Short Sellers Bet Against Tesla, Lose Nearly $1.5 Billion

Written By
Julija A.
February 09,2022

Investors attempting to short-sell Tesla stocks got a nasty surprise when the company’s price surged to its highest value on Thursday, October 24. Short-sellers collectively lost more than $1.4 billion in a single day.

Late on Wednesday, October 23, Tesla reported a $342 million increase in third-quarter profits. The stock price quickly climbed from $45 to about $300. Analysts had been expecting the stock to drop and the company to lose about $72 million, but when the price jumped, investors betting against Tesla lost almost 70%.

“Short sellers are, as Elon Musk stated earlier in the year, ‘feeling the burn,’” wrote Ihor Dusaniwsky, managing director at S3. “Prior to today’s price move, TSLA short sellers were up $2.00 billion in mark-to-market profits, this is down from its year-to-date P/L high of $5.16 billion of mark-to-market profits before TSLA began its sustained rally in June.”

Investors who bet against Tesla at the beginning of the year are still suffering losses today, with equity down more than 11% after Tesla’s big profit gain. Tesla stocks climbed up to $254.68 on Wednesday, which meant a 23.4% climb for 2019.

This is Tesla’s fourth profitable quarter out of the past 20. The company lost almost $600 million in the first six months of 2019. As of now, the company is expected to turn more profit in the second half of the year and earn about $200 million in the last few months of 2019.

Investors have been shorting Tesla stocks for a long time. In fact, Tesla stocks have been one of the most shorted stocks, and Elon Musk has often criticized short sellers publicly.

In an attempt to stop short sellers, last year Musk tweeted that he was taking the company private in a buyout priced at $420 per share. Since no buyout offer ensued, Musk and his company had to pay a $40 million fine to settle a lawsuit by the Securities and Exchange Commission. The lawsuit claimed that Musk had purposely misled shareholders, although Musk never publicly admitted to any sort of wrongdoing.

According to S3 Partners, 32.6 million shares of Tesla were sold short as of yesterday. This is down from early June, when 43.7 million shares were shorted.

While this is a loss for short sellers, it’s unlikely they’ll stop attempting to short Tesla stock. So far, the investors have collectively made around $500 million betting against the stock, and Tesla shares are still down by 10.5% for the year.

One portion of the third quarter earnings for Tesla came from the fact that the company has collected money from presales of its latest “summon” feature, which was introduced in early September. Whether Tesla stays on a winning streak remains to be seen.

The company, like many other American companies, is currently suffering from continuous trade tensions due to the US-China trade war.

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Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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