Tesla has reclaimed its spot as the most shorted large stock on the US market. A share price rally and boss Elon Musk’s alienating rants on Twitter have put a target on the US electric car company’s back. But record earnings make this a dangerously expensive bet.
Short interest in Tesla is now equal to 3.65 per cent of the float, according to data from S3 Partners.
It is easy to see why shorts are gunning for Tesla once again, displacing Apple in the process. Electric vehicles have become much more available. That has lowered Tesla’s share of the market, leading it to cut prices for some models in the US, Europe and China.
Add to that a justice department probe into Tesla’s so-called “Full Self-Driving” automated mode. The probe is going ahead, even though the company has made clear its cars cannot drive themselves. Nor has the much-hyped Cybertruck gone on sale yet.
Tesla’s valuation remains high compared with traditional carmakers, even after a sharp sell-off last year. The stock trades at 51 times expected earnings. Ford, the second largest seller of EVs in the US, trades at 8 times.
But Tesla remains the top seller of electric vehicles, It has led the shift from combustion engine vehicles to EVs, which is still in full swing. In the last quarter, it reported revenues up 37 per cent and operating income 49 per cent higher to $3.9bn. Sales in China should rise post-lockdowns, helped by lower prices. Musk has suggested sales could reach 2mn units this year.
Resurgent short selling will no doubt enrage Musk. Despite once tweeting that he believed Tesla’s share price was too high, Musk has repeatedly railed against short sellers. He has called for the practice to be made illegal.
Musk will be glad to know what their conviction has cost them. Shorts who bet against Tesla were up by almost $16bn in mark-to-market profits last year, according to S3 data. They are down by around $6.75bn in the year to date. Expect a slowdown in new short selling to follow.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore