Autos

Tesla short interest hits record high

Matt Clinch and Luke Graham
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It was all smiles Thursday night as Elon Musk unveiled his new product to the mass market. But, despite the fanfare it appears some on Wall Street are taking a much sterner view of the prospects for the company.

Twenty five percent of all Tesla shares are out on loan, according to data from Markit, figures the firm uses as an indication of short selling. Short selling occurs when traders bet that the share price will fall. Markit highlighted that short interest is now at an all-time high for Tesla since its IPO (initial public offering) in 2010.

Alexis Georgeson | Tesla
Tesla Model 3
Alexis Georgeson | Tesla

"Doubts have been raised about Tesla's ability to profitably crack the mass market especially since the company has so far been unable to deliver an operating profit on its current line-up of higher-end cars," Simon Colvin, a research analyst at the company, said in a note published Friday.

"Tesla's short interest is nearly twice that of the second most shorted, Harley-Davidson, which has 14 percent of its shares currently shorted."

Monthly data from the Nasdaq's website shows that short interest is currently at some 32 million shares for Tesla, slightly below a peak in February, but still around a quarter of the 132 million shares outstanding.

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Musk's new Model 3, unveiled in Los Angeles on Thursday evening, will go into production in 2017. Some are calling it Tesla's "Apple moment" with 150,000 people already ordering the electric vehicle. It seats five adults, can reach 60 miles per hour in under six seconds and has a maximum range of 215 miles. "At Tesla we don't make slow cars," Musk said at the launch event. Shares were up around 7 percent in premarket trade on Friday.

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At $35,000 it also brings it into the price bracket for a lot of middle America, according to Patrick Armstrong, CIO of Plurimi Investment Managers. He told CNBC Friday that it will be a "performance car" that's good for the environment and sees the company "moving from niche to mainstream." Bernstein this week called it a "game changer" within the industry.

900% surge in 5 years

However, there are still lingering doubts for some. Tesla's share price has surged in the last five years and it's currently trading with a price-to-earnings ratio — an important metric analysts use to gauge a company's valuation — of 134.36, according to Thomson Reuters.

A higher ratio hints at a higher valuation and Tesla far exceeds its peers on the same metric. Ford and GM have ratios of around 6, according to Thomson Reuters. Lower oil prices might also negatively impact the uptake of electric cars, according to some analysts, and "Halftime Report" report trader Josh Brown said this week that the bigger issue was whether it could continue to finance its innovations and the competition it faces from majors.

Alexis Georgeson | Tesla
People wait in line at a Tesla Motors dealership to place deposits on the electric car company's mid-priced Model 3 in La Jolla, California March 31, 2016.
Mike Blake | Reuters

Anna-Marie Baisden, head of autos analysis at BMI Research, told CNBC that the Tesla Model 3 was also a test of whether its products could achieve mainstream status.

"This is one of the first big volume products for Tesla and one of the questions is: can they produce at these volumes and, more importantly, can they make a profit at it?"

'Sensible price point'

Demand for electric vehicles is growing quickly, but from a very small base. In the U.S., the number of new electric vehicle registrations has grown from 1,011 in 2010 to 65,848 in 2015, according to statistics from research firm IHS. However, this makes up only 0.4 percent share of the U.S. car market, while gasoline cars make up 82.3 percent of the market.

But that share is predicted to rise. Electric vehicles are projected to make up 15 to 20 percent of all global car sales by 2025, according to Andy Turton, head of automotive for the Americas at TNS. This demand is being assisted by a range of factors, including government demands to reduce emissions, tax breaks for electric vehicles and growing networks of charging stations.

The biggest factor, according to Turton, is government action to encourage electric vehicle adoption. "Many consumers claim to care about protecting the environment but in reality few will make sacrifices to do so," he told CNBC via email.

"On the other hand, a great looking EV (electric vehicle) with a good driving range, a sensible price point and a tax break, now that's quite a different story."

Disclaimer: Patrick Armstrong and Plurimi Investment Managers have no holdings of Tesla shares.

—Additional reporting by CNBC's Phil LeBeau.