1/ Many of you have voiced frustration recently about not anticipating this rally. Stop beating yourselves up. You’re in the middle of a big game and Elon knows the stakes. Just be aware that he spends more time analyzing his float than anything else.
2/ What do I mean? Let’s look at activity in the converts and it should become clear.
3/ A difference between $TSLAQ and the lemmings is we frequently base our conclusions on real world examples – live fire exercises. Many of us actually own different parts of this capital structure and can speak from experience. The lemmings rely on V/A’s finger painting.
4/ Had a conversation with a convert professional last week that reminded me of things I had forgotten. Which, when weaved together, might help you understand better the trading in the stock.
5/ Everyone remember the original tesla convert? The 1.50’s of ’18, long since retired? On May 31, 2017 they filed an 8-K to announce the company was exchanging 144mm face for stock. The original issue size was $660mm. 
6/ If you go back and look at the prior quarters you will see cash outflow (also detailed in the 10-K) from convert holders exercising for cash. The difference between 600mm face and 140mm exchanged for shares is cash leaking out the door.
7/ Tezzler let hundreds of millions walk out the door when they could have just equitized. So, why didn’t they convert? Before we answer, let’s also look at last year’s controversial 0.25s '19 convert that consumed so much attention.
8/ Stock was $380ish at the time, they could have tried *something* to exchange them early, but instead made election to settle par amount in cash. Why?
9/ They then had to come back to the market in May and sell stock and a new convert issue with lower conversion price to replace that cash. Just plain stupid. A normal CFO would have resigned in disgrace.
10/ I know many of you think it was because Musk had “assured” the street Tezzler had enough cash to retire all maturing debt in cash and this was just optics. Some were speculating (me among them) had he NOT paid in cash, alarm bells would have gone off.
11/ Here’s a different take: had he tendered and converted, he would have telegraphed the stock was an okay place to hang out for the next twelve months or so.
12/ But then he effectively refi’d two months later. In other words, he didn’t have the cash in March so he was forced to do a more dilutive convert.
13/ It’s because he wants to control his float.
He doesn’t want new shares. If you think he couldn’t have gone to convert holders with a tender offer outside the prospectus terms in Nov ’19 to lock in a conversion rate, you’re nuts. Would have been easy.
He doesn’t want new shares. If you think he couldn’t have gone to convert holders with a tender offer outside the prospectus terms in Nov ’19 to lock in a conversion rate, you’re nuts. Would have been easy.
14/ Elon knows how illiquid this stock is and how selling pressure could knock it for a loop. Look no further than the price action after the May ’19 offering. Better yet, look what happened in July ’18 right after a seemingly good delivery print.
15/ Remember, back then they were struggling to get to 5k per week production on the 3. It was all the market was talking about. They highlighted the achievement on 7/2. And what happened?
16/ Here’s the first three days of trading after the announcement. Clearly someone used the “milestone” announcement as a catalyst to sell. And knocked the stock down 50 points in three days. The 13F data that qtr suggested Fidelity was the seller.
17/ You think Musk doesn’t know this? You think he wants more stock sloshing around he can’t control? Why would he ever let a convert exchange into shares? He won’t. Put that in your calculus.
18/ Just in the top 20, including Musk, 45% of shares outstanding are in hands of accounts who did not change their position by more than 5% last quarter. Bottom line, you've got a company where the short float is not *that* much smaller than the actively traded public float.
19/ Elon also knows his retail bid isn't endless, not to mention that bid is margined as well.
20/ Look at when Saudi 'hedged' right before the layoffs hit last Jan - $350 to $310 in a second.
The difficulty in shorting is you generally short stocks in which you believe a trap door exists. You just don’t know when the trap door opens and the body plummets. But plummet it does. That’s the hard part. Being there for the opening.
