Tesla’s Biggest Decline in 10 Months Rains Profits on Shorts
Tesla’s Biggest Decline in 10 Months Rains Profits on Shorts
(Bloomberg) -- Tesla Inc. bears have much to rejoice about after the electric vehicle maker’s latest stumble.
The company reported a significantly bigger than expected quarterly loss on late Wednesday, and said its co-founder and Chief Technology Officer J.B. Straubel would step down. Shares on Thursday sank as much as 15%, the stock’s biggest decline in nearly 10 months.
The move sent the mark-to-market profits for Tesla short sellers up $1.55 billion on Thursday, bringing year-to-date mark-to-market profits up to $3.06 billion, up 35% for the year, according to financial analytics firm S3 Partners.
“We should expect some short covering in the near term as recent short sellers may choose to close out their positions and realize their profits,” S3’s Ihor Dusaniwsky wrote in a report. However, the latest stock move has taken the possibility of an impending Tesla short squeeze totally off the table, the analyst said, as shorts now have a $3 billion buffer of year-to-date mark-to-market profits to “comfort them and help keep them in their positions.”
Tesla, which had earlier pledged to return to profitability in the third quarter, also walked back that promise on Wednesday, yet another factor that could be weighing on shares. While deliveries in the second quarter, announced earlier this month, were strong and topped most estimates, the main concern on Tesla now revolves around its ability to sell cars profitably. The latest results have not done much to bolster investors’ confidence in that matter.
The company is still the most shorted U.S. equity, in terms of notional short interest, as well as the most shorted stock in the worldwide automotive sector, Dusaniwsky said. Over 30% of Tesla’s free float are currently held short.
To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Will Daley
©2019 Bloomberg L.P.