Musk Calls Tesla Most Shorted Stock Ever. Technically It's Not
(Bloomberg) -- One reason that Elon Musk gave for wanting to take Tesla private is the torrent of acrimony from short sellers. He called the automaker “the most shorted stock in the history of the stock market.”
But is it?
Sam Pierson, director of securities finance at IHS Markit, crunched some numbers and found that, technically, Tesla is far from what Musk claims it to be. At its August peak, the electric carmaker had more than $13 billion worth of shares sold short, an amount that’s equivalent to roughly a quarter of its total available for trading.
Right now, 42 companies have at least a third of their shares sold short. And while $13 billion looks like a lot, it pales in comparison to Alibaba, the Chinese Internet monolith, where bearish bets recently approached $25 billion.
Even going by the history of only U.S. companies, Tesla is not the most hated either, at least on paper. Since 2008, four companies have seen the dollar amount of short positions greater than Tesla’s today: Johnson & Johnson, Pfizer, General Electric and Procter & Gamble.
Granted, all were far bigger than Tesla in terms of market capitalization. And their elevated short positions all occurred in the midst of a takeover or spinoff, events that usually create arbitrage opportunities and trigger short selling.
In a way, some of Tesla’s bearish bets may have been made as a hedge against holdings of the firm’s debt that can be converted to shares, according to Pierson.
What set Tesla apart from other giant short positions is the duration of the bearish bets. While most of these event-driven short bets tend to unwind quickly, investors’ skepticism over Tesla has persisted.
“The claim of ‘most shorted stock in the history of the stock market’ is not literally true in dollar terms,” Pierson wrote in a note. It is fair to say, he added, that “there has not been another U.S. equity short position greater than $10 billion which lasted for more than a quarter.”
©2018 Bloomberg L.P.