S3 Analytics: Tesla Shorts Down $1.1 billion in Mark-to-Market Losses on 9.7% Price Move

It’s been a very good day for Elon Musk and Tesla Inc. (TSLA) long shareholders but a very forgettable day for the $11 billion of short sellers in the stock as they are down over $1 billion in mark-to-market losses on Tesla’s 9.7% price move. The rally comes on the heels of a successful annual meeting where Elon Musk, Tesla’s Chairman and CEO, announced that Model 3 production has reached 300 car/day and will attain its 5,000 car/week target by the end of June. In addition, Tesla will be looking to expand production into Shanghai to support foreign sales and remove the impending production bottleneck hampering future multi-model production in California. Musk received an overwhelming vote of confidence and will continue his dual corporate role when a proposal by Norway’s wealth fund to strip him of his Chairman’s crown was defeated handily.

Tesla is both the most shorted U.S. equity and most shorted stock in the worldwide Automobile Manufacturing Sector. Tesla short sellers had a solid first five months of the year, up $572 million, or +5.53%, in mark-to-market profits but have suffered a quick reversal since Tesla’s mini-rally began on May 22^nd. Since the 22^nd, short sellers are down $1.7 billion in mark-to-market losses as Tesla’s stock price rose by 16.6%. This quickly turned a profitable year into the third straight year of Tesla short selling losses. Today’s 9.74% price move generated $1.1 billion in mark-to-market losses for $11 billion of Tesla short interest.

Short sellers in the most shorted U.S. securities have not performed well, with every stock except AT & T (T), with $1.1 billion of year-to-date mark-to-market profits, producing losses in 2018. FANG short sellers have performed especially poorly, down $7.6 billion in mark-to-market losses for the year.

In the worldwide Automobile Manufacturing Sector, Tesla makes up over a third of the overall short interest and most of the losses. Short sellers in the sector are up $816 million in year-to-date mark-to-market profits in aggregate, or +2.47%, even though Tesla is down $754 million. Short interest in the sector is $32 billion, down $4 billion over the last month as shorts, beside Tesla, have been covering to lock in some of the profits they’ve earned so far in 2018.

After peaking at 35 million shares shorted in February of 2016, short sellers covered part of their exposure even though Tesla’s stock price slumped toward the end of 2016 with shorted shares hitting a three low of 25 million in November of 2016. By the end of the year, with Tesla’s stock price still falling, short sellers reached, a then record, 35.4 million shares shorted. 2017 saw Tesla’s stock price rally and shares shorted fall to below 30 million shares once again, but dollars at risk rocket to over $10 billion. With Tesla’s stock price declining in late 20-17 and early 2018 shares shorted ebbed and flowed with the stock price as short exposure stayed between $10 and $11 billion.

March 2018 saw another surge in Tesla short selling as short sellers sold into price weakness with shares shorted topping 41 million for the first time in May and short interest hitting a record $12.2 billion. Since hitting historical highs, shorts have trimmed their positions with Tesla’s stock price rallying since May 22^nd.

Today’s 37.7 million shares shorted and $11.0 billion in short interest will probably decline as short sellers cut their positions even further after incurring $1.1 billion in mark-to-market losses. Although with the conviction that Tesla short sellers have shown over the past three years, they may be holding on to their shorts and looking for the stock to not hold its high and fall back down to its $305/share recent ceiling. Long shareholders see $350/share and 5,000 Model 3 units per week just over the horizon and are hoping for a short squeeze to drive Tesla’s stock price even higher.

Want deeper insight into the above analysis?

Contact: Ihor.Dusaniwsky@S3Partners.net

Managing Director Predictive Analytics, S3 Partners, LLC

For more information on S3’s reporting, data and analytics solutions, email us at sales@s3partners.net

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