Tesla’s Brutal Year Brings $17 Billion Windfall for Shorts

After years of stinging losses, investors betting against Tesla Inc. are finally reaping the windfall they’ve been expecting.

By:BLOOMBERG
| Updated on: Dec 30 2022, 07:36 IST
Elon Musk Twitter Bankruptcy Talk: Timeline
Twitter
1/13 He’s told employees to brace themselves for long hours, that “the road ahead is arduous and will require intense work to succeed,” and said bankruptcy was possible. Here’s how the saga is unfolding: (Bloomberg)
Twitter
2/13 Oct. 27: Musk takes control- His first act is to fire the Board along with CEO Parag Agrawal, CFO Ned Segal, head of legal Vijaya Gadde and Counsel Sean Edgett. Musk forms advisory team that includes celebrity attorney Alex Spiro, VC David Sacks, Neuralink CEO and head of Musk’s family office Jared Birchall, investor Jason Calacanis, and partner of Andreessen Horowitz Sriram Krishnan. (Reuters)
Twitter
3/13 Oct. 28: Brands begin to take pause- As Musk plans to unban accounts and says he will charge for user verification, advertisers suspend ads. (AFP)
Elon Musk Twitter
4/13 Oct. 31: Top tweeters protest- Amid murmurings of plans to charge existing verified accounts, author Steven King tweets, “$20 a month to keep my blue check? F**k that, they should pay me. If that gets instituted, I’m gone like Enron.” (AFP)
Elon Musk
5/13 Nov. 1: Teams working around the clock- The product team works over the weekend on Musk’s idea to charge users for blue check marks. A photo of product director Esther Crawford sleeping on the floor of a conference room, trying to make the deadline, goes viral. Meanwhile, managers are asked to make lists of who can be fired. Employees print out their software code for review by Musk and engineers from Tesla, to determine if their contributions are worthy of keeping a job. (REUTERS)
Twitter
6/13 Nov. 3: Massive layoffs begin- A memo is sent to all employees telling them of imminent layoffs and to watch for an email with the subject line: “Your Role at Twitter.” Badge access to offices is suspended as 3,700 staffers receive word that they’ve been cut. Realizing employees essential for the continuity of the business have been let go by mistake, some are asked to come back. (AP)
Elon Musk Twitter
7/13 Co-founder EV Williams tweets, “Heart’s out to the tweeps getting laid off today.” Co-founder Jack Dorsey adds, “I realize many are angry with me. I own the responsibility for why everyone is in this situation: I grew the company size too quickly. I apologize for that.” (REUTERS)
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8/13 Nov. 5-6: Musk responds to celebrity protests- Unrest grows on the platform over the weekend, particularly over the issue of impersonator accounts. Actress Valerie Bertinelli starts a movement of people changing their Twitter names to “Elon Musk.” Comedian Kathy Griffin joins the protest, finds her account locked. Then Musk announces, “Going forward, any Twitter handles engaging in impersonation without clearly specifying `parody’ will be permanently suspended.” (AP)
Twitter
9/13 Nov. 8: Musk sells more Tesla- Despite a previous vow not to sell any more Tesla stock, Musk sells an additional $3.95 billion, bringing the total sold in past year to $36 billion. (REUTERS)
twitter
10/13 Nov. 9: Musk Blue tick mark- Blue check mark option becomes available for purchase, and immediately becomes a tool for impersonators. An account masquerading as Nintendo Inc. posts an image of Super Mario holding up a middle finger. (REUTERS)
Elon Musk
11/13 Tesla and SpaceX CEO Elon Musk, and a close cadre of advisers are considering a host of changes to the way Twitter is run and makes money. (REUTERS)
Twitter
12/13 Nov. 10: More key executives quit as Musk warns of bankruptcy- In his first meeting with employees, Musk tells them to brace for 80-hour weeks and requires everyone back in the office full time. He also says bankruptcy for the company is not out of the question if it doesn’t start generating more cash. Several executives in charge of keeping Twitter safe and accountable to its users quit, including chief information security officer Lea Kissner, chief privacy officer Damien Kieran and chief compliance Marianne Fogarty.. (AFP)
Twitter
13/13 Nov. 11: Verified accounts get “Official” tags- Twitter adds badges that say “offiical” to verified accounts in some places, though confusion abounds. More brands depart the platform. (REUTERS)
Tesla
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After a long period of losses, Tesla ends in green two days in a row, giving some relief to investors. (AP)

After years of stinging losses, investors betting against Tesla Inc. are finally reaping the windfall they've been expecting.

With Chief Executive Officer Elon Musk — and some of his top lieutenants — distracted by his Twitter foray and demand for Tesla's electric vehicles cooling, the stock is careening toward its worst annual slump on record. This is handing short sellers, or bearish investors who are wagering that the stock will decline, mark-to-market profits of about $17 billion, making Tesla the most profitable short trade of the year, data from S3 Partners shows.

Tesla has tumbled more than 40% in December alone, extending its decline to about 68% this year and wiping out over $680 billion in market value. This marks a radical about-face for a stock that was one of the great winners of the pandemic, having surged more than 740% in 2020 on the back of booming demand and rock-bottom interest rates.

2022's 89% return is a rare victory for the shorts, who had once amassed a huge bet against Tesla and its lofty valuation. At one point in 2018, more than one third of the stock's entire free float was held short. High-profile financiers such as Jim Chanos, David Einhorn and Andrew Left were among those who had piled in.

This infuriated Musk. He vowed to “burn” the shorts and even sold merchandise — a pair of limited edition satin shorts for “Only $69.420” — to mock them as Tesla prices soared. As the Tesla rally quickened, most short sellers re-examined their bets. Today, only about 2.9% of Tesla's free float is currently held short, according to S3 data.

S3's Ihor Dusaniwsky expects short selling to persist until the stock reaches a bottom. But analysts and investors are still struggling to see a bottom, especially as the company is due to report fourth-quarter delivery numbers early next month and has been offering large buyer incentives.

Tesla shares rose as much as 9.6% to $123.57 in New York on Thursday for the second straight day of gains, showing some signs of relief after a seven-day losing streak dragged it down 31%. If the advance holds through the end of the session, it will the stock's first back-to-back days in green since early December.

Late on 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 for investors” amid the steep slide in the share price. Jonas cut his price target on Tesla to reflect lower pricing and reduced valuation of the company's businesses, but said he expected the company to extend its lead over the EV competition in 2023.

But even if share price begins to recover from here, Tesla's notorious volatility could continue to linger, according to S3's Dusaniwsky.

“When Tesla's stock begins to tick upwards, there should be a flurry of short covering which will help boost its stock price higher and quicker as shorter-term short sellers look to realize their outsized mark-to-market profits before they evaporate,” he said.

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First Published Date: 30 Dec, 07:35 IST
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