To paraphrase the Grateful Dead, “what a long strange EV trip it’s been”. Tesla Inc’s (TSLA) stock price rocketed up +496% from January to August, but after its 5 for 1 stock split ex-date on August 31st and $5 billion stock offering on September 1st its stock price is down -18.3% in the first three days of September and down another -6.3% in today’s mid-day trading. TSLA continues to the largest short by a wide margin not just in the U.S. but also worldwide. TSLA short interest is $24.4 billion; 59.93 million shares shorted; 8.09% short interest % of float. Tesla remains a General Collateral stock borrow at 0.30% fee, the cheapest borrow rate for the easiest to borrow stocks.
Short selling in TSLA stock has been relatively stable since the beginning of August with shares shorted “only’ increasing by 200 thousand shares, worth $76 million, a +0.33% increase as its stock price rose +42%. While this would be a significant amount of short side activity for a “normal” stock, it is relatively minimal compared to its year-to-date 71.4 million shares of short covering, worth $29.1 billion at today’s present stock prices, a -54% decrease in shares shorted as TSLA’s stock price rose +386%.
Over the past week we have seen short covering in the stock with 973 thousand shares of net buy-to-covers, worth $396 million, a -1.60% drop as its stock price fell -9.10%. Shorts have been covering into this Tesla rally and actually helping to drive its stock price higher. This has been a classic short squeeze as mounting mark-to-market losses and increasing dollar exposure has forced shorts to close out either all or parts of their positions in response to loss limits or notional exposure limits. As Tesla’s stock price rose the dollar value of an existing short position increased and forced short sellers to buy back shares in order to remain within portfolio or position risk limits.
Tesla shorts are down -$24.5 billion in year-to-date mark-to-market losses for the year but are up +$7.1 billion so far in September, including +$1.6 billion in today’s mid-day trading.
Shorts have had seven +/- $ billion dollar Profit\Loss moves out of the last 10 trading days over the last two weeks with all five of this week’s trading days having +/- $ billion dollar days. Shorts closed out August with a -$3.4 billion loss on Monday the 31st, but were up +$1.4 billion on Tuesday the 1st, up +$1.7 billion on Wednesday the 2nd, up +$2.4 billion on Thursday the 3rd and are up +$1.6 billion so far on today’s -6.6% TSLA price move. Short sellers might need a neck brace as their P\L keeps getting whipsawed on Tesla’s stock price volatility.
Volatility will continue in Tesla’s stock price as we approach Battery Day on September 22nd, earnings release date on October 28th, the continued development of new products like its EV pickup and semi-trucks, and the ongoing saga of manufacturing and selling cars in a Covid world. Both long shareholders and short sellers might need to take some Dramamine as the Tesla stock price rollercoaster continues, and we are not talking about Coastersaurus at Legoland, but more like Kingda Ka at Six Flags.
We expect Tesla’s short interest to remain relatively stable in the short term as existing short sellers make up some of their year-to-date mark-to-market losses. If Tesla’s stock price continues to decline, we will see shorter term momentum short sellers enter the fray and take advantage of the sizable volatility in the name. Longer term, many of the short sellers who have already been squeezed out of their positions may be wary of re-entering this trade as their historical losses are massive and even a child learns not to touch a hot stove twice.
Downside Tesla price risk may be more dependent on long shareholders rather than short sellers. While older Tesla longs, who are committed Tesla as an EV manufacturer and are Elon Musk followers, will probably not sell their shares. Newer long shareholders who have generated large mark-to-market profits in a relatively short period of time may begin cashing in their lottery tickets and realize some of their gains.
A resurgence of Tesla’s upward price trajectory may have a two-fold and offsetting effect on trading activity. Newer long shareholders will begin selling to lock in their longer term gains and not risk another pullback eating into their pile of gold. While newer short sellers will begin buying to cover to realize the short term gains that they have earned over the last week. There will also be a few older short sellers, who have recouped some of their year-to-date losses over the last week, who will finally capitulate in the face of another rally. Finally, the true believers and FOMO investors will continue to buy and hold Tesla stock, creating a backstop that is difficult to breach.
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