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Making sense of the Tesla short seller drama
Posted on January 25, 2020 by Charles Morris
Maybe we should start calling the Tesla bears Tesla bulldogs - they just won’t let go. The TSLA stock price has more than doubled since the company reported third-quarter earnings last October, and the shorts have lost whole closets full of shirts. However, it seems quite a few of them are still praying for a disaster - Tesla recently regained its title as the most-shorted US stock.
Above: Short sellers suffer as Tesla's stock surges (Cover: Bloomberg Businessweek)
According to financial analytics firm S3 Partners (as reported by Bloomberg), last week the total short interest in Tesla reached $14.5 billion, edging out Apple, which had a short interest of $14.3 billion.
If the size of a company’s short interest is considered a badge of honor, then Apple’s is not very impressive in context - the iPhone maker has a market capitalization of $1.4 trillion, some 14 times that of Tesla.
Betting against Tesla “has been a phenomenally bad bet,” as NPR put it - the shorts shed a collective $2.89 billion in 2019, and have written off another $2.8 billion this January alone, according to S3 Partners. Since 2016, these financial freebooters are out a cool $11.1 billion. (Betting against Apple hasn’t been a sweet experience either - AAPL has soared by 19% since early December.)
Above: Understanding Wall Street's vocal group of Tesla haters and their obsession with shorting the company (YouTube: Dave Lee on Investing)
“We’ve lost a lot of money,” hedge fund manager Mark Spiegel told NPR. Spiegel’s fund bet big, and lost over $1 million. “[Tesla was] at 20% of the fund, sometimes a third of the fund, and I slashed it back today because [the stock price] is just so decoupled from reality,” he said. (Funny, we thought stock prices were a reality). “I am the world’s worst predictor of Tesla’s stock price,” he admits.
Ihor Dusaniwsky, Head of Predictive Analytics at S3 Partners, told NPR that even companies that attract a lot of short interest usually see no more than 8% of the stock shorted. At the beginning of the year, more than 20% of TSLA stock was on the short side of the ledger.
It certainly seems that the Tesla bears are motivated by something other than profit - and perhaps, so are the bulls. “It’s not just a financial transaction - it’s almost a lifestyle choice to be on one side or the other,” says Dusaniwsky. “There’s cultish convictions on both sides. It’s almost like a college football game - people are just crazy fans and it doesn’t matter what the team does.”
Above: The battle between bulls and bears gets especially heated with Tesla (Image: Transport Evolved / YouTube)
Some of the bears are leaving the field - around 40% of the short interest has been closed out since the middle of 2019, inflicting “a tsunami of hurt” on the folks Elon Musk calls “jerks who want us to die.” But more than a few of these intrepid investors are still holding the line. Mark Spiegel is one - although he has reduced the size of his position, he’s still convinced that Musk’s house of cards will someday collapse. “Obviously we’ve been way too early on the timing,” Spiegel says. “But you never know that in advance.”
Written by: Charles Morris