Tesla's Share Price Is Overdue A Crash

On average the American economy grows at the rate of $4 trillion dollars annually. When the bubble pops (and Tesla stock is in a bubble), there will be tremendous opportunity to capture gains of 100%, 500%, even 1,000% or more on the downside with put options. I am a huge Elon Musk fan and believe Tesla will likely become the next Apple or Amazon.

Bernstein downgraded Tesla stock and affirmed a price target that implies a 40% crash. Its Q1 earnings report showed 88,400 cars sold over the period which was followed by a reported 90,650 deliveries in Q2. This is higher than expected and Tesla's stock price has soared as a result sitting at a market cap of around $300 billion.

And on August 7, Musk issued his infamous "420" tweet , in which he claimed he had "funding secured" to take Tesla private at a premium price - $US420 a share. Tesla was the first to come out with high performance, sexy-looking electric cars. According to reports, Tesla shares fell nearly 12% in the half-hour following his tweet.

Crow Point Partners, an investment firm with a short position in Tesla, periodically posted pictures of Model 3s parked in Norwood, Massachusetts, covered in deep snow. Profitability is nice to see, but Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto, says there's nothing in Tesla's underlying numbers that can justify the current market price.

Tesla's most recent quarterly profit qualified it for inclusion into the S&P, which generates demand for the stock from index funds. This comes at a time when stock prices of the California-based company have rebounded significantly to four digits after Elon Musk crashing to $400 during a sell-off spurned by coronavirus in March.

The bursting of a big-enough bubble—with fear fueled by a stock market-fixated media—might drive investors out of bonds as well as stocks. If short-sellers continue to have doubts about a company, and still have the stomach and wherewithal to bet against the company, they will look for an opportunity to sell the shares short again once the squeeze is over.

If they follow through, Tesla will suddenly find itself going from being the only game in town to just one of many choices for consumers looking for an electric car, whether that's on the low end (consider the Chevy Bolt) or the high (the forthcoming Porsche Mission E sedan).