Tesla the Most Profitable Short Bet, Bears Rejoice


Aug. 14 2019, Published 8:28 a.m. ET

As of yesterday, Tesla (TSLA) stock had fallen about 30% this year, significantly underperforming broader markets. The S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) had risen 17.1% and 12.9%, respectively. Tesla stock’s huge decline and underperformance are earning bears fortunes. Bloomberg reports Tesla bears had made a whopping $2.75 billion in mark-to-market gains this year as of August 9, making it the most profitable US short bet YTD (year-to-date).

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Tesla short gains tripled next most lucrative short bet

Bloomberg reports that the gains for Tesla shorts have more than tripled those of the next best short, which is AbbVie (ABBV). DuPont (DD), Kohl’s (KSS), Baidu (BIDU), and CenturyLink (CTL) were other lucrative shorts. They netted gains of $631 million, $541 million, $522 million, and $456 million, respectively.

Most costly shorts

Some shorts also cost investors money by countering bears’ bets. The costliest bet was Alibaba (BABA), which cost bearish investors $3.0 billion. Apple (AAPL), AMD (AMD), Microsoft (MSFT), and Amazon (AMZN) followed with losses of $2.67 billion, $1.9 billion, $1.68 billion, and $1.46 billion, respectively, for bears.

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Investors get burned betting against US technology stocks

A lot of investors have gotten burned betting against US technology stocks this year. After US tech stocks fell steeply in last year’s fourth quarter, investors started wondering if tech stocks’ time was over. While it’s unclear if their valuation is justified, the fact is they have gone from strength to strength for most of this year. The Technology Select Sector SPDR ETF (XLK) has returned 27.4% YTD.

Tesla stock’s volatility

Tesla’s stock has been volatile this year. While it has fallen 30% YTD, it has recovered 31% since falling to a 52-week low in June. Tesla’s decline in the worst the stock has seen in a year. Investors are concerned about the demand for electric vehicles and the company’s ability to remain profitable.

In the second quarter, the electric car maker reported EPS of -$1.12, marking a much higher loss than analysts’ estimate of -$0.36. Its margin during the quarter came in at 18.9%, narrower than its margin of 20.2% in the first quarter and 20.6% in the second quarter of 2018. The company’s weaker results, as well as the announcement that its chief technology officer was stepping down, led to a massive stock sell-off.

Tesla CEO Elon Musk has had several Twitter spats with Tesla’s short sellers. He had also warned them that they were about to suffer the “burn of the century.”


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