Investors raised their bets against Tesla Inc shares by 10 percent since mid-March on the view that the market was too optimistic on the electric car maker’s prospects, financial analytics firm S3 Partners said on Tuesday.
Tesla shares sold short now stand at 31.5 million, or 25 percent of freely available shares, S3 Partners said. Short-sellers aim to profit by selling borrowed shares in the hope of buying them back later at a lower price.
Pressure has been building on Tesla to show it can churn out its less-expensive Model 3 sedans without raising more cash. A fatal Tesla Model X car crash in California on March 23 also pressured share prices as well as the company’s options and debt-market rating.
“This is a once-in-a-lifetime short,” said Peter DeCaprio, partner at Crow Point Partners LLC.
“It’s like the perfect storm of elements that you need in a short thesis. Usually you try to find three or four good ones, this has got 15. It’s everything. But everything is magnified because of the valuation.”
Tesla on Tuesday sought to quash any speculation it might need to raise more capital this year and also announced it built 2,020 of its Model 3 sedans in the last seven days.
Tesla’s battered shares rose 6.7 percent to trade at $269.42 on Tuesday afternoon, still well below the 12-month peak of $389 last September. The company did not respond to a request for comment.
Billionaire investor David Einhorn, who has been betting for months that Tesla’s stock price will fall, did not mention the carmaker by name in his quarterly letter to clients on Tuesday.
Tesla is part of Einhorn’s so-called bubble basket, which also includes bets against Amazon.com Inc and Netflix Inc. While conventional wisdom suggests recent turbulence in these stocks could have benefited short-sellers like Einhorn’s Greenlight Capital Inc, Einhorn said the shorts did not perform as he hoped this year.
DeCaprio called Tesla’s production numbers “irrelevant” to him because the company has not proven it can “build a car without incinerating boatloads of cash in the process.”
JPMorgan Chase & Co strategists said in a note that the options market is underpricing Tesla risks and the shares “may be unable to escape a continued sell-off as a confluence of unfortunate events may seal its fate” regardless of production results.
Short-seller Jim Chanos of Kynikos Associates LP told Reuters in November he continued to add to his short position in Tesla throughout 2017.
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ABOUT THE AUTHOR
Diane DeCaprio is Director of Operations at Crow Point Partners
Diane DeCaprio Serves as Crow Point Partners Director of Operations. Prior to joining Crow Point Partners, Mrs. DeCaprio spent ten years in equity research, primarily covering the capital goods and manufacturing sectors. Mrs. DeCaprio previously held FINRA Series 7 and 63 licenses, and passed Level One of the Chartered Financial Analyst exam. Mrs. DeCaprio was a Director at ING Group, and also worked at Furman Selz LLC, and Dillon, Read & Co. She received a Bachelor of Science in Economics from The Wharton School at the University of Pennsylvania...
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