Tesla Bears Are Sitting on $15 Billion in Gains This Year
Reversal of fortunes for Elon Musk’s company has been music to the ears of the stock’s many detractors
The Tesla Inc. TSLA -8.05% bears are finally feeling somewhat vindicated.
After years of wrong-way bets, investors shorting the shares of Elon Musk ‘s electric-vehicle maker are sitting on collective gains of $15 billion in 2022, according to data from S3 Partners.
Short sellers borrow shares and sell them with the hope of profiting by buying the stock back at a lower price later.
Tesla shares have fallen 61% in 2022, including Tuesday’s 8.1% drop, dinged by the higher interest-rate environment that has sent speculative stocks tumbling back to earth. Investors have also grown increasingly concerned that Mr. Musk’s attention is divided following his takeover of Twitter Inc.
The reversal of Tesla’s fortunes has been music to the ears of the stock’s many detractors who watched in astonishment when it kicked off a monster run in early 2020, with little regard for fundamentals.
Tesla traded around $30, on a split-adjusted basis, at the start of that year and eventually peaked above $400 in November 2021. Its valuation swelled to more than $1.2 trillion, making it one of the largest companies in the U.S. by market value. The stock closed Tuesday at $137.80, a two-year low.
“It has not been an easy road being a Tesla bear,” said Andrew Left, the founder of Citron Research who is known for betting against stocks. “It’s been a pain-in-the-ass trade.”
Of course, many Tesla bears didn’t stick around. Some were forced to call off their bets and close their positions at a loss during the precipitous rise in the company’s shares. Collective mark-to-market losses on the trade were a whopping $51 billion over the course of 2020 and 2021, according to S3.
Tesla has long been among the most shorted U.S. stocks. The rapid increase in the shares during the pandemic was exacerbated in part by the many short sellers who were forced to buy back shares to close their losing positions.
Short interest in Tesla peaked at more than $51 billion in January 2021, but has fallen to average $19.3 billion in 2022, according to S3. Roughly 3% of the stock’s free float is currently sold short, down from an average of 10% in 2020.
Mr. Left, who was previously burned by his short position, says he promised himself at one point that he would never trade Tesla again. This summer, though, he says he began to get “FOMO,” or a fear of missing out, and he jumped back in. Mr. Left said he closed his position Thursday at a profit but sees room for the shares to fall further.
“It’s still an expensive stock,” he said. “By no means is this over. As most stock traders will tell you, things don’t go from expensive to fairly priced. Things normally go from expensive to cheap.”
Tesla shares are trading at 46.7 times their earnings over the past 12 months, a far cry from their peak multiple of 1,196 from April 2021, according to FactSet. The S&P 500, in contrast, trades at 18.1 times earnings.
“People are starting to pay attention to some of the facts that they didn’t want to pay attention to before. Competition. Saturation. There’s a lot of factors involved that people were sweeping under the table,” Mr. Left added.
Also hurting the stock of late are Mr. Musk’s own share sales. The Tesla chief executive has sold more than $39 billion in stock since November 2021, in part to help finance his Twitter acquisition. His most recent sale was last week.
Mr. Musk tweeted late Tuesday that he would step down as Twitter’s chief executive as soon as he finds a replacement.
Tesla didn’t immediately respond to a request for comment. Mr. Musk has previously tweeted that short sellers were “value destroyers” and that short sales should be illegal.
Lately, the stock has been the target of everyone from hedge-fund managers to Microsoft Corp. co-founder Bill Gates.
In a series of tweets earlier this year, Mr. Musk accused Mr. Gates of shorting $500 million in Tesla shares. Mr. Gates didn’t directly answer questions about whether he was personally shorting the stock at The Wall Street Journal’s CEO Council Summit in May. A representative for the Gates Foundation didn’t immediately respond to a request for comment.
Danny Moses, the investor famous for bets against the housing market who was portrayed in the 2015 movie “The Big Short,” said on CNBC Thursday that he is currently short Tesla and expects it to fall further.
“It’s still a $500 billion company and I don’t think that the fundamentals justify that valuation,” Mr. Moses said on “Fast Money.” “I think a lot of the stock price has been about his brand, and we’ve seen that now get hit a little bit. His attention span is being compromised.”
One group has refused to abandon Tesla despite this year’s sharp share-price declines: the retail crowd. Tesla has been the most-purchased stock among U.S. retail, or nonprofessional, investors this year—dethroning Apple Inc., according to data from Vanda Research. The $15.2 billion of retail purchases is a record for Tesla.
“While purchasing across the market has softened, retail investors have continued to religiously buy into Tesla,” said Lucas Mantle, a data science analyst at Vanda Research.
If there’s one thing strategists agree on, it’s the difficulty of valuing Tesla given the retail interest and Mr. Musk’s cultlike following.
Australian hedge-fund manager John Hempton, founder of Bronte Capital, said his firm has a small short position in Tesla but struggles to apply its traditional criteria in evaluating the stock.
“Elon breaks our model,” Mr. Hempton said.