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Tesla short sellers lose more than $1B in a day

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Tesla CEO Elon Musk presented the first batch of made-in-China Model 3 cars on 7 January 2020 in the company's new Shanghai "giga-factory." (AFP)

Investors betting against Elon Musk’s electric-auto maker Tesla collectively lost more than $1 billion on Thursday as the company’s stock rocketed higher after its better-than-expected earnings report.

Tesla popped 11.4% to around $650 per share, meaning short sellers betting against the stock are on track to lose well in excess of $1 billion in mark-to-market losses on the day, data firm S3 Analytics estimated.

In fact, Tesla short sellers are now down more than $5.2 billion this year in mark-to-market losses after losing $2.89 billion in 2019, S3 said. Since the stock’s low of $178.97 on 3 June 2019, Tesla short sellers have covered 19.11 million shares, worth $11.1 billion, and are down $12.43 billion in mark-to-market losses, according to S3′s Ihor Dusaniwsky.

The spike in Tesla equity came after the company reported fourth-quarter earnings of $2.14 per share, well ahead of expectations for $1.72 per share. It said it expected positive cash flow and net income on a continuing basis going forward barring one-time production investments, a relief to those who’d poured cash into the young auto company in recent years.

“2019 was a turning point for Tesla,” the company said in a statement announcing earnings. “As more people drive our cars and as the industry rapidly validates electrification, interest in our products will continue to grow.”

The company is now also the second most valuable automotive group in the world behind Toyota and ahead of Volkswagen, with a goal of delivering more than half a million cars in 2020, a jump of 36 percent compared to the year prior.

Still, Dusaniwsky explained that Tesla is still the most-shorted stock in the U.S. market in terms of equity value short, a title it reclaimed from Apple earlier this month. The iPhone maker had been the most-shorted stock in the U.S. market in terms of total value sold short since it passed Tesla in September.

And though Tesla remains the biggest short in the U.S. market, bets against the carmaker are on the decline. Tesla shares shorted have decreased by 1.78 million, 6.4%, over the last 30 days as the equity surged 39%. That equates to a loss of $975 million in short covering over the last month, S3 data shows.

The critics tend to be hedge funds, which try to beat the broader equity market with concentrated portfolios of stocks they like combined with short sales against those they don’t. Short sellers borrow and then sell shares of a company they think will decline in value. By selling a security at current prices and buying it back later, at a lower price, the investor can turn a profit.

To be sure, Tesla shorts aren’t unaccustomed to eye-popping mark-to-market losses, even on a daily basis.

Shorts lost an estimated $1 billion-plus in a single session last quarter after the company’s third-quarter earnings report showed it had returned to profitability and reported positive free cash flow.

Tesla stock surged more than 17.5% on 24 October following those third-quarter results, at the time wiping out almost 70% of short sellers’ year-to-date profits. (CNBC, AFP)

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