Tesla short-sellers have the last laugh
Tesla short-sellers have made a bumper $1.2bn (£940m) paper profit since the car company’s colourful chief executive Elon Musk said he is considering taking the business private.
Despite making some initial gains in the immediate aftermath of Musk’s tweet on 7 August, in which he declared that funding for the move had been secured, the company’s share price has plummeted more than 19 per cent to date, cutting over $12bn from Tesla’s market capitalisation.
Analysts at S3 Partners estimated the tweet drove away fewer than four per cent of short-sellers, providing those who stayed the course with a mark-to-market profit of $1.2bn as trading closed on Friday.
In an email to Tesla employees shortly after the now infamous tweet, Musk blamed short-sellers (who bet against a company’s share price rising) as a primary reason for his plan to go private, claiming that they harboured “an incentive to attack the company”. Musk again lambasted short-sellers in an interview with the New York Times on Thursday, describing them as “not dumb guys”, but also “not super-smart”.
Read more: Tesla shares fall as analysts cast doubt on Model 3 profitability
Tesla remains the most shorted stock on the US market, with several investors adding to their short exposure over the past week, according to S3.
The tweet in question suggested Musk had already “secured” the necessary funding to take the company private at a raised share price of $420. Musk later rowed back on his comments, in which he tapped Saudi Arabia’s Public Investment Fund as having expressed “strong support” in wholly funding a future transaction.
Musk’s tweet now sits at the centre of several lawsuits and an investigation by the US markets regulator into whether the Tesla billionaire orchestrated the ensuing fiasco in a bid to hurt short-sellers.
More than a quarter of Tesla’s entire float has been shorted to date, equating to a little over $11.2bn across 33.4m shares. Globally, only Chinese e-commerce group Alibaba and Hong Kong-based Ping An Insurance hold larger short interest.
Read more: Tesla braced for a big hit from legal claims following Musk’s Twitter gaffe
Tesla’s share price fell nine per cent on Friday alone, powered by continued analyst doubts that the firm will reach profitability alongside the ill-fated New York Times interview in which Musk denied being high on marijuana.
Additionally, Musk failed to appease investor concerns as he described being worn out from the pressure of running the firm. Tesla is reportedly in the process of recruiting a supporting executive role, though Musk insists he remains fully committed to the company.
“If you have anyone who can do a better job, please let me know,” he said.
Alongside the growing row over Musk’s controversial tweet, analysts continue to question the strength of his company. UBS analyst Colin Langan said Tesla’s Model 3 car will fail to produce better profit margins than a standard BMW sedan due to miscalculations on manufacturing costs. As such, he theorised Tesla could lose $6,000 on every base model of its latest car.