Tesla short-sellers lose more than $1bn on paper as shares soar
New York — Tesla shares soared as much as 15% on Thursday, a day after the company reported results, and financial analytics firm S3 Partners said short-sellers were slammed with more than $1.1bn in paper losses on the day.
S3 said the day’s losses pushed the aggregate year-to-date performance of short-sellers in Tesla into the red.
Short-sellers aim to profit by selling borrowed shares, hoping to buy them back later at a lower price. Tesla is the most shorted US stock.
Tesla short-sellers had been up $276m in year-to-date mark-to-market profits prior to the day’s rally, and the short-sellers’ paper losses have now swollen to $831m for the year, S3 data showed.
"We are not seeing a large amount of buy to covers yet," said Ihor Dusaniwsky, head of research at S3 in New York, referring to traders buying shares to close out an existing short position.
"With such a large price move on the open, most short-sellers that are looking to cover are waiting for a retracement before placing buy-to-cover orders," he said.
Tesla shares were up 14.5% at $344.5 in late afternoon trading on Thursday, a day after the company said it would produce its new Model 3 sedan at a profit, following several recent weeks in which output had stabilised.
The update buoyed hopes that the company led by Elon Musk would staunch its losses.
Tesla’s rapid cash burn and struggles at turning a profit have made it a favourite target for shorts, including some big names such as Jim Chanos, head of Kynikos Associates, and billionaire hedge fund manager David Einhorn’s Greenlight Capital fund.
Since the beginning of 2016, Tesla is the fourth-worst-performing US short bet, and short-sellers have lost $4.70bn on a net basis over that period, according to S3 data.
A sharp rally in the electric car maker’s shares since early April has hurt short-sellers.
On Tuesday, Einhorn told investors that his bet against the stock had turned into heavy second-quarter losses at his Greenlight Capital fund.
"Long term short sellers will probably shrug off this loss, as they were down billions in the past and not only kept their positions but built them up," S3 Partners’ Dusaniwsky.
"But I would imagine shorter term momentum short sellers would be quick on the trigger to exit their positions after suffering a 10% loss in just one day," he said.