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Aug 7, 2018

S3 Analytics: Tesla at $420/share Might Send Tesla Shorts Up in Smoke

Tesla Inc.’s (TSLA) Chairman/CEO/Co-founder Elon Musk tweeted “Am considering taking Tesla private at $420. Funding secured.” and within an hour Tesla’s stock price steaked up to over $370/share, up +8%. The $12.8 billion of Tesla shorts, who were down $2.6 million in mark-to-market losses this year, have taken another body blow to the ribs today. With Tesla at $384.50/share, shorts are down -$1.49 billion in mark-to-market losses today, bringing August losses to -$3.0 billion, year-to-date losses to -$3.2 billion and losses since 2016 to -$6.6 billion.

Tesla continues to be the largest U.S. equity short, trailing only Alibaba Group (BABA US) worldwide. Even with Tesla’s stock price up 18% in 2018, shares shorted have increased by 4.6 million shares, +15% and total short interest has increased by $2.3 billion, +22% in 2018. Surprisingly, with Tesla’s stock price up 29% since their August earnings report, shares shorted has not decreased appreciably, down only 316k shares or less than 1%. Even after incurring over $1.5 billion in mark-to-market losses in August, short sellers have kept their positions and conviction. If Elon Musk does take Tesla private at $420/share we might actually see a short squeeze in Tesla shares, the Teflon Short can only take so much punishment before it gives in. If the market believes that Elon Musk’s financing is in place and the chances of a buyout is high, we should see short covering in size, driving Tesla’s stock price higher in the short term as short sellers attempt to close out their positions at lower than the $420 takeout price.

In addition to voluntarily closing out their positions ahead of the possible buy-out, short sellers may also be forced out of their positions due to margin calls. Either way, shorts will be turbo-charging the rally to $420 as August mark-to-market losses continue to accumulate. If Tesla hits $420/share and shares shorted remains constant, August mark-to-market losses would be -$4.3 billion, 2018 year-to-date losses would be -$4.45 billion and losses since 2016 would be -$7.8 billion. It would be difficult to hold onto your short positions in the face of such losses.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
                 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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