How do short sellers manipulate Tesla stock? Jim Cramer explains how it’s done.
It can be super frustrating to see the Tesla story warped, facts omitted, and incessant and obvious smear campaigns against Tesla. It’s especially frustrating since those are so effective. Having a sociology background, I have to say that the whole Tesla short seller drama is fascinating. In the year 2019, that includes flamewars on social media, paid trolls, misleading message makers, ties to mainstream media, fanboys & fangirls fighting back, and even a legal battle between the SEC and Twitter-loving CEO Elon Musk. Oh yeah, and all with billions of dollars on the line.
There are definitely also honest human beings on the “$TSLAQ” side of things, people who continue to buy into the hype about fatal problems at Tesla, fraud, and the company’s imminent collapse. But this is all the more mind blowing when you consider that this kind of anti-Tesla hype has been going on for more than a decade! Some of the same people who were attacking Tesla’s reputation (and Elon Musk’s reputation) in these ways in 2008 are still doing so today. Are they paid to do so? Are they honestly that obsessed with the idea that all is wrong in Fremont? Do they not have some unnerving cognitive dissonance that we are on Day #3942 of the Tesla Death Watchand most predictions from critics have been completely wrong?
That’s the part of the crowd that is most fascinating to me — the honest humans caught up in the mix. However, from running climate and clean energy blogs professionally for nearly a decade, and also from following investigations into such matters elsewhere, I can assure you: there are legitimate troll armies at work trying to make the opposition to Tesla (and TSLA) look much bigger than it is. Additionally, there’s some seriously funky business going on over on Wall Street and in the newsrooms of the biggest financial media outlets in the US. You don’t get it so wrong for so long so confidently and not have problems in your underlying structure and reporting process.
One possibility with the horrible media coverage is that the financial press has a relatively small number of Wall Street experts they turn to for advice, those experts are often bending the story upside down in order to push out their message, and the media reporters and hosts are simply not equipped to figure out the details better themselves to either correct the record or stop inviting misleading analysts onto their shows.
Interestingly, someone shared the video below with me as well, to help explain the kind of manipulation at play with regards to Tesla stock. It is Jim Cramer, and he’s apparently being very candid and honest about stock manipulation — even illegal stock manipulation — from short sellers. The video is from many years ago and is not about TSLA, of course, but some of the tactics look familiar to what we see with TSLA. It’s a little stunning for someone outside that world to watch and hear. Though, it’s apparently super common — people just won’t talk about it outside of a small, closed circle since it’s so shady and sometimes illegal.
As I shared last year, Harvard researchers have looked into the rise of online short attacks from anonymous or fake social media accounts. These kinds of campaigns are the same sort of thing Russia used to help elect Donald Trump — vast troll armies with numerous fake accounts promoting a few core messages in any way they can on Facebook, Twitter, reddit, etc. (The Russian troll farms are still at work doing so, by the way. Making them create new fake accounts as others get shut down doesn’t do a whole lot.)
Here’s the intro to the piece by the Harvard researchers:
“In recent years, anonymous online hit pieces against public companies have become an increasingly common and effective form of short activism. Given their success in driving down stock prices, anonymous online short campaigns are likely here to stay. Anonymous online short attacks pose unique challenges to public companies. In order to defend successfully against anonymous online short attacks, public companies must have ready-to-execute plans in place—whether or not an online short attack appears imminent.”
Hmm, sounds concerning. Did Tesla have a ready-to-execute plan? (No.) If so, is it implementing that plan? (No.) Where is this headed? (We’ll see.)
But hey, let’s not stop there.
“Short seller activism is generally associated with prominent hedge funds and ‘celebrity’ activists, such as David Einhorn and Bill Ackman. These short sellers often launch short attacks capitalizing on their notoriety and name recognition.  In recent years, however, a new breed of short activism has emerged: individuals who anonymously post negative research reports and articles about targeted public companies on widely followed online financial and research platforms, such as Seeking Alpha. According to Activist Insight, ‘activist short sellers are more often than not anonymous entities and funds.’ “
Hmm, Seeking Alpha — ever heard of that site? That’s right — if you’ve been following Tesla very closely for more than a minute, you know that Seeking Alpha is full of the most absurd, long-term, and influential Tesla critics and shorts. It and CNBC. And Business Insider.
“Short attacks are most effective where long investors lose confidence in their own appraisal of a stock’s value. This most commonly happens when a company’s financial position is complicated, when a new industry or product is being valued, when a government investigation is disclosed to or suspected by the market, or when other forces create ambiguity in the valuation.”
Hmm, sound familiar? That’s basically Tesla to a T.
“Under current regulations, investors are not required to disclose short positions, making it difficult for companies and the market to track the existence of short sellers and monitor their activity.  The inherent anonymity of the internet exacerbates these challenges. As long as online short activists have access to the internet, they can theoretically launch a short attack that reaches millions of investors from anywhere at any time—and with little accountability. “
Stroll over to Twitter sometime and take a walk through $TSLAQ avenue. Shit be crazy, and a lot of the accounts spewing that crazy are anonymous. Of course, there are also a couple of big-name short sellers and “journalists.” The ironic thing is that they seem to post the craziest of the crazy.
But no one takes these crazy “social media influencers” seriously, right? Actually, it’s clear that some stories from New York Times journalists, CNBC talking heads, and countless traders and investors are based on what these accounts are doing. They take them seriously. Back to Harvard:
“Until recently, the market dismissed anonymous short activists as illegitimate and not credible, as ‘real’ short sellers with legitimate claims do not hide behind fake pseudonyms and aliases.  That premise has been proven wrong. Anonymous short sellers can be, and often are, disguised prominent hedge funds and individuals. For example, in December 2015, a short seller using the pseudonym ‘Investors for Truth’ published an anonymous report about United Development Funding IV (“UDF”) on the investing websites Harvest Exchange and Value Investors Club, causing UDF’s stock price to plummet 35%. After much speculation, Kyle Bass, founder of Hayman Capital Manager, eventually claimed responsibility for the articles posted under the pseudonym Investors for Truth.  Such prominent short activists have incentive to post under pseudonyms in order to protect against litigation and reputational risk in the event of public or company backlash, and to protect their bets against premature public exposure.”
Hmm. My goodness, this certainly reminds me of certain Tesla critics, people obsessed about parking lots with Teslas in them or not in them at all hours of the day and night, garbage fires, crashes, and all things Tesla. How do they have so much time to troll one company? It’s almost like they’re being paid or betting millions of dollars on this.
I’m not going to go on about the Harvard research, but consider this: if there’s a heavily financed short campaign going on against Tesla (TSLA) — on Twitter, on reddit, on Seeking Alpha, via experts interviewed by CNBC and the New York Times, via the tactics Jim Cramer discusses in the video above, etc. — what does that do in the long term? It’s not just about day-to-day movements. A narrative pushed so heavily for over a year has an effect.
Talk to any normal person about Tesla, and see what they say. See what they know about Tesla. Often, from my experience, they’ve heard Tesla’s in a financial crisis, Tesla’s controversial and risky, Tesla’s CEO Elon Musk may even be a fraudster or a druggie!
They generally don’t know that:
- The Tesla Model 3 tests from the NHTSA showed it had the lowest probability of injury of any car the agency has ever tested, and the Model S and Model X are #2 and #3.
- The Tesla Model 3 was the top selling luxury vehicle of any type in the US in 2018.
- The Tesla Model 3 has the most satisfied owners of any car in the United States, according to Consumer Reports.
- The Tesla Model 3 is projected to have the 2nd best value retention (resale value after 5 years) of any vehicle in the US, according to Kelley Blue Book.
- The Tesla Model 3 has the 0–60 mph performance of a BMW 4 Series (better, actually, if you consider the instant torque) but an estimated total cost of ownership of a Honda Accord or Toyota Camry.
- The Tesla Model S is the best selling large luxury car in the US, by far.
- You can now buy a $35,000 Tesla Model 3 with a drive quality that is basically unbeatable.
The smear campaigns work. The short seller tactics work.
What’s the SEC doing about that?
(Originally appeared at our sister-site, Cleantechnica.)