5 Things To Know About Short Sellers Betting Against Tesla’s Balance Sheet And Nosebleed Valuation In 2021

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Written by Ann Brown
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5 Things To Know About Short Sellers Betting Against Tesla’s Balance Sheet And Nosebleed Valuation In 2021. In this March 14, 2019, file photo Tesla CEO Musk speaks before unveiling the Model Y at Tesla’s design studio in Hawthorne, California. (AP Photo/Jae C. Hong, File)

Short sellers love Tesla, the electric car company that always seems to be making news, either on the innovation front or on the stock market.

Tesla just announced that it will be selling its electronic cars in India in 2021 and the company’s stock is ending the year with soaring share prices, creating a slew of millionaires — the self-named “Teslanaires.”

Shares in Tesla have increased more than 700 percent in 2020, making it the world’s most valuable car company, Yahoo reported.

Still, things haven’t always been smooth for investors, especially long-term investors. Lately, it’s been all been about the stocks and short sellers.

There are varying opinions about Telsa stock. It’s too expensive and in bubble territory compared with its performance, according to Vitali Kalesnik, a partner and head of research at Research Affiliates. 

Tesla shares tumbled on Dec. 21 as it debuted on the S&P 500. The stock ended 6.5 percent down from a record high in the previous session, CNBC reported.

The following day, Tesla CEO Elon Musk tweeted that he tried to get a meeting in 2018 with Apple CEO Tim Cook about the possibility of Apple buying the electric vehicle giant — but that Cook refused, Yahoo reported.

Musk’s comments come hot on the heels of a report that Apple is once again planning to produce its own electric car with self-driving technology.

When looking at company stocks, short sellers bet that a company’s share price will drop. They borrow shares, immediately sell the stock when it is high, and then buy the stock back to return it to the lender, according to Investopedia.

Tesla remains the most shorted U.S.-listed stock on the market Business Insider reported on Dec. 22. Financial data firm S3 Partners calculated there’s $23.4 billion worth of Tesla stock currently shorted, which works out at about 7.5 percent of the total number of shares in circulation.

Here are five things to know about short sellers betting against Tesla’s balance sheet and nosebleed valuation in 2021.

1. Billions lost by short sellers

Telsa stock has risen more than 400 percent in 2020, making it hard to make money by shorting it. Short sellers have lost $27.04 billion betting against Musk in 2020, according to S3 Partners, Business Insider reported.

Telsa short sellers made a $243 million profit in October, a month that saw the stock sink 10 percent.

2. Nosebleed valuation

Tesla stock seems to consistently “defy gravity.” Its market capitalization as of this writing is $631.29 billion.

In early December, Musk stunned investors by admitting that Tesla would consider merger talks with possible suitors, Investor Place reported.

“I think we’re definitely not going to launch a hostile takeover,” Musk told media and tech company Axel Springer CEO Mathias Doepfner during an interview. “If somebody said, ‘Hey, we think it would be a good idea to merge with Tesla,’ we’d certainly have that conversation. But we don’t want it to be a hostile takeover situation.”

3. Is a Tesla ‘short squeeze’ coming?

Some observers say that strong short interest in Tesla is not a real concern and will send Tesla’s share price even higher.

The velocity of this “short squeeze” would supposedly increase Tesla‘s share price dramatically. “As is true for any stock, if short sellers are forced to close their positions, the buy-to-covers resulting from this short squeeze would positively affect its stock price,” S3 Partners’ Ihor Dusaniwsky told The Next Web. “But since most of Tesla’s short sellers are long-term shorts, convertible bond arbitrage traders, and not momentum short players, a sudden large surge of buy-to-covers is unlikely.”       

4. Some short sellers not sold

Tesla skeptic Jim Chanos, president of fund management giant Kynikos Associates, told Barron’s that he still doesn’t like Tesla stock. Chanos is famous for his short selling.

“However you might want to dream about autonomous taxis, spaceflight, tunnels underground, whatever—they are a car company, and they are an unprofitable car company,” Chanos said.

Tesla’s $600 billion-plus valuation is based on investors’ optimism and not how many cars Tesla is selling, according to Chanos. “Tesla is a canvas upon which investors’ hopes and dreams now are being painted.”

5. Tesla on top

Tesla is still the top short in the U.S. market, with $21.3 billion bet against the company, according Dusaniwsky of S3. Tesla has more money bet against it than tech giants Apple — which boasts a $2 trillion market value — Alibaba, Microsoft, Facebook, and Netflix, Business Insider reported.