Tesla Short-Sellers Muster as Bull-Bear War Heads for Key Battle
(Bloomberg) -- The perennial tug-of-war between Tesla Inc. bulls and bears is moving toward a potential pivot point with short-sellers digging in deep.
Bearish bets against the electric carmaker’s stock are around the highest level in two years as it prepares to release first-quarter earnings after Wednesday’s market close. Short interest has surged since March, and some analysts say sentiment is so depressed that even an incrementally positive update on production of its mass-market Model 3 sedan could push shares higher. But there’s also a lot that could go wrong. Investors will be listening closely for any hints on further cash burn, capital requirement and the trajectory of Model 3 demand.
“One argument is that this company is going to go out of business; the other argument is that it’s going to the moon,” Gene Munster, a managing partner at venture capital firm Loup Ventures, said Wednesday on Bloomberg Television. “There are some very avid believers that believe that they can in fact scale Model 3 production.”
As of Monday, short interest in Tesla amounted to 32 percent of the shares available for trading, according to data compiled by IHS Markit. The stock traded little changed at 12 p.m. New York time and was down 3.5 percent year-to-date, compared with the S&P 500 Index’s 1 percent decline in 2018.
Options trading implies an 8 percent move in Tesla’s shares following the earnings release. And as short bets have climbed, so has the ratio of outstanding puts relative to calls, according to data compiled by Bloomberg. Contracts that pay when the stock falls outnumber those that do when it rises by more than 1.8-to-1, near the highest this year.
“Most investors are still cautious heading into Tesla’s first-quarter results,” Goldman Sachs analyst David Tamberrino wrote in a note to clients. While bulls point to July’s production and delivery update as “the only meaningful data point ahead,” bears see “a host of potential issues between now and then -- expecting margin pressure, significant cash burn, declines in deposits and increased capital needs,” Tamberrino said. He’s one of eight analysts holding a sell rating on the stock, with 10 rating it a buy and 12 at hold, according to data compiled by Bloomberg.
While Tamberrino expects Tesla’s quarterly numbers to trail Wall Street’s estimates, he said a potential reiteration of the targeted production rate of 5,000 Model 3 cars per week and the goal of 25 percent gross margin is likely to give “bullish investors enough to continue to wait.”
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