Tesla Short-Sellers Profit from Unlikely Scenario as Coronavirus Ravages Market

As coronavirus ravages stocks, Tesla remains the most shorted asset in terms of short interest and short interest as a share of float.
Posted in: Business
March 5, 2020 2:57 PM UTC
  • Since the 2019 low, Tesla’s stock has rallied over 400%.
  • Long-suffering short sellers recently managed to catch a lucky break amid the coronavirus-induced selling.
  • TSLA is overwhelmingly the most shorted stock currently.

Despite incurring massive losses due to Tesla’s (NASDAQ:TSLA) 2019-20 rally, short sellers are yet to give up. Their patience paid off somewhat during the coronavirus-induced market selloff.

According to fintech firm S3 Partners, Tesla short sellers were among the biggest gainers in a span of over seven trading days when short sellers made over $50 billion.

Over that period, the short selling interest increased by close to $15 billion. Short sellers consequently made mark-to-market profits of $51.3 billion during that stretch.

TSLA fell from a Feb. 24 opening price of $838 to a Mar. 4 close of $745 – a drop of about 11%.

TSLA fell by over 10% between Feb. 24 and Mar. 3. | Source: TradingView

Tesla short sellers catch a break after a long drought

The massive rally that Tesla enjoyed before the coronavirus epidemic spread caused considerable losses to short sellers. Some even gave up.

Early last month, Tesla short seller Steve Eisman threw in the towel. Eisman gained fame for betting successfully against the subprime mortgage crisis. He branded Tesla investors “cult-like” over their enthusiasm for the stock:

Look, everybody has a pain threshold. When a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it, and has cult-like aspects to it, you have to just walk away.

Bears continue circling

Still, Tesla remains a favorite for short sellers and constantly leads the pack of the most shorted stocks. As of Mar. 5, Tesla remains ahead of Apple for most shorted company. Additionally, it leads with regards to short interest as a percentage of the float at 11.74%.

Source: Twitter

Unwavering TSLA short sellers include Stanphyl Capital’s Mark Spiegel. The perma-bear has argued that increasing competition will greatly diminish Tesla’s growth prospects. Spiegel has criticized Elon Musk’s leadership skills, insinuating that he’s either “crook” or a “jerk” to his team.

Tesla shorts bank on coronavirus

The drop in TSLA amid the coronavirus outbreak is rooted in fears that the electric vehicle manufacturer will not reach its lofty targets. Tesla had to shut down its Shanghai Gigafactory temporarily, adding to growing fears of supply shocks.

The demand side is unlikely to remain unscathed as well.

Car sales in China, where Tesla has been placing its greatest hopes on, have fallen drastically in the wake of the coronavirus outbreak. Per Bloomberg, retail auto sales in China fell 80% in February.

Source: Twitter

Rapid deceleration in Norway

Shorts are also being propped up by Tesla’s recent struggles in established markets. In Norway, for instance, Tesla sales have collapsed.

Last month only 83 Tesla cars were registered in Norway compared to 1,016 units registered in February 2019, a 92% year-over-year drop. During the same month, the Audi e-tron led EV sales in Norway.

Still, Tesla sets itself apart from legacy carmakers by focusing on software features that continue to excite its fanbase. It remains to be seen whether this will translate into bigger market share.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

Last modified: June 12, 2020 10:31 PM UTC

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Mark Emem @wetalkmarkets

I cover business and the stock market for CCN. Currently based out of Nairobi, Kenya. Feel free to get in touch with me. Email: wetalkmarkets[at]yahoo.com