Let’s talk about Tesla’s stock: Short interest at record high and Musk exercised options before the earnings

Tesla’s stock price had quite the morning. The stock opened 4% down after notorious Tesla “bull” and Morgan Stanley analyst Adam Jonas published a negative note reducing his target price by 25%, but minutes later the stock went green and up 3% on high volume.

Overall Tesla’s stock is down 17% since the beginning of the year. With the fourth quarter financial results coming (Feb 10), let’s take a moment to talk about the stock.

Jonas, who had one of the highest price target on Tesla’s stock out of all the major banks, cut his price target to $333 from $450, but maintained an “Overweight” rating on the stock this morning.

The Morgan Stanley analyst justifies his price target cut on concerns for the Model X delays, which he says may have added “hundreds of millions of dollars” to the costs of the program, also concerns over delays for the Model 3 launch, which he doesn’t see happening until “late 2018”, while Tesla CEO Elon Musk said the company aims for late 2017. And finally, he sees a lower than anticipated valuation for the ‘Tesla Energy’ business.

His note sent the stock price lower, but it only lasted a few minutes before high volume sent the stock surging back in the green. It could be explained by shorts covering their positions.

Short interest on Tesla is at an almost 2-year record high with 29.1 million shares as of January 15. The short interest is now bigger than Elon Musk’s stake in the company, which he recently increased to 28,903,342 shares after exercising over $100 million in stock options last week.

Speaking of Musk exercising his stock options, what can we learn from that? Normally, when exercising stock options, you’d want to sell some of the shares to at least cover the cost of the exercising price ($3.5 million) and taxes (~$50 million), but in Musk’s case, he paid out-of-pocket over $50 million in order to keep all his shares and increase his stake in the company.

Now what can we learn from the timing of the transaction? He exercised the shares less than 2 weeks before the publication of the fourth quarter financial results. If you exercised shares and plan on keeping them, you want to exercised at the lowest price possible to pay less taxes. I don’t pretend to know exactly what Musk is thinking, but he might be calling a bottom and feel confident about Tesla’s stock going forward.

A few potential catalysts are coming: Q4 earnings next week, Model 3 unveiling end of March, Model X ramp up and Europe/Asia deliveries in H2 2016.

I want to know what you are thinking? Let us know in the comment section below.