(Bloomberg) — After years of stinging losses, investors betting against Tesla Inc. they are finally reaping the windfall they were hoping for.
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With CEO Elon Musk and some of his top lieutenants distracted by his foray into Twitter and cooling demand for Tesla’s electric vehicles, the stock is headed for its worst annual decline on record. That’s giving short sellers, or bearish investors betting the stock will decline, market profits of about $17 billion, making Tesla the most profitable short trade of the year, data from S3 Partners show .
Tesla has fallen more than 40% in December alone, extending its decline to about 68% this year and wiping out more than $680 billion in market value. That’s a sea change for a stock that was one of the pandemic’s biggest winners, rising more than 740% in 2020 on booming demand and low interest rates.
The 2022 return of 89% is a rare win for the shorts, who had previously built up a big bet against Tesla and its lofty valuation. At one point in 2018, more than a third of the stock’s entire free float was shorted. High-profile financiers such as Jim Chanos, David Einhorn and Andrew Left were among those who had piled on.
This infuriated Musk. He vowed to “burn” the shorts and even sold merchandise, a pair of limited-edition satin shorts for “Only $69,420,” to poke fun at Tesla’s prices they increased As Tesla’s rally accelerated, most short sellers re-examined their bets. Currently, only about 2.9% of Tesla’s free float is being shorted, according to S3 data.
S3’s Ihor Dusaniwsky expects short selling to persist until stocks bottom out. But analysts and investors are still struggling to see a bottom, especially since the company is due to report fourth-quarter delivery numbers early next month and has been offering big incentives to buyers.
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Tesla shares rose as much as 9.6% to $123.57 in New York on Thursday for a second straight day of gains, showing some signs of relief after a seven-day losing streak dragged it 31 %. If the advance holds until the end of the session, the first consecutive days of stocks will be in the green since the beginning of December.
Late Wednesday, Morgan Stanley analyst Adam Jonas, who has held the equivalent of a buy rating on the stock since November 2020, said there is an “attractive entry for investors” amid the strong share price decline. Jonas lowered his price target on Tesla to reflect lower prices and a reduced valuation of the company’s businesses, but said he expected the company to extend its lead over the electric vehicle competition in 2023.
But even if the stock price starts to recover from here, Tesla’s notorious volatility could continue to linger, according to S3’s Dusaniwsky.
“When Tesla shares start to rise, there should be a flurry of short covering that will help push its stock price higher and faster as short-term short sellers look to hit their big market value benefits before they evaporate,” he said. said
(Update stock movement in ninth paragraph and add context)
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