Tesla’s brutal year brings in $17 billion in shorts

(Bloomberg) — Investors who bet on Tesla Inc. On the big payoff they’ve been waiting for, the electric car maker is set to post its worst annual performance ever.

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The company’s short sellers — or bear investors who might earn when an asset’s price drops — are poised to take a market dividend of about $17 billion, making Tesla the year’s most lucrative short sale, according to data from S3 Partners.

Tesla fell more than 42% in December through Wednesday’s close, pushing it down 68% this year — marking a dramatic turnaround for the stock that soared during the low-rate pandemic era.

It’s a rare victory for the shorts, whose returns of 89% come after several years of big losses, said S3’s Ihor Dusanewski. And according to S3 data, about 2.9% of Tesla’s free float is short term.

Tesla faced a turbulent year as investors fled risky assets on concerns about geopolitical uncertainty, rising inflation, rising interest rates and a potential recession. Add to these concerns that Tesla CEO Elon Musk’s focus will shift to his recently acquired social media company, Twitter, just as electric vehicle demand is expected to take a hit.

Dusaniwsky expects the short to continue until the stock bottoms out. But analysts and investors are still struggling to see a bottom, especially since the company is set to report delivery numbers for the fourth quarter early next month and offer great buyer incentives.

Tesla shares rose 7% to $120.60 in New York on Thursday for the second straight day of gains, showing some signs of relief after seven straight days of losses that sent them down 31%. If the advance holds through the end of the session, it will be the stock’s first consecutive days of green since early December.

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Late Wednesday, Morgan Stanley analyst Adam Jonas, who has had a buy equivalent rating on the stock since November 2020, said there was an “attractive entry for investors” amid the sharp decline in the share price. Jonas lowered his price target on Tesla to reflect lower prices and a devaluation of the company’s business, but said he expects the company to extend its lead over the EV competition in 2023.

However, even if the share price starts to recover from here, Tesla’s notorious volatility could continue to slow, according to S3’s Dusaniwsky.

“When Tesla stock starts to rally, there should be a wave of short covering that will help boost its share price higher and faster as short-term short sellers look to take their huge profits into the market before it evaporates,” he said.

(Updates stock movement and adds details in the seventh paragraph, and adds analyst comments in the eighth.)

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