering at a potential 5 million shares. This is approximately a $1 billion dollars funding round that should cover TSLA’s operating cost for 12 months.

So on May 2015, Elon was anticipating that Free Cash Flow will not be positive for the next 12 months and will need funding. One capital raise already happened in August for about 6 months of funding and Elon has dry powder to raise another one for 12 months if Model X rollout did not go as planned. As we get closer to April, the likelyhood of a raise increases if the prospect of Free Cash Flow gets further away.

This uncertainty of Free Cash Flow is not something management can be sure about and hence why we are here today. Like the recent Falcon Wing debacle. Any incompetence in any of the suppliers can result in a 12 month delay due to retooling.


This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.


The TSLA Saga Jan 21

It’s getting harder to cover everything that’s happening everyday now as the mess accelerates events that happens and need to analyze. So I will just stick to one at a time with the 1 hours per day I have to do this.

The conservative Straddle

I cannot stress how important it is to analyze your options risks before you send them off to be executed. So many times I caught myself from executing the wrong trade after verifying with the risk reward graph. If you play around with it enough, you’ll understand that there are combinations of options where if you do in fact execute the trade, you will be 100% sure to lose money at all possible prices. But if you do find these, make sure you double check by flipping all the trades around to see if the reverse is ones where you are 100% sure to make money at any price.

So before you go ahead and play more with options, go and download Think Or Swim and open up a simulated account which is only 15 minutes delayed. Then follow the next part.

Step 1

Step1The important parts are highlighted in red.

Click the options you want to buy and sell so that they enter into Order Entry. Right click on the order and click Analyze Trade. Do this for each option you are interested in.

Step 2

Step2Once that’s done, go to the top where the tabs are and click on Analyze.

Step 3

Conservative straddleAnalyze. The X axis here are stock prices, the Y axis here are net capital based on the options you have inputted into analysis.

This is the snapshot of Jan 14 when I recommended a conservative approach to straddle. The bottom  of the graph where a bunch of number are highlighted in green and red are the options I have selected to be analyzed. The exact structure is:

Buy 2 $200 Put at $24.70 for June 16
Sell 1 $250 Call at $2.81 for March 16
Buy 100 stock at $202.71

Purple line is the current probability for profitability at each stock price, the blue line is the profitability at March 19th at each stock price.

I use this to target $250 for a potential gap close while protecting a potential for a real market collapse due to oil. What I am betting on is that the stock price will NOT stay around $200. There’s also a Call that’s sold to squeeze out more monthly income. For this structure, I will revisit the call option I sold a week before March to see if I should let it expire or close it before selling a new one for April.


This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.

The TSLA Saga Jan 18

The infinite short condition has been corrected since I last mentioned it. Thank you to whoever it is that abused the hell out of it so that the options skew would correct. Anyway, we no longer have that to worry about.

On Short Interest

That said, I must correct a misconception about short interest that people seem to rely on. There are a lot of reasons to short a stock and the most common reason is that it is part of a broader strategic placement. A high short interest usually grows and shrink along with how active its stocks are. The only time I’d really say it is significant, is if the short interest is bigger than 50% of the shares float.

Even I short the stock sometimes as a broader strategy. You can short the stock as an employee as a way to cash out your employee stock options. The director can use shorting as a way to access illiquid stock option that won’t vest for another 3 years to pay bills. Or they can short to hedge their exposure to their own company. Market makers can short a stock to balance the books because an insane amount of call options have been bought. Whatever the case, unless it is more than 50% of the float, a cornering of the market condition is not really likely to happen hence the short interest is not an indication of a short squeeze. Unless you know exactly how much margin the big short have and when they shorted (Which by the way, is impossible to know since funds are not required to disclose their short positions), it is impossible to force a short squeeze.

What I think could also be happening is that Goldman Sachs’s book balancing act since Elon is borrowing from his own stocks that’s locked up.

On a bottoming market

All indicators points to a bottoming process forming unless Saudis decide to shit more on the market. If you really think about it. This current fiasco is an artificial construct created by Saudi Arabia alone. Whose stock market is also suffering from its own hubris. The only time where I can see this type of inventory liquidation make sense, is if the seller of the asset sees a future where its wares are no longer in demand. The green energy movement is still in its infancy when you compare all the market cap of old oil and new energy. The last time I checked, the Saudi princes still walks with a swagger as if they are the king of the world. So when I tried to decide whether or not the current oil situation is caused by misjudgment based on an inflated ego or an actual liquidation because of the clarity of a green future. I believe an inflated ego is in play.

An artificially created situation, will eventually correct because of normal market forces. It’s taken longer because so far, nobody dared to take the opposite side bet against the Saudi’s war chest and their war chest is shrinking faster than what they led people to believe as the other 50% of their economy (mostly oil support) have just lost 20% of its net worth. This will have to be made up by government spending which increases the decline of their foreign reserves. Shorting Saud’s market and currency, is probably the most profitable trade this year and should continue to be so even as oil price goes back up the pain in the real economy will continue for some more time as layoffs already happened so you have time to cover.

China’s economy is still growing. Its residents still sending waves of tourists and children out to the world to spend money. The conversion to a consumer based economy is still on going. The USA is still recovering and its consumer spending. If big oil wants to commit seppuku and give the rest of the world free oil, let them.

Canada is going through a lot of pain, but I’d rather see this, than have oil take over its economy. Seriously I fail to see the need to get an education, if a high school grad can go to Calgary and get an unskilled job for 100k/year. This pain, will make high tech job in Canada great again. Maybe we’ll see a revival of the tech industry here.

On 8 ball

8 ball is no longer a good 1 day leading indicator now. Still, I took notice when it went up 11% compared to Friday. Compared to TSLA’s stock, the indicator reacts more on news as they are being released rather than forward looking sentiment. If you look at a time span of 8 ball’s absolute number vs that of TSLA, you can say that 8 ball have finally caught up to TSLA in absolute value terms. I have begun the post-mortem analysis of 8 ball indicator and have been quite astounded by how accurately it jumped a day or two before major movements in TSLA stocks itself. I did not believe the accuracy rate would be this high either. Will post more once I finish with this.

How a market crashes

So what are the things to come. Well, since rate has started rising, I think things will finally start to happen. After having been through two crisis, this are probably the series of event to follow within one year’s time frame as usually 1 year is how long people have cash reserve for after the rate increase.

  1. Mergers will happen first as big swallows small.
  2. Smaller oil related company will start declaring bankruptcy.
  3. Some mergers will start to stall
  4. One or two of the big company in #1 will declare bankruptcy as the mergers were a way to cover their own bad books
  5. Contagion spread
  6. Loan loss declared by Big banks.
  7. Big bank failure
  8. Contagion spread through big banks.
  9. Another huge recession.

You can check out my log of the timeline and series of events for the 2008 crisis here. If we are to compare where we are right now, we are year 2007. Of course at anytime, the current crisis can end if the Saudis decide not to or if either Russia or Iran gets fed up with Saudi Arabia and just nukes them. The fact that they haven’t means that the Saudis got the full blessing of USA to do this. Like I said, this crisis is an artificial construct unlike that of the 2008 crisis which is an entity born out of greed. We do not have “Oil backed security” or derivatives running rampant throughout the general population. Which is why I believe the current crisis will stop at #6. At most 20% drop from peak to trough of S&P. So I would reserve 25% cash for the apocalypse trade. What is the apocalypse trade? Well I’ll have a separate post for it.

No graphs today. I am a bit tired after several full days of work. While most of you are enjoying a long weekend, I’ve been a busy bee. You can check the previous posts as most of the TA are still the same. I do recommend reading Paul Graham’s post about life is short if you having need something else to do. It’ll cut away all the bullshit.


This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.

The TSLA Saga Oct 08

In the interest of full disclosure. Here’s an email conversation I had with a selected few people. I am only posting my replies since I do not have anyone’s permission to publish anything. I am apologize for going bearish on you guys without letting you know.

Thu, Oct 8, 2015 at 10:17 AM

The X reveal confirms that the employee factory ramp leak a few months ago was true.
Going forward, plan your plays without any significant X contribution and assume that the info in the leak is true.
Adam Jonas flip flops yes and I do not like the weird reasoning behind. But if you look closely, he flip flops because of the bottom line data he probably got from Elon. But has to invent a reason for down/upgrades.Regards

Sat, Oct 10, 2015 at 10:58 AM

It depends on R&D spending. Seeing that it’s october and that bonnie still doesn’t have her Model X, it’s safe to assume that R&D spend will stay elevated in Q4 as they need to keep the elevated RD spending to streamline the production line. This RD spending is probably capital expenditure on machines. Retooling, changing the machine since one doesn’t work out, accelerate the production line build up for the windshield manufacturer etc. The investing public will know this in around Feb 2016.


This is a generic disclaimer I attach to all financial based posts to catch all disclaimers. I own everything I talk about. If you suspect I own something or have an Agenda just assume yes. Assume the worst. Assume I am not acting on your best interest.