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Feb 7, 2018

S3 Analytics: Tesla Shorts Down $340 million Pre-Earnings Release

While rocket enthusiasts were looking skyward as SpaceX’s Falcon Heavy delivered a Tesla Roadster on a course to orbit Mars, Tesla Inc. (TSLA) investors are looking towards today’s earnings announcement to see if Model 3 deliveries inch closer to Elon Musk’s already delayed production guidance of 5,000 per week by June and 10,000 per week in production by the end of the year. Investors will also be interested in the viability of Tesla’s autonomous driving feature, international expansion, and its cash burn rate.

The conviction of Tesla short sellers has been commendable as they are not only down $4.96 billion in mark-to-market losses since 2016, they have paid $637 million in stock borrow financing fees in order to keep their positions on since 2016. Short sellers continue to press their “don’t pass” bets even after being down a net $5.59 billion in mark-to-market net of financing losses, down 23.42% per annum since 2016. Tesla’s short interest climbed to $10.9 billion in late January, but leading into today’s earnings announcement, we have seen a $624 million reduction in Tesla short exposure. Some of these buy to covers may have been by “newer” shorts realizing some of February’s $604 million of mark-to-market profits prior to today’s +$10.25 price move which generated $340 million of mark-to-market losses.

Tesla continues to be the largest short in the worldwide Auto Manufacturing Sector, the largest equity short in the U.S. market and the third largest worldwide short behind Alibaba Group (BABA) at $39.5 billion and Ping An Insurance Group (2318 HK) at $15.3 billion. Worldwide short interest in the Auto Manufacturing sector is $26.0 billion, down $949 million over the last week and U.S. short interest in the Auto Manufacturing sector is $13.3 billion, down $794 million over the same period. The Auto Manufacturing sector is down for the year, but has rebounded in February. The First Trust Nasdaq Global Auto Index ETF (CARZ) is down 2% year-to-date but up 2% in February.

With Tesla short interest declining slightly prior to today’s earnings announcement some short sellers may be wary of another Elon Musk led rally. With nearly $10 billion of short interest in the stock, shorts are not shying away from their long term commitment to their trade.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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