Tesla's sinking stock has made short sellers almost $1 billion
- Short sellers betting on a decline in Tesla's stock have made almost $1 billion in the fourth quarter.
- Tesla's recent stock woes stem from a bottleneck hurting production on its hotly anticipated Model 3 vehicle.
Elon Musk can't be happy about this.
After nine months of having their bets annihilated by Tesla's surging stock price, short sellers are finally making some of that money back. They've raked in $890 million in mark-to-market profits since the start of the fourth quarter, according to data compiled by the financial-analytics firm S3 Partners.
It's a redemption story of sorts for Tesla bears, who stubbornly clung to short wagers as shares spiked as much as 80% this year. Now, on the heels of a disappointing earnings report and in the face of a production bottleneck for its hotly anticipated Model 3 vehicle, Tesla shares are down 8.7% since the end of September.
The windfall for short sellers is sure to draw the ire of Musk, Tesla's CEO, who has forged a combative relationship over time with those betting against his company's shares. In a recent Rolling Stone profile, Musk called Tesla short sellers "jerks who want us to die" and described their behavior as "hurtful."
It echoed a tweet Musk fired off on June 8 in which he said the group of investors "want us to die so bad they can taste it." In early April, after a period of considerable stock strength, the CEO even went as far as to taunt Tesla's detractors, tweeting, "Stormy weather in Shortville."
Tesla remains the most popular short in the US equity market, a designation it has had for much of this year. Short interest — a measure of bets that a stock will drop — sits at a whopping $8.6 billion, outpacing the next-most-shorted company, AT&T, by more than $500 million, S3 data shows.
While Tesla certainly has its share of skeptics, another explanation for the exorbitantly high level of shorting activity is that the company and its mega-cap tech peers are being used as proxies to hedge against the broader stock market, according to S3.
That includes the likes of Apple, Amazon, Netflix, Microsoft, Facebook, and Alphabet, which are all included in the most-shorted list above. The wisdom behind the hedging strategy is that as these huge, influential stocks go, so does the market — so taking a short position in them means protecting against an index drop.
Still, Tesla is a special case, with its CEO so publicly at war with the short sellers betting on it to fail. At this point, if Musk wants to regain the upper hand, he's going to have to figure out the Model 3's production issues.
In the meantime, Tesla enthusiasts will be waiting with bated breath for the reveal of the company's electric big-rig, expected to be unveiled at 11:30 p.m. ET.
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