The investors betting against Tesla just got a gift from the company’s chief executive, Elon Musk.
Musk opened up in an emotional interview with The New York Times about the toll the past year has taken on him, blaming those so-called short-sellers for much of his stress. It followed his cryptic tweet last week about converting the publicly traded company into a private one, which created a frenzy in the market.
The day after the interview, the stock of the electric-car maker tumbled 9 per cent to $US306.
Those losses were gains for the short-sellers. The slide in Tesla’s shares generated more than $US1 billion in profits for short-sellers, according to S3 Partners, a financial technology and analytics firm, which tracks the positions held by those investors.
The stock drop helped them recover much of their losses that came on August 7, the day Musk tweeted he was considering taking Tesla private at a stock price of $US420. Short-sellers lost $US1.3 billion that day after Tesla’s shares jumped 11 per cent on the news.
Musk had long sparred with investors who make money when the company’s stock falls. And he is bracing for the fight to get worse. Musk told the Times he was expecting “at least a few months of extreme torture from the short-sellers, who are desperately pushing a narrative that will possibly result in Tesla’s destruction.”
Tesla is among the most shorted stocks in the United States. More than a quarter of its stock valued at more than $US11 billion is being shorted, according to S3 Partners.
Short-sellers have increased their bets against Tesla this year as its struggles have mounted. The company has continued to lose money. Its Model 3, crucial to the company becoming profitable, has faced glitches and delays.
In March, a driver was killed after a Model X crashed into a concrete highway divider while Autopilot, Tesla’s driver-assistance feature, was in use. That same month, Moody’s Investors Service downgraded the company’s credit rating, concerned it was burning through cash.
It has made for a bumpy ride for Tesla investors – on either side of the trade. Through it all, Musk’s public attacks on shorts have only intensified.
In May, he took to Twitter and warned of the “short burn of the century comin soon.” A month later, he predicted that those wagering on the stock’s decline “had three weeks before their short position explodes.” He even taunted David Einhorn, whose Greenlight Capital hedge fund has performed poorly this year in part because of its short bet on Tesla.
Musk has pointed to short-sellers as a reason he is considering taking Tesla private. In a message to employees explaining his thinking, he wrote: “As the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
He isn’t exactly right on his history of short-sellers. At various points in the past 10 years, the value of bets against Procter & Gamble, General Electric, Pfizer and Johnson & Johnson exceeded Tesla’s high of roughly $US13 billion, according to IHS Markit. The value of short bets against Alibaba currently stands at $US25 billion.
Even by the percentage of shares being shorted, it is not the highest. It’s not even the biggest of 2018. So far this year, 26 companies have had a higher percentage of their stock shorted than Tesla did at its peak of 33 per cent in May.
But he does have a point about the persistence of short-sellers trying to profit on Tesla’s troubles. The short position in Tesla’s shares has remained above $US10 billion for nearly five months. In the past decade, short-sellers have not held a position valued at more than $US10 billion in any other American company for more than three months, according to IHS Markit.
Betting against Tesla has been expensive. Since 2016, short-sellers collectively have lost $US5 billion, as the company’s shares rose 27 per cent.
Even this year, amid all of Tesla’s woes, betting on a decline in the company’s share has not been a winner. Its short-sellers remain down $US650 million this year.