Jim Cramer: I wouldn’t recommend Tesla up here, but You’d be crazy to short Tesla

2012 Tesla Model S Signature

CNBC’s Jim Cramer made some interesting comments about the on going Elon Musk vs Tesla Short-seller battle.

“Who in his right mind is going to sell Tesla if there’s even a possibility of a leveraged buyout?” Cramer said, referring to Musk’s assertion that funding has been “secured” and a Financial Times report that said Saudi Arabia’s sovereign wealth fund bought a 3 to 5 percent stake in Tesla.

That single statement clearly explains the problems Tesla shorts are facing, as they ponder over an exit strategy.

Short sellers can never win it all on their own. They need others to follow their lead, sell their stocks and help them drive the price down.

But when stockholders refuse to sell their stock, or if a major portion of existing stock holders refuse to sell their holding, the demand vs supply equation will tilt in favor of the longs.

As the stock price rises, it will push a portion of short sellers towards the exit. When they start covering their position, which they can only do by buying the stock, they will in variably end up fueling a rally on the other side. Dragging even more shorts towards the exit.

Simply put, short sellers need market sentiment to turn against the company, not in favor of the company. As of now, Tesla has reversed this. Even if the positive sentiment, a possible buyout,  holds for the short term – the shorts will be in immense pain.

According to Ihor Dusaniwsky, Managing Director of Predictive Analytics. S3 Partners LLC, there were nearly 34 million Tesla shares short on Wednesday, down from 35 million on Tuesday.

1 million down in a day, 34 million to go.