I think I have figured it out. What the Tesla shorts seem to have in common are:
1. They're almost all New Yorkers.
Aside from the fact that most of the big hedgies in general are in and around New York City, why does this matter, you ask? In Tesla's case, it's actually important.
Much of what I hear from that corner of the world is that they are skeptic of Tesla because they never see Tesla cars on the street. You can walk around Manhattan or tool around Stamford, Conn., for hours not seeing a single Tesla.
Therefore, their argument goes, Tesla may not be selling as much as the numbers seem to suggest. In any case, there is something suspect here.
This is very similar to the situation in July 2007 when it was the earliest days for the first iPhone. This product hit close to 5% market share quickly in Silicon Valley, but only much later in most other cities, including New York.
So why is that important? Well, customer adoption is not uniform across geographies. "The tip of the spear" tells you today where the rest of the world is going tomorrow. It's the canary in the coal mine.
In the case of the iPhone, as well as with Tesla, this canary resides in Silicon Valley -- not New York City. The point is this: If product X (iPhone or Tesla or whatever) can get to 5% or some relevant respectable number in almost zero time in Silicon Valley, it is likely to get there in the rest of the country -- and the rest of the world -- also, at some time a couple of years down the road.
I have written multiple articles earlier this year about how Tesla gathered 100% or close to 100% market share in the luxury sedan market in Silicon Valley almost overnight. There is nary a brand new Mercedes S class or BMW 7 series to be seen so far this year on the streets of Silicon Valley. Everyone is buying a Tesla. Take a drive through some neighborhoods and you will see one in a large percentage of the driveways.
If all you see are the non-existent Teslas on the streets of New York, you would never believe this. These are the same people who shorted Apple
Even after the recent decline in Apple shares, shorting Apple in 2007 turned out to be bad idea because Apple now has close to 20% of the worldwide smartphone market share, not below 1%.
2. They didn't even drive the car.
I'm obviously generalizing here, because most likely there is at least one Tesla short-seller who drove the car. However, I get the impression most of them didn't.
Actually, it gets better than that. How many Tesla short sellers have driven or owned one of General Motors'
In other words, the pessimism toward Tesla has less to do with Tesla itself than it has to do with electric cars in general. The shorts simply don't understand why people would be interested in owning an electric car -- any electric car.
Much of the debate centers around whether Tesla is environmentally friendly or not. If it's not, then I guess the stock is a short, or at least so the argument goes.
That theory totally misses the point, in my view. Most people I know don't buy a Tesla because they think it's environmentally friendly, whether that's even true or not.
Most people buy Tesla -- and other electric cars -- because they drive better. They're quiet, have gobbles of instant torque and allow for that unique feeling of one-pedal driving. It's like buying a PC with an SSD instead of a HDD. Fewer moving parts mean they don't require service -- you just drive them forever, just like an iPad.
If you have not owned an electric car or driven it more than around the block, you would never know. Therefore, as a short, you are aiming in the wrong direction, and so you miss.
It's not relevant whether an electric car impacts upon the environment or not. I personally don't think there is anything wrong with the environment -- other than the loud noises made by cars and trucks -- so there is no problem in need of fixing except for noise pollution. Electric cars are awesome in the same way a Porsche 911 is more fun to drive than Toyota
Once people get behind the wheel of an electric car and can drive it in a relaxed manner in their everyday routine, they tend to buy them. Driving is believing. That should tell you something. Just look at the owner satisfaction ratings, whether for Tesla, the Chevy Volt or for that matter the iPhone.
3. Underestimating sales projections
Tesla has guided to 21,000 cars this year and 45,000 cars per year "over time." Most Wall Street estimates show some sort of ramp from 21,000 to 45,000 cars over a whole bunch of years.
These are totally wrong.
The 2013 number may not exceed 30,000 cars, but five years from now Tesla would be capable of selling 200,000 to 450,000 cars per year. By 2017, Tesla will have a car that will cost less than $40,000 in inflation-adjusted dollars.
In the U.S., 16 million cars are sold every year, and 80 million worldwide. If we were talking about smartphones you should see over 50% of these being the new technology well within a decade.
By 2018, half of all drivers will have experienced driving an electric car. Almost all of them will want to buy one. Tesla will, in turn, get some share of these. At 1% of the worldwide car market it would be 800,000 cars per year. That's the approximate level Tesla should end up longer-term.
How many Wall Street analyst models have Tesla selling 800,000 cars per year? I haven't seen one yet.
Here is one thought experiment: Tesla says it can sell 15,000 cars per year in the U.S. Actually, it is off by a fair bit there, too. Tesla can sell those 15,000 cars per year in the 80-mile corridor between San Francisco and San Jose, Calif. At the current sales rate, it is probably doing it already.
So what could go wrong with my ultra-bull Tesla thesis?
There are obviously all sorts of execution risks, all the way to a California earthquake. However, the big one is simple: competition. Every other car maker will be launching very attractive electric cars between 2013 and 2017.
Contrary to rumor, the big car makers are not too stupid. They are watching, and some of them are feeling the pain from Tesla's competitive heat in Silicon Valley sales.
The big car makers may have been off to a slow start, but that will not last forever. In a few short years -- starting with BMW and GM/Cadillac -- Tesla will eventually end up with significant premium electric car competition. One decade from now, at least 50% of all new cars sold will be electric -- possibly 70%. Almost per definition, the other car makers -- from Ford to VW to Toyota and all the rest -- will have numerous electric cars on the road by then, starting under $20,000.
Here is the bottom line: If you are short Tesla stock and you have not spent any meaningful time driving an electric car (Tesla or otherwise), and you based your observations on electric car adoption outside Silicon Valley, and you think that electric cars in general aren't going to dominate within the decade -- I'm sorry, but then you're an idiot.
Full disclosure: I have spent over 25,000 miles driving every single electric car in the market -- I think -- except for the Honda
At the time of publication the author was long AAPL..
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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