Investors betting against Elon Musk's electric-auto maker Tesla collectively lost more than $1.5 billion on Thursday as the company's stock rocketed higher after its better-than-expected earnings report.
Tesla finished Thursday's session up 10.3% at $640.81 per share, meaning short sellers betting against the stock lost in excess of $1.5 billion in mark-to-market losses on the day, according to data firm S3 Analytics.
In fact, Tesla short sellers are now down more than $5.2 billion this year in mark-to-market losses after losing $2.89 billion in 2019, S3 said. Since the stock's low of $178.97 on June 3, 2019, Tesla short sellers have covered 19.11 million shares, worth $11.1 billion, and are down $12.43 billion in mark-to-market losses, according to S3's Ihor Dusaniwsky.
"Shorts were trampled by a Tesla Semi as its stock price rose +9% within the first 5 minutes of trading and had little chance to close out positions at anywhere near yesterday's closing price," he said in a note. "Tesla's short squeeze will probably shift into a higher gear as some short sellers re-evaluate their short thesis and begin to trim or close out their short exposure."
The spike in Tesla shares came after the company reported fourth-quarter earnings of $2.14 per share, well ahead of expectations for $1.72 per share. It said it expected positive cash flow and net income on a continuing basis going forward barring one-time production investments, a relief to those who'd poured cash into the young auto company in recent years.
For 2020, Tesla said vehicle deliveries should "comfortably exceed 500,000 units."
Still, Dusaniwsky explained that Tesla remains the most-shorted stock in the U.S. market in terms of equity value short, a title it reclaimed from Apple earlier this month. The iPhone maker had been the most-shorted stock in the U.S. market in terms of total value sold short since it passed Tesla in September.
And though Tesla remains the biggest short in the U.S. market, bets against the carmaker are on the decline. Tesla shares shorted have decreased by 1.78 million, 6.4%, over the last 30 days as the stock surged 39%. That equates to a loss of $975 million in short covering over the last month, S3 data shows.
The stock is up 164% over the last six months.
The critics tend to be hedge funds, which try to beat the broader equity market with concentrated portfolios of stocks they like combined with short sales against those they don't. Short sellers borrow and then sell shares of a company they think will decline in value. By selling a security at current prices and buying it back later, at a lower price, the investor can turn a profit.
To be sure, Tesla shorts aren't unaccustomed to eye-popping mark-to-market losses, even on a daily basis.
Shorts lost an estimated $1 billion-plus in a single session last quarter after the company's third-quarter earnings report showed it had returned to profitability and reported positive free cash flow. Tesla stock surged more than 17.5% on Oct. 24 following those third-quarter results, at the time wiping out almost 70% of short sellers' year-to-date profits.