• Research

Sep 1, 2016

S3 BLACKLIGHT: Tesla & SolarCity Short Sellers Gearing Down Their Holdings

After an initial surge of short selling after the announcement of the Tesla Motors Inc. (TSLA US) and SolarCity Corp. (SCTY US) merger short sellers have been reducing their positions, with an acceleration of short covering in August.

Short interest balances peaked at the end of June, after their June 27th merger announcement, with Tesla’s short interest at $6.5 billion and SolarCity’s at $652 million by June month end. By the end of July, with the cost to borrow Tesla stock at 19% fee and SolarCity stock at 66% fee, balances were already starting to slip. Tesla was down $240 million, or 4%, and SolarCity was down $80 million, or 12%.

Throughout July the S3 Crowing Indicator, a measurement of the magnitude of real-time shorting activity relative to market cap and float, showed many easing spikes in both securities but in August we saw a significant increase in easing spikes, which along with a downward trend in the S3 Relative Velocity Indicator, a measurement of the real-time relative change in shorting activity, which confirmed that there was a market wide momentum in covering short position for both these securities.

SolarCity had over $186 million of short covering in August, 29% of its June month end balance, and Tesla had $1.9 billion of short covering in August, also 29% of its June month end balance.

In total, $2.4 billion of June’s short positions have been covered to date, fully one third of the $7.2 billion of the short interest at the end of June for Tesla and SolarCity. With such a dramatic decrease in short demand comes some rate relief in borrow cost as well. The cost to borrow Tesla stock has dropped from a 19% fee to 12% fee and the cost to borrow SolarCity stock has also dropped from a 66% fee to 12% fee.

Today, with Tesla’s stock price down 5.3% and SolarCity’s down 9.0%, the short sellers that held onto their positions paid $1.6 million in borrow cost but were rewarded with an unrealized profit of $270 million.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

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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