Tesla's Most Challenging Year Results in $17 Billion Profit for Short Sellers

Investors who have been betting against Tesla Inc. are finally seeing the payoff they have been hoping for, as the electric-vehicle company is set to experience its worst annual performance in its history.

Investors who are bearish on the company and stand to benefit from a decrease in the asset's price, known as short sellers, are projected to make a mark-to-market profit of approximately $17 billion from Tesla, making it the most lucrative short trade of the year, according to S3 Partners.

Tesla has seen a dramatic decrease in its stock price in December, dropping by 42%. This has resulted in a total loss of 68% for the year, a stark contrast to the surge in stock prices that occurred during the pandemic when interest rates were low.

Shorts have achieved a rare success with an 89% return on their investments after a period of considerable losses, according to Ihor Dusaniwsky of S3. Data from S3 reveals that 2.9% of Tesla's freely traded shares are held short.

Tesla has had a difficult year, with investors avoiding risky investments due to worries about geopolitical issues, inflation, increasing interest rates, and a potential recession. Furthermore, there are concerns that Tesla CEO Elon Musk's attention will be diverted to his newly acquired Twitter company, just as the demand for electric vehicles is expected to decrease.

According to Dusaniwsky, short selling is likely to continue until the stock reaches its lowest point. However, analysts and investors are having difficulty determining when that bottom will be, especially since the company is set to release its fourth-quarter delivery numbers in the beginning of next month and has been providing generous incentives to buyers.

On Thursday, Tesla stocks experienced a 3.5% increase in premarket trading.

Despite a potential rise in share price, S3's Dusaniwsky believes that the stock's volatility could remain a factor.

When the stock of Tesla starts to increase, there will likely be a surge of short covering which could help propel its stock price higher and faster as short-term short sellers attempt to take advantage of their large mark-to-market gains before they disappear.