Short sellers in hydrogen fueled truck designer\manufacturer Nikola Corp (NKLA) are up +$414 million in mark-to-market profits this morning as the stock is trading down -26% in morning trading. NKLA and General Motors (GM) announced the signing of a non-binding memorandum of understanding that GM will supply NKLA with its Hydrotec Fuel cell system for production of NKLA’s semi-truck. The MOU did not include a previously announced subscription agreement to sell 47.7 million shares of NKLA stock to GM nor any reference to NKLA’s Badger truck.
In addition to the scaled down GM agreement, NKLA’s stock price is also being negatively affected by today’s lockup expiration of Trevor Milton’s, NKLA’s founder and previous chairman, 91.6 million shares of stock worth over $2 billion. On a positive note, NKLA’s other large stake holders are extending their lockup on 136.5 million shares until April 30,2021.
NKLA short interest is $1.30 billion; 57.30 million shares shorted; 42.53% short interest % of float; 29.84% S3 short interest % of float which includes synthetic longs created by short selling. It is the 3rd largest short in the Auto Manufacturing and Construction Machinery & Heavy Trucks sectors.
NKLA shares shorted have increased by +13.87 million shares, worth $374 million, over the last month and +5.65 million shares, worth $158 million, over the last week as short sellers continued to build their positions. Short selling has increased as overall trading in the stock has spiked. NKLA average daily trading was 20.9 million shares per day in November but rose to 36.3 million shares per day last week. Trading in the first half hour of trading this morning we have already seen 44 million shares change hands. The large amount of trading and negative news on the stock should result in an increase in shares shorted today.
NKLA short sellers are up +$414 million on this morning’s -26% drop in stock price. Shorts are now profitable in 2020 with a net-of-financing mark-to-market profit of +$309 million for the year. Shorts are almost in the black for the month of November as well, now only down -$37 million in month-to-date mark-to-market losses.
The recent increase in NKLA short selling has not affected stock borrow rates in November with rates hovering just over the 7% fee level for most of the month. Rates have been steadily declining since it hit the 38% fee level in late September but a continued surge in short selling will force rates higher as shares available to lend get taken down and supply gets tight. We should expect stock borrow rates inch towards the 10% fee level if short selling continues to climb and there is no appreciable increase in stock loan availability.
One offset to the increase of short selling reducing stock loan supply will be if Trevor Milton begins to sell his previously locked up shares. A portion of the shares Milton sells will end up in accounts that are either in stock lending programs or in marginable\rehypothicatable accounts which increase the stock lending pool and offset the demand side pressure that would lead to higher rates.
In summary, we should see more short selling in NKLA stock, helping to drive down its share price but push up its stock borrow costs. More stock loan supply coming from Trevor Milton’s potential stock sales should ease the pressure on stock loan rates but also help drive down its stock price as well. With shorts once again profitable in the stock and its stock price trending downwards It looks like NKLA’s recent short selling trend should continue
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