Tesla Short Sellers Reap $15 Billion in Profits in 2020

Tesla Inc. has seen a 0.86% change in its stock. Bears have finally been given a sense of justice.

Investors who bet against Elon Musk's electric-vehicle company have seen a collective gain of $15 billion in the year 2022, according to S3 Partners. This is a result of years of wrong-way bets.

Short sellers take out loans of shares and sell them with the expectation of making a profit by purchasing the stock back at a lower cost in the future.

Tesla's stock has seen a significant decrease of 61% in the year 2022, with an 8.1% drop on Tuesday alone. This is due to the current higher interest rate climate, which has caused speculative stocks to plummet. Additionally, investors have become increasingly worried that Elon Musk's focus is divided due to his takeover of Twitter Inc.

The turnaround of Tesla's success has been a pleasant surprise to those who had been skeptical of the stock's performance in early 2020, when it skyrocketed without taking into account the company's financials.

At the beginning of 2021, Tesla was trading around $30 on a split-adjusted basis. By November 2021, the stock had risen to above $400, and its market value had grown to over $1.2 trillion, making it one of the largest companies in the U.S. On Tuesday, the stock closed at a two-year low of $137.80.

Andrew Left, the founder of Citron Research who is renowned for his bearish stock trades, commented that it has been a difficult journey being a Tesla bear. He went on to say that it has been a troublesome trade.

Many of the people who had bet against Tesla were forced to abandon their positions as the company's stock prices rose dramatically. According to S3, the total losses on the trade amounted to a staggering $51 billion between 2020 and 2021.

Tesla has been a heavily shorted stock in the United States for a long time. The quick surge in the stock's value during the pandemic was made worse by the numerous short sellers who had to purchase back their shares in order to end their unsuccessful trades.

In January 2021, the amount of short interest in Tesla reached its highest point at over $51 billion, but has since decreased to an average of $19.3 billion in 2022, as reported by S3. Currently, 3% of the company's free float is sold short, which is a decrease from the average of 10% in 2020.

Mr. Left had a bad experience with a short position in the past, so he vowed to himself that he would never trade Tesla again. However, this summer he started to feel a fear of missing out, so he decided to get back in. He closed his position on Thursday with a profit, but he believes the stock could still go down.

He noted that the stock was still costly. He went on to explain that, according to most stock traders, prices usually go from expensive to inexpensive, not the other way around.

Tesla's stock is currently trading at 46.7 times its earnings over the past year, a significant decrease from the 1,765 times earnings it reached in January 2021, as reported by FactSet. This is in stark contrast to the S&P 500, which trades at 18.1 times earnings.

Mr. Left noted that people are beginning to take notice of certain realities that they had previously chosen to ignore. He pointed out that there are numerous elements to consider, such as competition and saturation, which had been previously overlooked.

The stock of Tesla has been negatively impacted by the share sales of its CEO, Elon Musk. Since November 2021, he has sold more than $39 billion in stock, which was done to help finance his Twitter acquisition. His most recent sale was just last week.

On Tuesday evening, Mr. Musk announced that he would be leaving his position as CEO of Twitter once he finds a suitable replacement.

Tesla did not immediately reply to a request for a statement. Elon Musk has previously expressed his opinion on Twitter that short sellers are "value destroyers" and that short sales should be prohibited.

Recently, the stock market has been the focus of attention from a variety of people, ranging from hedge-fund managers to Bill Gates, the co-founder of Microsoft Corporation.

Earlier this year, Elon Musk tweeted that Bill Gates had shorted $500 million in Tesla shares. When asked about it at The Wall Street Journal's CEO Council Summit in May, Mr. Gates did not provide a direct answer. The Gates Foundation did not respond to a request for comment when contacted.

On Thursday, Danny Moses, the investor who was featured in the 2015 movie "The Big Short" for his bets against the housing market, appeared on CNBC and revealed that he is currently shorting Tesla and anticipates that the stock will continue to decline.

Mr. Moses expressed his opinion on "Fast Money" that the current valuation of the company, which is still worth $500 billion, is not supported by its fundamentals. He believes that the stock price has been largely driven by the brand, and that this has been affected by the fact that the attention span of the company's leader has been reduced.

Despite the sharp decrease in Tesla's share price this year, one group has remained loyal: retail investors. According to Vanda Research, Tesla has become the most purchased stock among U.S. retail investors, surpassing Apple Inc. This year's $15.2 billion of retail purchases is a record for Tesla.

Lucas Mantle, a data science analyst at Vanda Research, noted that while overall buying activity has decreased, retail investors have remained committed to investing in Tesla.

Strategists have a hard time assessing the worth of Tesla due to the high level of consumer interest and the devoted fan base of CEO Elon Musk.

John Hempton, the founder of Bronte Capital, an Australian hedge-fund, has revealed that his firm has a small short position in Tesla. However, he has admitted that it is difficult to use their usual criteria when assessing the stock.

Mr. Hempton remarked that Elon was an exception to the rule.

Clarifications and EnhancementsIn January 2021, Tesla's price/earnings ratio reached its highest point at 1,765. An earlier article incorrectly stated that the peak occurred in April 2021. This was corrected on December 21.