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Oct 23, 2018

S3 Analytics: Citron Reversal & Early Earnings Cost Tesla Shorts $1.1 Billion

Tesla Inc (TSLA) is up over 13% today on two surprise announcements. Andrew Left of Citron Research who was a boisterous critic of stock, multi-year short seller and party to a post-Elon Musk “funding secured” tweet lawsuit is now touting that “Tesla is destroying the competition.” And Tesla has decided to hold a conference call on Wednesday and release its 3rd quarter results, a week earlier than its usual first week of November timetable. Both developments were viewed as positive and a welcome turnabout for long shareholders who have been engulfed in negative news regarding SEC charges and C-Suite uncertainty. As a result, Tesla’s stock price has been rallying since the opening bell.   

Tesla’s short interest has been declining since “The Tweet” on August 7th, down $3.2 billion, or -27%, even as Tesla’s stock price declined by -14% over that same time period. Short sellers had covered 1.4 million shares since August 7th, taking profits as they made back over $2.5 billion of mark-to-market profits before today’s rally. Over the last week we have seen renewed short selling with 886k of new shorts hitting the tape and even additional short selling into today’s price move. Tesla has regained the number two spot in the U.S. short interest league tables, nipping on Apple’s heels.

Tesla’s shares shorted, which topped 41.5 million shares in May of this year, have been in a 32-35 million share trend since late June as short sellers held their conviction even as Tesla’s stock price rumbled between $250 and $379/share over that same time period. Recently, after several weeks of slight short covering, we have seen some short activity ahead of what was to have been next week’s earning announcement.  If Tesla’s price strength continues, we may see a quick about face from some of the recent short sellers in the stock.

Short shareholders took a $1.1 billion mark-to-market loss to their P/L on today’s price move turning what had recently become a profitable year into losing one. Shorts are now down $257 million in mark-to-market losses for the year but are still up $1.45 billion since “The Tweet.” In actuality, they are relatively flat on a stock price mark-to-market basis, their $212 million in stock borrow costs make up the vast majority of their losses.

Tomorrow’s 3rd quarter earnings results may move short sellers out of their safe zone – if results are positive and exceed expectations we may see short covering in order to lock in some of the $1.45 billion of post-August 7th mark-to-market profits and shares shorted decline towards the 30 million share mark. But if results disappoint we may see an acceleration of recent short selling and shares shorted break through the 35 million share level.

Research Note written by Ihor Dusaniwsky
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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