• Research

Jun 29, 2018

S3 Analytics: Tesla Shorts not Covering Ahead of June Production Results

As of Thursday, June 28th, Bloomberg’s Tesla Model 3 Tracker updated its weekly production forecast to 4,500 cars for the next week. While still below Chairman/CEO & Co-Founder Elon Musk’s 5,000/week end of June assurance, production rates are well within striking distance of hitting their mark on a run-rate basis. Attaining Musk’s target is much more than a sign of sustained growth and manufacturing acumen and source of tweet fodder to inspire his followers and chide his naysayers and detractors; “hitting the number” is a harbinger of future profitable and cash flow positive quarters which will quench the prospect of a looming cash crunch.

Tesla long shareholders, who are usually both fans of Tesla’s automobiles as well as its CEO, have pushed its stock price up 11.5% for the year and 21.5% in June alone. Tesla short sellers, who may like the cars but not necessarily Tesla’s CEO and capital structure, have long been the object of “short squeeze” rumors and sources of short term “buy-to-cover” rallies in the stock. While the prospect of a ”short squeeze” continues to hover over a stock in which short sellers have lost $5.2 billion in mark-to-market losses over two and a half years, the sheer amount of the loss coupled with a 26% increase in shares shorted over that same time period should have convinced shareholders, analysts and journalists that Tesla is one of the few true “Teflon Shorts” and is virtually immune to short squeezes.

While it is true that Tesla shares shorted decreased by 4.2 million shares, down 10.8%, during June’s rally, 60% of the decrease occurred when Tesla’s stock price fell 7% after hitting its year-to-date high in mid-June, definitely not the result of any type of “short-squeeze”.

With Tesla’s stock price down 1.25% today it was long sellers pushing the stock price down as we only saw a modest increase in net short selling totaling 200,000 to 300,000 shares. Short sellers have held their exposure relatively stable over the last week, keeping shares shorted in the 34.5 to 36 million share range and have not been looking to increase their bet size ahead of this weekend’s production results. Both longs and shorts seem to be positioning themselves for a possibly volatile week, especially when looking at the increased put and call option trading activity in both at and near the money strike prices.

Tesla’s hitting or missing its 5,000 car/week end of June production rate target will generate significant mark-to-market profits and losses for long and short shareholders.  Short sellers are down $757 million in mark-to-market losses so far in 2018, down $2.5 billion in June alone. If Tesla’s stock price rallies, we will see if Tesla short sellers continue to be “Teflon Shorts” and total shares shorted remain relatively stable or Elon Musk’s tweet is prescient and “their short position explodes.”

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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