What is Causing Tesla Short-Sellers to Abandon Ship
On July 15, Tesla Motors closed at its highest price of $1546.01 per share on the New York Stock Exchange, bringing Tesla’s total growth up 1,111.75 points since the start of this year. Multiple causes can be linked to Tesla's sudden market growth: the early reopening of its Fremont factory in California, the stable quantity of deliveries throughout harsh pandemic conditions, or the newest electric car model set to release in 2021. Whichever it was, investors betting against Tesla combined for a total loss of more than $15.9 billion since the start of this fiscal year (S3 Partners). Tesla’s recent rise has generated significant consequences for short-sellers. With Tesla still on the rise and the economy reopening, short-sellers are now confronted with the decision to buy back their shares or hold their position as Tesla will release its second quarter financials within the next week.
Since its IPO, Tesla has been under constant scrutiny from investors and automobile corporations. Jonathan Wolf, a reporter at World Access news who has done extensive research into Tesla, explained, “As it initially burned through cash with no sign of consistent profitability in sight, critics predicted Tesla’s imminent collapse” (Wolf). Even after achieving profitability, Tesla’s CEO, Elon Musk, was criticized for his handling of the production process and his general business decisions. Tesla is reaching new heights in spite of this criticism, as it recently surpassed $250 billion in market capitalization and became the most valuable car company in the world.
One year prior to Tesla’s recent peak share price, short interest was at 23.24% of shares outstanding— more than triple the shares that are currently shorted. Just this January, Tesla regained the title of the security with the highest short interest at $14.5 billion (Reinicke). Short interest as a percent of total shares sat at 15.2%. Since then, shorted shares have fallen to 7.53%, just half of what they were coming into the new year. Short sellers are rapidly uncommitting from Tesla as shares could jump again at the release of its second quarter financial results.
With looming anticipation, Tesla will release its second quarter financial results on July 22. Analysts predicted that Tesla would deliver 72,000 vehicles between April and June. These calculations proved to be inaccurate, after Tesla announced that it had instead delivered 90,650 automobiles during the second quarter (Kolodny). Two factors played a large role in the surprisingly sizable amount of vehicle orders, despite the fact that Tesla’s Fremont factory was shut down between March 23 and April 29. Tesla has had continued demand for its newest car model, the Model Y, which was released last March. Also, in March of this year, Tesla cut the prices of all of its vehicles by at least $2,000. The Model S and X received a greater price cut of $5,000. The price cuts were a reaction to the growing fear of Covid in the hopes of sparking demand for automobiles. Tesla had achieved 88,400 deliveries during the first quarter of 2020. Tesla’s ability to increase sales by an additional 2,250 in the second quarter demonstrates its success driving up demand by reducing vehicle prices.
Third Quarter forecasts predict even further growth of Tesla, with Sales Revenue ranging from $6 to $9 billion globally (CNN Business). The analysts’ calculations seem promising, as Tesla’s year-over-year financials strongly support this trend. Tesla’s first quarter of 2020 displayed year-over-year increases in Automotive Revenues of $1.4 billion, Adjusted EBITDA of $0.8 billion, and Cash and Cash Equivalents of nearly $6 billion. All of these categories have shown strong growth, but the pandemic stunted the operation of Tesla which will most likely cause these categories to shrink substantially throughout the rest of 2020.
Set to release in 2021, Tesla's new Cybertruck will add a larger vehicle to the electric car line, diversifying Tesla’s line of electric cars. The Cybertruck will have a range of over 500 miles—100 miles more than all other Tesla models. It will be able to reach 60 miles per hour in less than 3 seconds, and tow over 14,000 pounds (Tesla). While the truck has many great features in store for buyers in late 2021, the release of the Cybertruck is equally momentous for rounding out the Tesla brand and company. With a fifth automobile in store, Tesla will soon sell cars, trucks, solar panels, solar roofing, and batteries. Tesla has diversified its electric power inventory and secured more control over their marketplace. Tesla is considered to be the top Electric car manufacturer in the world. With a multifaceted inventory in the electric sector, short sellers are now becoming increasingly hesitant to bet against Tesla.
Works Cited:
Canellis, David. “Tesla Short Sellers Lost $1.33B on Thursday's Stock Pump - Musk Only Got Richer.” Hard Fork | The Next Web, 3 July 2020, thenextweb.com/hardfork/2020/07/03/tesla-stock-short-sellers-elon-musk-billions-lost-1200/.
“Design Your Cybertruck.” Tesla, 2020, www.tesla.com/cybertruck/design.
Lora Kolodny, Michael Wayland. “Tesla Shares Soar after Reporting Big Beat on Second-Quarter Deliveries.” CNBC, CNBC, 2 July 2020, www.cnbc.com/2020/07/02/tesla-tsla-q2-2020-vehicle-delivery-and-production-numbers.html.
Reinicke, Carmen. “Tesla Just Became the Most Shorted Stock in the US, Again (TSLA) | Markets Insider.” Business Insider, Markets Insider, 16 Jan. 2020, markets.businessinsider.com/news/stocks/tesla-stock-most-shorted-us-beats-apple-highest-short-interest-2020-1-1028823046.
Wolf, Jonathan. “Decade After IPO, Despite Pandemic, Recession, And Global Unrest, Tesla Stock Crushes It With Nearly 6,000% Return.” Access World News, 24 June 2020, infoweb-newsbank-com.ezp1.villanova.edu/resources/doc/nb/news/17BD0060C4EFFE08?p=AWNB.
