Why are investors paying millions to bet against Tesla?

Over the past three and a half years, Tesla’s share price has risen more than 400 percent. In addition to making co-founder Elon Musk even more fabulously wealthy than he already is, the company’s ballooning value has put it in the crosshairs of short sellers, investors who bet that the stock is headed for a fall.

Because Tesla continues to bleed cash, and needs to raise money in the bond market to finance its car-making and energy operations, investors are betting its high-flying stock will come back to earth, if not in the near term, then in 2017, when lower-priced competition from Detroit starts to hit dealerships. In the three months since mid-July, Tesla’s share price has fallen roughly 15 percent to about $198 a share from $225.25 a pop.

Since Elon Musk announced in June his proposal to merge Tesla and another one of his companies, the solar technology firm SolarCity, short-seller interest in Tesla has spiked significantly. At one point, the demand for shorting the stock was so high that people betting against Tesla were collectively paying over $1 million a day in fees in order to continue making their bet.

The shorts took a bath last month when the stock price rose as investors scurried to acquire stock to be eligible for a November vote on Musk’s proposed Tesla-SolarCity merger. But now the stock is beginning to inch back down, so the shorts are back in business.

Among them is famed short seller David Rocker, who for decades ran one of Wall Street’s biggest hedge funds focused on short selling, and who has taken what he calls a personal “multimillion-dollar” position against Tesla.

Rocker hasn’t been an active investor for nearly a decade, but he has been an extremely active critic of Tesla. And he’s been ahead of the current pack of investors who are bearish on Tesla for some time. In 2014 and 2015, he sent letters to the chief of the SEC that discussed his frustrations with Tesla; in response, he received generic form letters thanking him for his interest.

In a recent interview, Rocker told VICE News what he’s been telling anyone who’ll listen: Tesla is facing a cash crunch and a downward spiral, just as government subsidies for electric cars are running out and competition from Detroit intensifies.

“The biggest reason [for my bet] is the cash hemorrhage, [Tesla’s] need for constant financing,” Rocker said. “This will require more registration statements from the SEC, which is currently investigating the company, and thus require more disclosures, which will not be friendly.”

But Tesla, which declined to comment for this story and has posted 13 consecutive quarterly losses, might have even bigger problems than the cash crunch Rocker and others are warning about.

The company could quickly be overtaken by rival carmakers like General Motors-owned Chevrolet, which says it will start sending its all-electric $30,000 Bolt to dealers by the end of the year.

Tesla’s car at a similar price point, the $35,000 Model 3, is slated to begin deliveries next year, but Tesla now says that new customers won’t see deliveries until mid-2018. The Model 3 delay is creating its own big headache for Musk and Tesla: Goldman Sachs downgraded Tesla stock because of it a couple weeks ago, and last month the New York Times asked in a headline, “How Did G.M. Create Tesla’s Dream Car First?”

“You have to recognize that it’s not just Tesla — there’s a huge number of new [electric] cars — Chevy, Ford, and others! Many others! Many, many others!,” Rocker said. “There’s huge competition coming, and Tesla itself will be running out of subsidies for customers, because they are limited to 200,000 subsidies per manufacturer. It’s as simple as their product is going to be more highly priced.”

The subsidies Rocker refers to present a major challenge for Tesla. As it stands now, customers have committed to 375,000 fully refundable $1,000 reservations for the Model 3. While the first few tens of thousands of those cars may get federal subsidies of $7,500 each, the subsidy is then reduced by 50 percent and then 25 percent over subsequent quarters as the tax incentive “phases out.” In short, Teslas are going to get more expensive for consumers.

Although Tesla has built a name for itself as the de facto brand of uber-safe, luxury electric vehicles (all of which will have self-driving capabilities, unlike, say, the Chevy Bolt), the market is getting crowded as other high-end carmakers like Mercedes, BMW, and Audi move into the space. Still, the Model 3 has gotten those 375,000 deposits on the strength of Musk’s lone March 31 unveiling of the car, with no additional marketing.

Apple, however, is reading those same tea leaves very differently. The company has reportedly scaled back its top-secret luxury electric car effort, skeptical about how much money it could actually make building its own auto hardware and software (like Tesla does).

As Rocker puts it, this is what makes “the difference between a great product like the Tesla automobile and a great business model.”

Though the existential problem Tesla faces might be with its product, the carousel of talking heads on CNBC and Bloomberg have largely been slamming Tesla and Elon Musk over the proposed SolarCity merger.

To back up for a second, Elon Musk effectively controls three big companies: Tesla, his private space startup SpaceX, and SolarCity, a solar-panel manufacturing and installation company.

Musk is in the process of a controversial acquisition of SolarCity by Tesla. But SolarCity, like Tesla, loses money and has a lot of debt — approximately $3.25 billion. Based on data provided by S&P’s Global Market Intelligence unit, about half of that is non-recourse debt, which means it is tied to a specific project and the company isn’t liable for it. That debt shouldn’t figure into the cost of the merger.

But Tesla is on the hook for about $1.51 billion in debt, again from the S&P data, and that makes Wall Street antsy. An August SEC filing revealed that 15 institutional investors passed on either buying or investing in SolarCity prior to the June merger proposal, and Tesla currently has $3.25 billion in cash on hand. This is what led famed Enron short seller Jim Chanos to call the proposed merger “a walking insolvency.”

Between the $3 billion offer to buy SolarCity itself and the debt obligations at SolarCity that Tesla would take on, Tesla doesn’t have the funds on hand to acquire the solar energy company.

Musk has ruled out an equity offering (which would dilute Tesla’s stock price) or going to the debt markets this quarter in order to raise the required funds for the deal. This means he most likely will tap the $1.3 billion in lines of credit that Tesla has access to.

When Musk pitches the SolarCity–Tesla idea to Wall Street, he talks about an estimated $150 million in “common sense” synergies; it’s only natural, he argues, that a company that produces clean solar energy would complement a business selling electric cars and batteries.

“The word ‘synergy’ is banned like it’s some sort of dirty word, but I think these synergies are really more common sense,” Musk said on a June conference call with analysts.

In spite of the SolarCity cash drain and Tesla product delays, many Tesla backers are standing pat. As New York Times columnist James B. Stewart pointed out in early August, the uproar on Wall Street has come largely from everyone except Tesla shareholders, many of whom hold stock in the company because of their faith in Musk.

Talk to Musk supporters long enough, and it becomes clear how much their trust in Elon (as they all invariably refer to him) and his vision is why they’re betting on Tesla.

“Don’t underestimate the ability of Elon Musk to basically make it happen,” an investor at an asset manager that holds a large amount of Tesla stock told VICE News (This person requested anonymity, citing company practice not to talk publicly about his firm’s activities).

The same investor, recalling the time when Musk successfully pulled both Tesla and his startup SpaceX back from the brink of bankruptcy at the end of 2008, said his firm would “definitely be interested” in buying more Tesla stock if the company issued it, in order to raise more money.

As for the SolarCity deal, the investor we talked to isn’t all that worried, even if the fundamentals of the solar company seem weak, because Tesla will “easily” be able to raise money next quarter to cover SolarCity’s losses and debt.

“SolarCity might be a different story, but Tesla is a business,” the investor said. “[The merger] is a little bit like the father taking on the debt of the son, and the father’s a billionaire and the son owes a couple hundred grand.”

Some evidence in Tesla’s favor: The electric carmaker beat analysts’ estimates for successful deliveries of its high-end Model S sedan in the third quarter, suggesting that Musk is following through on his campaign to make the company leaner and more efficient. And the company still hasn’t backed away from previous estimates that it would deliver about 80,000 cars by the end of 2016 (and 100,000 next year).

None of this dissuades Rocker. He thinks the synergies are overstated, and that Tesla’s “constant need for cash” will catch up with the company, forcing some sort of reckoning.

“It’s like being a diver and someone crimps your air hose at the top,” Rocker said. “You’re going to come to the surface pretty fast.”

Elon Musk will soon be talking much more about SolarCity, Tesla, and why he’s combining them, anyway.

He has promised to say more about the deal at an Oct. 28 event in the San Francisco Bay Area, where he’ll pull the curtain back on a “new Tesla/SolarCity solar roof with integrated Powerwall 2.0 battery and Tesla charger.”