Shorting other automakers

[Fallenone]

Today none of the other automakers avoided a sell-off. Daimler suffered the least, 1.5%. Most dropped more than 3% in a day. Considering their long history, it's not a small drop in a day. Among them I really think BMW is a good target to short. Unlike other companies that also sell low-end cars, pickup trucks, and commercial vehicles, BMW's product line is now completely overshadowed by TSLA.

Plus, since TSLA is still considered as an automobile company, I think some funds treat it in the same basket with other automakers. So when news like VW's sale in US fell 10% hit, none are spared in their portfolio. In addition, the automaker sector is considered consumer discretionary and usually underperforms the market. TSLA is a growth stock and acts similar too generally. So shorting other automakers also acts as a hedge for the long position in TSLA.

Any thoughts on this idea and how to execute it?

 

[dakh]

Personally I think there's definitely merit to this type of thinking but I don't have the time/inclination to learn to work the short side of things. Maybe just like with oil hedge if there's some leveraged ETF that is straight up auto sector short that doesn't include Tesla. And on top of that it'd be a gamble on when approximately big moves are going to happen. Probably timed with big announcements for capacity build up from Tesla.

But before we go there, a logical question to ask would be, why do you think you can make better gains shorting vs. just going long TSLA? If your thesis is Tesla would be the catalyst of their demise, the only way I see this would be the case is if more players enter EV game that aren't existing auto makers. In that case you're protected from them taking market share from Tesla and ultimately being the winners. But how likely is that?

 

[Fallenone]

Personally I think there's definitely merit to this type of thinking but I don't have the time/inclination to learn to work the short side of things. Maybe just like with oil hedge if there's some leveraged ETF that is straight up auto sector short that doesn't include Tesla. And on top of that it'd be a gamble on when approximately big moves are going to happen. Probably timed with big announcements for capacity build up from Tesla.

But before we go there, a logical question to ask would be, why do you think you can make better gains shorting vs. just going long TSLA? If your thesis is Tesla would be the catalyst of their demise, the only way I see this would be the case is if more players enter EV game that aren't existing auto makers. In that case you're protected from them taking market share from Tesla and ultimately being the winners. But how likely is that?

Thanks for your input.

There's no suitable ETF to do this, only way is to do it with individual stocks so it's not very convenient. I am thinking shorting BMW for the long term so entry point should not matter a lot. This is similar if you believe TSLA can go to 1000, there's not much difference if you got in at 280 or 180.

But I think you have a very good point on the shorting vs longing TSLA given one's limited cash. Shorting a stock have maximum return of 100%. Longing has no cap. I believe TSLA can go way more than 100% so it would make sense to commit cash to shorting other automakers' stocks, except for hedging to smooth out portfolio's curve. If I wish to have comparable gains on shorting other automakers, I have to do it by buying LEAP puts. It would then be possible to have several folds of gains. However, I will suffer from time premium decay and entry point matters a lot.

So, I'll just stay long TSLA for now. Thanks for reminding me the second point

 

[MikeC]

I am not sophisticated enough to short but I have been tempted to buy puts in TM and RACE. I think Toyota has peaked as the Model 3 will kill the Prius and their hydrogen strategy is obviously going to fail. But yeah, I'd rather just put more money into TSLA.

 

[hirox]

The other automakers are not highly valued, with the exception of Ferrari. I think it would be foolish to short these since there is a possibility that they will try to keep up will Tesla and if they really want, they can. They can spend 10x as much on capex as Tesla.

 

[neroden]

Risk of shorting other automakers: the automakers get bailed out by their governments as "national champions" with large piles of money, propping the stock price up permanently.

I considered shorting the coal mining companies, who are all doomed. Unfortunately there are similar risks there.

 

[SteveG3]

Today none of the other automakers avoided a sell-off. Daimler suffered the least, 1.5%. Most dropped more than 3% in a day. Considering their long history, it's not a small drop in a day. Among them I really think BMW is a good target to short. Unlike other companies that also sell low-end cars, pickup trucks, and commercial vehicles, BMW's product line is now completely overshadowed by TSLA.

Plus, since TSLA is still considered as an automobile company, I think some funds treat it in the same basket with other automakers. So when news like VW's sale in US fell 10% hit, none are spared in their portfolio. In addition, the automaker sector is considered consumer discretionary and usually underperforms the market. TSLA is a growth stock and acts similar too generally. So shorting other automakers also acts as a hedge for the long position in TSLA.

Any thoughts on this idea and how to execute it?

I'd be cautious on this. even tremendous success by Tesla does not necessarily mean easy picking out auto companies that with plummeting market caps.

global vehicle sales were 80 million last year. they are widely expected to be 100 million by 2020. if things go well Tesla will be at 500K in annual vehicle sales in 2020 (they probably will have much more demand... but there is only so fast they can manage the addition of GFs and car factories. I actually say this far more in terms of the challenge of execution more so than finding funds). So, basically, Tesla can grow 10X in its units sold from last year to 2020, and the rest of the industry as a whole will grow from ~80 million to ~99.5 million rather than ~80 million to ~100 million. yes, the perception of their brands will take a hit, but I don't see their sales taking much of a hit.

the one prediction I think Musk missed by a wide margin was when he bet that most new cars being produced will be electric by 2025. today just about all the other automakers know that we are almost certainly headed to EVs, but it probably wont be until about 2025 that the majority start moving vigorously in that direction. I doubt the majority of new production will be EVs for at least another decade after that.

 

[Fallenone]

I'd be cautious on this. even tremendous success by Tesla does not necessarily mean easy picking out auto companies that with plummeting market caps.

global vehicle sales were 80 million last year. they are widely expected to be 100 million by 2020. if things go well Tesla will be at 500K in annual vehicle sales in 2020 (they probably will have much more demand... but there is only so fast they can manage the addition of GFs and car factories. I actually say this far more in terms of the challenge of execution more so than finding funds). So, basically, Tesla can grow 10X in its units sold from last year to 2020, and the rest of the industry as a whole will grow from ~80 million to ~99.5 million rather than ~80 million to ~100 million. yes, the perception of their brands will take a hit, but I don't see their sales taking much of a hit.

the one prediction I think Musk missed by a wide margin was when he bet that most new cars being produced will be electric by 2025. today just about all the other automakers know that we are almost certainly headed to EVs, but it probably wont be until about 2025 that the majority start moving vigorously in that direction. I doubt the majority of new production will be EVs for at least another decade after that.

I agree the rise of Tesla won't make much of a dent on the combined sales of other automakers as a whole. I'm thinking about BMW specifically here. BMW NA (including Mini) sold about 40k in 2015, and it's dominated by mid and high end passenger sedans and suvs. Tesla can easily eat into 20% of their market share in 2020 I think? For the rest of the world, not 20% but 10% can be achieved? That's quite disastrous for any automaker isn't it?

 

[Fallenone]

Thanks everyone for your inputs. I'm not doing it. But enjoyed the discussion.

 

[SteveG3]

I agree the rise of Tesla won't make much of a dent on the combined sales of other automakers as a whole. I'm thinking about BMW specifically here. BMW NA (including Mini) sold about 40k in 2015, and it's dominated by mid and high end passenger sedans and suvs. Tesla can easily eat into 20% of their market share in 2020 I think? For the rest of the world, not 20% but 10% can be achieved? That's quite disastrous for any automaker isn't it?

I see where you are going looking to see if there's a specific automaker really vulnerable in the near horizon based on what Tesla is doing. It's possible a really small one, but I doubt one as big as BMW.

don't get me wrong. long term, maybe 10 years out, when the automakers can't drag their feet re EVs any longer, it's going to be some very choppy waters from them. Unlike Tesla, going full speed at EVs will be a mess for them- dipping into cash or borrowing to build battery factories, having to continue selling ICE for at least a decade as you ramp up EVs and have basically let the consumers you have to sell those ICE to that you know EVs are the better product... it's going to be messy. I just don't think their stock prices will reflect any of this for many years as they continue to pretend EVs are niche and their sales numbers don't rat their game out.

 

[adiggs]

The first automaker I'm expecting to see be directly impacted by Tesla is Porsche. Unfortunately, Porsche is a brand within the larger VW, so you can't short it directly (or I don't think you can).

Porsche is in the vicinity of shipments, and with Model X in the market, will start seeing more and more of its mainstay vehicles competing directly with Tesla. I expect Tesla to be shipping comparable unit quantities in '18, and a noticeable number of them will be units that would have otherwise gone to Porsche.


BMW / Audi are a few years further out - more like 2020 or whenever the Model 3 order backlog starts diminishing and we get a sense of what sustained demand will be. I expect that won't happen before '22.