Tesla bears are sitting on $15 billion in earnings this year

After years of wrong bets, investors shorting shares in Elon Musk’s electric vehicle maker are sitting on collective profits of $15 billion by 2022, according to data from S3 Partners.

Short sellers borrow shares and sell them in the hope of profiting from later buying back the stock at a lower price.

Tesla shares are down 61% in 2022, including Tuesday’s 8.1% drop, hurt by the higher interest rate environment that has sent speculative stocks back to earth. Investors are also increasingly concerned that Mr Musk’s attention has been divided following his acquisition of Twitter Inc.

The reversal of Tesla’s fortunes was music to the ears of the stock’s many detractors, who watched in amazement as it embarked on a monster run in early 2020, regardless of fundamentals.

Tesla traded at around $30 split-adjusted earlier this year and eventually peaked over $400 in November 2021. Its valuation rose to more than $1.2 trillion, making it one of the largest companies in the US by market value. The stock closed at $137.57 on Wednesday, a two-year low.

“It wasn’t an easy journey to be a Tesla bear,” said Andrew Left, the founder of Citron Research, who is known for betting against stocks. “It was a painful trade.”

Of course, many Tesla bears didn’t stick around. Some were forced to abandon their bets and close their positions at a loss as the company’s stock soared. According to S3, collective mark-to-market losses from trading over the course of 2020 and 2021 totaled a whopping $51 billion.

Tesla has long been one of the most shorted US stocks. The rapid rise in stocks during the pandemic has been exacerbated in part by the many short sellers who have been forced to buy back shares to close their losing positions.

Short interest in Tesla peaked at more than $51 billion in January 2021 but has fallen to an average of $19.3 billion in 2022, according to S3. About 3% of the stock’s free float is currently short, up from an average of 10% in 2020.

Mr Left, who was previously burned from his short position, says he at one point promised himself he would never trade with Tesla again. That summer, however, he said he started getting “FOMO,” or the fear of missing out, and he jumped back in. Mr Left said he closed his position for a profit on Thursday but sees room for the stocks to fall further.

“It’s still an expensive stock,” he said. “This is by no means over. As most stock traders will tell you, it doesn’t go from expensive to fairly valued. Things usually go from expensive to cheap.”

Tesla shares are trading at 42.5 times trailing-12-month earnings, according to FactSet, a far cry from its January 2021 peak of 1,765. In contrast, the S&P 500 is trading at 17.6 times earnings .

“People are starting to pay attention to some of the facts that they didn’t want to pay attention to before. Contest. Saturation. There are many factors that people have swept under the carpet,” added Mr. Left.

Musk’s own stock sales are also hurting the stock recently. The Tesla CEO has sold more than $39 billion worth of stock since November 2021, in part to fund his Twitter acquisition. His last sale was last week.

Ever since Elon Musk took over, Twitter has been in turmoil. To get a feel for what’s going on behind the scenes, The Wall Street Journal spoke to former Tesla and SpaceX employees to better understand how Musk runs companies. Figure: Ryan Trefes

Mr. Musk tweeted late Tuesday that he would step down as Twitter boss once he finds a replacement.

Tesla did not immediately respond to a request for comment. Mr. Musk previously tweeted that short selling was “value destroyers” and that short selling should be illegal.

Of late, the stock has been the target of everyone from hedge fund managers to Microsoft corp

Co-founder Bill Gates.

In a series of tweets earlier this year, Mr. Musk accused Mr. Gates of shorting $500 million worth of Tesla stock. Mr. Gates didn’t directly answer questions about whether he personally shorted the stock at the Wall Street Journal’s CEO Council Summit in May. A Gates Foundation representative did not immediately respond to a request for comment.

Danny Moses, the investor famous for betting against the real estate market and portrayed in the 2015 film The Big Short, said on CNBC Thursday that he is currently short Tesla and expects it to continue falling.


What is your outlook on Tesla? Join the conversation below.

“It’s still a $500 billion company and I don’t think the fundamentals support that valuation,” Mr. Moses said in Fast Money. “I think a lot of the stock price revolved around its brand and we’ve seen that take a little hit now. His attention span will be affected.”

One group has refused to let Tesla down despite its sharp declines this year: retailers. Tesla was the best-selling stock among US retail or nonprofessional investors this year, dethroning Apple inc,

based on data from Vanda Research. The $15.2 billion worth of retail purchases is a record for Tesla.

“While buying has eased across the market, retail investors have continued to buy into Tesla religiously,” said Lucas Mantle, data science analyst at Vanda Research.

If strategists can agree on one thing, it’s the difficulty of pricing Tesla given Mr. Musk’s retail interest and cult-like following.

Australian hedge fund manager John Hempton, founder of Bronte Capital, said his firm has a small short position in Tesla but struggles to apply its traditional criteria when evaluating the stock.

“Elon breaks our model,” said Mr. Hempton.

Write to Jack Pitcher at [email protected]

Corrections & Enhancements
Tesla’s trailing price-to-earnings ratio peaked at 1,765 in January 2021. A previous version of this article incorrectly said it peaked in April 2021 at 1,196. (Corrected December 21)

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