Despite $38.2B In Losses, Tesla Short Sellers Ramp Up Bearish Bets

A huge 2020 was cumonated this week for Tesla Inc TSLA investors after Tesla was added to the S&P 500 index at a record high market cap of above $625 billion. Tesla shares hit new all-time highs on Friday on forced institutional buying in the closing minutes and inflicting even more pain on Tesla’s battered short sellers.

Tesla short sellers got a bit of a break on Monday after profit-takers drove the stock down 5.9%. That pullback has earned Tesla short sellers a more than $1.8 billion profit on Monday, according to S3 Partners analyst Ihor Dusaniwsky.

On Monday, Dusaniwsky said Tesla remains the most heavily shorted stock in the world with more than $34.5 billion in short interest. That amount of short interest is three times the short interest of the second most shorted stock, Apple, Inc. AAPL. Apple has only $11.4 billion in short interest.

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Horrendous Year For Shorts: Even after Monday’s gain, Tesla short sellers have endured another $4.3 billion in net-of-financing, mark-to-market losses in the month of December.

Following Monday’s pullback, Tesla shares are still up more than 730% year to date, and short sellers have been taking a pounding all year. As of midday on Monday, Tesla short sellers have endured $38.2 billion in mark-to-market losses in 2020, according to S3.

Despite the huge losses Tesla short sellers have been adding to their positions ahead of the S&P 500 inclusion. S3 reported that Tesla’s short interest has increased by $1.5 billion over the past 30 days.

“Shorts were active ahead of Tesla’s S&P inclusion and we may see continued short selling into the new year as short sellers look for the short-term pre-inclusion momentum and speculative long buyers to sell their long positions and realize mark-to-market profits in this tax-year,” Dusaniwsky said.

Benzinga’s Take: Tesla’s market cap has grown to be nearly the size of the entire legacy auto market despite the fact that Tesla represents only a small fraction of global auto sales, so it’s understandable why short sellers are frustrated.

However, shorting stocks that are caught in a bubble can be extremely dangerous given that irrational exuberance can last for years and the ultimate top is only reached once investor enthusiasm has died down.