Tesla Short Sellers Down $6.08 Billion in Stocks

Investors who bet against Tesla Inc (TSLA.O) for a while saw it as an excellent opportunity to make substantial mark-to-market profits. Last year, they made a tidy $17 billion betting against the electric car maker. But now the tables have turned, and those who sold short Tesla are seeing their losses mount.

As of this writing, more than 94 million company shares are being shorted in U.S. markets, according to data from S3 Partners. That makes the company the second most shorted stock in the market, reclaiming the title from Apple (AAPL).

The S3 data shows that if the current rally continues into next week, those who sold short Tesla will have racked up losses of about $6.08 billion on a mark-to-market basis. That translates to an outsized loss for short sellers, but the firm’s managing director Ihor Dusaniwsky tells CNBC that it’s not a sign that short interest is waning.

Tesla’s current rally, which will span 11 sessions if it closes Friday’s session higher, has the stock up around 35% since May 24. It has been powered by an improvement in production at its plant, a strategic deal with General Motors Co (GM.N), sales growth in China, and eligibility for a new $7,500 tax credit for customers who buy the Model 3.

But despite the massive gains, many investors still need to be convinced that the company can maintain its current pace of top-line growth and profit margins in the long run. They also worry that a slowing global economy could tip into recession, hitting demand for EVs. And they’re concerned that other automakers — both legacy and newer companies like Lucid (LCID) and Ford (F) — will continue ramping up their electric vehicle production, which could cut into Tesla’s share of the market.

Those doubts have helped make Tesla one of the most popular stocks to short in recent years, with bearish investors betting on the company to fall in price. That’s why the company was the most profitable short trade of 2022, according to S3 data. Traders who sell securities short borrow shares and then sell them, expecting the stock to fall so they can repurchase the shares at a lower price, return them to their lender and pocket the difference. The strategy is often used in volatile markets to hedge against the risk of significant losses in a particular stock. It’s not uncommon for the most shorted stocks to see some of the most significant gains when the market turns around. But only sometimes. The recent rally in Tesla has been a rare exception. The bears are finally getting their wish. But they’re still waiting for the other shoe to drop. That’s expected to happen soon.

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