Tesla Inc (TSLA) reported its quarterly earnings after the close yesterday and reported $104 million of second quarter profits, its fourth consecutive quarter of profitable GAP profits which was the final hurdle for being considered for inclusion into the S&P 500. By beating consensus expectations its 2020 rally will probably continue and its short squeeze will not only endure but get even tighter as this year’s massive mark-to-market short losses continue to mount. Tesla short interest is $20 billion; 12.54 million shares shorted; 8.51% short interest % of Float; and a 0.30% stock borrow fee. TSLA is the largest short in the domestic equity\ ADR market.
TSLA has been in the grips of a short squeeze for all of 2020 with 13.82 million short shares, worth $22 billion, covered since 12-31-19 as its stock price rallied over +270%. TSLA’s short covering has been relatively consistent throughout the year with only a 2 month stretch of time, in March and April, when short selling increased or remained flat. The short covering trend had continued ahead of yesterday’s earnings release with 214 thousand short shares covered, worth $341 million, over the last week and 626 thousand shares covered, worth $997 million, over the last month.
Tesla short covering has been much more acute than other massively shorted stocks such as the FAANG’s. Looking at short interest as a % of float in order to compare apples to apples we can see that only Netflix (NFLX) had any appreciable decrease in overall short interest. Alphabet (GOOG\GOOGL), Amazon (AMZN), Apple (AAPL) and Facebook (FB) short interest as a % of float have only changed minimally in 2020 and are bunched in the bottom of the graph below.
Tesla and Netflix are the only two stocks with large moves in their Short Interest % of Float, both down over 50% in 2020. Short Interest % of Float for the rest of the FAANG stocks has remained relatively stable for the year. Shorts are being squeezed in both TSLA and NFLX due to 20202 returns over +270% and +50%, respectively. But surprisingly Amazon (AMZN) is up over 64% in 2020 and shares shorted have increased. Apparently short sellers are looking for a pullback in AMZN’s stock price and are holding on to their thesis even though they are down nearly -$5.3 billion in mark-to-market losses for the year.
We should continue to see short covering in the near future as more short sellers hit their mark-to-market loss limits and look for greener pastures elsewhere. Tesla short sellers had the worst performance of any equity\ADR short in the U.S. market and are down -$20.97 billion in net-of-financing mark-to-market losses in 2020. Of course, some of these losses are offset by hedges such as convertible bonds but approximately half of this exposure is unhedged.
Upward price pressure on Tesla’s stock price will continue to be reinforced by the short side of the market as the feedback loop of higher stock prices forcing even more short covering helps drive prices higher. If enough short sellers cover their exposure, we may soon see Tesla give up its number one spot as the most shorted equity\ADR in the U.S. market and Elon Musk will have successfully “burned the shorts”.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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