Tesla short-sellers mauled with $2.5B loss

Despite the run higher, Tesla is the most heavily shorted US stock

February is off to a good start for Tesla CEO Elon Musk.

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Short-sellers entered a new world of pain on Monday as shares surged more than 19 percent, eclipsing $700 for the first time following a slew of positive commentary from Wall Street. The percentage gain was the largest since May 2013, as tracked by the Dow Jones Market Data Group and a fresh all-time high.

Short-sellers, or traders betting against a stock in the hope that its price will fall, were saddled with $2.47 billion of losses on Monday when shares were trading at $752, according to the financial-analytics firm S3 Partners. They have now lost more than $8.3 billion this year.

That pain may increase as the stock approaches the $800 level.

TickerSecurityLastChangeChange %
TSLATESLA INC.800.03-3.97-0.49%

After the closing bell, Musk tweeted three flame emojis, leaving investors to speculate the meaning.

“Everyone is anticipating a dramatic TSLA short squeeze, but it is more likely to be a continuous slow decline in the shares shorted rather than a sudden abrupt plunge,” wrote Ihor Dusanwisky, managing director predictive analytics at S3 Partners. “This is due to the amount of short hedging that is being done to offset Tesla convertible bond and option exposure.”

TESLA IS 'BITCOIN ON WHEELS'

Even after Monday’s surge, Tesla remains the most heavily shorted U.S. stock with a short interest of $15.86 billion, or 18.22 percent of the shares available for trading.

Monday’s gains came after a number of positive developments for shares over the past few days as Wall Street analysts raised their price targets and Panasonic announced its battery partnership with the electric-vehicle turned its first quarterly profit.

In a note sent to clients on Monday, Argus analyst Bill Selesky raised his price target to $808 from $556, citing “continued revenue growth from the legacy Model S and Model X” and “strong demand for the new Model 3.”

Also on Monday, Ballie Gifford & Co., the largest outside investor after Musk, raised its stake to 7.67 percent, according to a regulatory filing. Ahead of the opening bell, Panasonic said its battery joint venture with Tesla turned its first quarterly profit after years of production problems.

And on Friday, Ark Investment Management's Cathie Wood, the biggest Tesla bull on Wall Street, upped its 2024 price target for Tesla shares to $7,000. The firm says there is a 25 percent chance that shares trade above $15,000 by 2024.

Last week Tesla's profit and revenue in the fourth quarter exceeded analysts estimates and the company said 2020 deliveries should comfortably exceed estimates while noting demand is coming from new customers.

"For most of 2019, nearly all orders came from new buyers that did not hold a prior reservation, demonstrating significant reach beyond those who showed early interest. Amazingly, this was accomplished without any spend on advertising" the company stated in its update.

- Tesla 4Q '19 ​​Earnings Materials 

Still, not everyone on Wall Street believes in the Telsa story.

Gordon Johnson, CEO and founder of GLJ Research, told FOX Business’ Stuart Varney that Tesla was “bubble” and called it “bitcoin on wheels” after the company’s fourth-quarter results outpaced Wall Street estimates last week.

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Tesla shares have gained almost 200 percent since the company reported a surprise third-quarter profit on Oct. 23. They’re up more than 55 percent this year, outperforming the S&P 500’s 0.8 percent gain.