If Citron Research tweeted that you should go jump off a cliff, would you?
Hopefully not.
But maybe you should, especially if you’re the kind of person who will start shorting a solid company like Tesla Motors (NASDAQ: TSLA) over a single tweet from a single investment research company:
Sure, Citron has been around for 14 years.
Sure, its reports are “fun” to read (according to Bloomberg).
And sure, its founder, Andrew Left, is “very vocal and media savvy,” according to CNN Money.
But the more I look at Citron Research, the more I see a catty, Gossip Girl version of investment research. The institution itself felt the need to post this disclaimer:
…questions invariably arise as to the source of controversial public postings, and it is sometimes inevitable that the negativity turns personal.
What does that even mean? This is investment research, not Mean Girls.
Maybe Elon Musk forgot to invite Andrew to his son’s birthday party, or maybe the two had a catfight.
Regardless, the tweet by Citron Research is a blatant attempt at media manipulation, and I would urge our readers and investors to not fall victim to this sort of social media hype.
(You wouldn’t jump off a cliff, so why would you short Tesla?)
This isn’t the first time Left and his firm have been bearish towards Tesla, despite the fact that betting against the stock has proven risky and wrong. Since Tesla’s last earnings report just a few weeks ago, the stock is up 30%. Even more, Tesla has gained around 400% in the past three years, beating the S&P as well as traditional car manufacturers.
(Take that, Left!)
It also appears that whoever’s in charge of Citron’s social media may, in the past, have had one too many cocktails before clicking, “Tweet.”
Don’t get me wrong; Tesla has encountered more than its fair share of bumps in the road, and I won’t be surprised when it encounters more in the future.
But like me, there are analysts with clearer eyes, stronger convictions, and more sober dispositions who continue to back Tesla and Musk:
“[We] see the concern on Model X production ramp/volumes, the subject of several recent bearish notes, as overdone at this point. We don’t really understand the repeated under-estimation of Tesla’s ability to deliver, and see this as an opportunity.”
— Dan Galves, Credit Suisse
Unprecedented Supply
In order for Tesla Motors to meet production goals, the company will require a never-before-seen amount of lithium batteries, and this is where some analysts, like Citron, might show concern.
To meet these requirements, Musk (two years ago) declared the development of a lithium-ion battery factory, the Gigafactory, in Nevada. Construction of the factory started that year and is progressing more quickly than expected.
It should be fully operational either this year or next.
Expectations for the Gigafactory are a 50-megawatt-hour capacity, requiring 40 million tons of lithium carbonate equivalent. I’m sure these words mean something to someone, somewhere. For us, it means that just one of Musk’s Gigafactories is going to consume 20% of today’s global lithium supply.
Lithium batteries are already fairly common. You’re holding one right now if you’re reading this on a smartphone, desktop, or tablet. These batteries are light, low-maintenance, and last a long time.
Tesla’s Gigafactory will provide the capacity for the company to assemble at an enormous scale.
Production of the batteries will directly influence production of Tesla’s electric vehicles. Although those production levels are unprecedented, they are by no means impossible.
“With Model 3 expected to lead the way in vehicle sales, Tesla expects its vehicle production by 2020 to require more lithium-ion supply than the entire world required in 2013.”
Lithium batteries already have a huge presence in our lives. Like I said — you’re probably holding one right now. And yes, the lithium supply should be a concern.
However, the target of those concerns should not be Tesla Motors.
If you’re a commodity bull, it’s time to get involved in the supply side of lithium… like, yesterday.
Investors should focus not on the total reserves of lithium, but on the annual supply capabilities.
There is plenty of lithium on this planet. According to one expert, “The world would triple lithium production from current levels and still have 135 years of supply.”
In the grand scheme of things, mankind hasn’t put that much effort into extracting lithium. Which is why geologists and researchers maintain optimism.
Don’t get me wrong; I support Musk and his endeavors for a variety of reasons.
The guy is a rock star. In fact, I’ve personally called him a “super hero” on more than one occasion.
But unlike other investment research firms, we don’t let emotions get in the way. For that reason, we’re going to stick with the facts and keep drinking the Tesla Motors Kool-Aid.
“Basically, to the best of our knowledge, you should not worry about the Gigafactory as a constraint on Model 3.”
— Tesla CEO Elon Musk
As long as Musk remains confident, so will we.
Until next time,
Jennifer Clark for Pro Trader Today