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Tesla shorts might need a ride to Centrelink soon

No business polarises investors into the bull and bear camps quite like electric car maker Tesla Inc. with more than a quarter of the company’s outstanding stock having been borrowed and sold by ‘short sellers’ who expect the price to eventually go lower.

The rest of the stock is generally held by ‘long investors’ including the founder Elon Musk who believe the company’s circa $63 billion valuation (at US$370 per share) is cheap relative to its electric cars’ potential to change world as we know it.

The bears argue it’s just an unprofitable, overly indebted, over-valued battery company. In fact it’s a textbook short on almost every front, but betting against Tesla and its groundswell of support has proven a ticket to Centrelink for money managers worldwide for a long time now.

This morning Elon Musk tweeted that he’s ready to take Tesla private at US$420 per share and has the funding in place from some clearly deep pocketed backers, generous bankers, leveraged private equity types, or any number of other powerful capital market players including government-backed sovereign wealth funds.

Source: Elon Musk Twitter.

Those cashed-up backers are likely to include the Saudi Arabian sovereign wealth fund that The Financial Times reports has recently bought a 3%-5% stake in the business now probably worth US$2 billion to US$4 billion.

What better way for the Saudis to offset the future of declining oil prices than by investing as much as they can into the world’s leading electric car business?

It’s this kind of insatiable support for Tesla from powerful Chinese or Saudi backers that short sellers have overlooked in betting that the company will fail.

If Tesla does go private at US$420 per share the shorts will have little choice but to buy back the stock at large losses much to the delight of Mr. Musk and his evangelical-like followers.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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