(Bloomberg) – Investors betting against Tesla Inc. are getting the big bonanza they’ve been waiting for, with the electric vehicle maker poised to record its worst annual performance ever.
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Short sellers in the company — or bearish investors who can make a profit when an asset’s price falls — are poised to make mark-to-market gains of about $17 billion, making Tesla the year’s most profitable short trade. , according to data from S3 Partners. .
Tesla is down more than 42% in December through Wednesday’s close, taking it to a 68% loss this year – marking a radical turnaround for a stock that soared during the low interest era of the pandemic.
It’s a rare victory for the shorts, whose 89% return comes after several years of significant losses, said S3’s Ihor Dusaniwsky. About 2.9% of Tesla’s free float is held short, according to S3 data.
Tesla has had a tumultuous year, with investors fleeing risky assets over concerns about geopolitical uncertainty, high inflation, rising interest rates and a possible recession. Add to that concerns that the focus of Elon Musk, Tesla’s chief executive officer, will be diverted to his recently acquired social media company Twitter just as electric vehicle demand is about to take a hit.
Dusaniwsky expects short selling to continue until the stock hits a bottom. But analysts and investors are still struggling to see a bottom, especially as the company will report fourth-quarter delivery numbers early next month and has offered major buyer incentives.
Tesla shares rose as much as 7% to $120.60 in New York on Thursday for the second consecutive day of gains, showing signs of relief after a seven-day losing streak dragged it down 31%. If the advance continues through the end of the session, the stock will be in green for the first back-to-back days since early December.
Late Wednesday, Morgan Stanley analyst Adam Jonas, who has had the equivalent of a buy rating on the stock since November 2020, said there is an “attractive entry point for investors” amid the steep drop in share price. Jonas lowered his price target on Tesla to reflect lower prices and lower valuations of the company’s businesses, but said he expected the company to increase its lead over EV competition in 2023.
But even if the stock price starts to recover from here, Tesla’s infamous volatility could linger, according to S3’s Dusaniwsky.
“When Tesla shares start to tick up, there should be a flurry of shortcovering that will help push the share price higher and faster as short-term short sellers look to realize their excessive mark-to-market gains before they evaporate,” he said.
(Updates stock movement and adds details in seventh paragraph; adds analyst commentary in eighth.)
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