Tesla's sinking stock has made short sellers almost $1 billion

Photo: Kevork Djansezian/ Getty.
  • Short sellers betting on a decline in Tesla’s stock have made almost $US1 billion in the fourth quarter.
  • Tesla’s recent stock woes stem from a bottleneck that’s hurting production on its hotly-anticipated Model 3 vehicle.

Elon Musk can’t be happy about this.

After nine months of having their bets absolutely annihilated by Tesla‘s surging stock price, short sellers are finally making some of that money back. They have raked in $US890 million in mark-to-market profits since the start of the fourth quarter, according to data compiled by financial-analytics firm S3 Partners.

It’s a redemption story of sorts for Tesla bears, who stubbornly clung to short wagers as shares spiked as much as 80% in 2017. Now, on the heels of a disappointing earnings report and faced with a production bottleneck for its hotly-anticipated Model 3 vehicle, Tesla shares are down 8.7% since the end of September.

The windfall for short sellers is sure to draw the ire of Musk, Tesla’s CEO, who has forged a combative relationship over time with those betting against his company’s shares. In a recent Rolling Stone profile, Musk called Tesla short sellers “jerks who want us to die,” and described their behaviour as “hurtful.”

It echoed a tweet Musk fired off on June 8, in which he said the group of investors “want us to die so bad they can taste it.” Back in early April, the CEO even went as far as to taunt Tesla’s detractors, tweeting “Stormy weather in Shortville…” after a period of considerable stock strength.

Tesla remains the most popular short in the US equity market, a designation its had for much of 2017. Short interest — a measure of bets a stock will drop — sits at a whopping $US8.6 billion, outpacing the next-most shorted company, AT&T, by more than $US500 million, S3 data show.

While Tesla certainly has its share of sceptics, another explanation for the exorbitantly high level of shorting activity is that the company and its mega-cap tech peers are being used as proxies to hedge against the broader stock market, according to S3.

That includes the likes of Apple, Amazon, Netflix, Microsoft, Facebook and Alphabet, which are all included in the most-shorted list above. The wisdom behind the hedging strategy is that as these huge, influential stocks go, so does the market — so taking a short position in them means protecting against an index drop.

Still, there’s no denying that Tesla is a special case, with its CEO so publicly at war with the short sellers who are betting on it to fail. At this point, if Musk ultimately wants to regain the upper hand, he’s going to have to figure out the Model 3’s production issues.

In the meantime, Tesla enthusiasts will be waiting with bated breath for the reveal of the company’s new electric big-rig truck, which will be unveiled at 11:30 p.m. EST.

Get the latest Tesla stock price here.

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