Tesla Short Sellers Won Big Last Year—Will 2023 Be The Same Or Can Musk's Bullish Forecast Pull The Stock Back Up?

2022 was a rough year for Tesla, Inc. TSLA stock as shares plunged 65% over the year. This made the stock the overall most profitable short trade of the year, generating $15.85 billion in profits for short sellers. While some bearish traders expect the downward trend to continue in 2023, it’s worth noting that 2022 was only the second year in Tesla’s history that it finished the year lower.  

In fact, between 2010 and 2021, Tesla short sellers lost about $60 billion betting against the electric vehicle manufacturer. Causing further doubt for bearish traders, TSLA shares have already soared 44% in January. So is bearish or bullish the winning strategy for Tesla traders in 2023? Here are some of the trends and opportunities to watch for.

Short Sellers Aren’t Going Away, but Traders Are Still Mostly Bullish on TSLA

Riding on the high from nearly $16 billion in gains over 2022, short sellers are still putting pressure on TSLA as we enter 2023. As of mid-January, Tesla's short interest had reached $11 billion, which is lower than the $19 billion peak in September last year but still far higher than it usually is.

While that doesn’t account for the post-earnings release rally at the end of January, bearish sentiments already seem to be cooling that growth and some traders are anticipating shares could drop by more than 12.5% over the next three months. 

But it’s worth noting once more that bearish traders have been trying to short TSLA for years and until 2022, it was mostly a losing game. TSLA’s whirlwind growth at the end of January, even amid bearish sentiment, is an example of why. The stock’s 44% rise came after a mixed earnings release in which the company missed some key growth targets, demonstrating that TSLA is capable of generating momentum even on lukewarm news. 

So, while bullish traders may be bracing for a rocky road ahead, few seem concerned that 2022 permanently shifted the tides on TSLA growth. The median price forecast for the next 12 months is around $200. 

Naming a New Twitter CEO Could Trigger a Major Rally 

Elon Musk’s controversial Twitter takeover sent TSLA shares plunging 45% in just two months as investors worried that the automaker’s CEO would be too distracted by the new purchase to focus on growing Tesla.

After announcing that he would resign from Twitter as soon as he found someone to replace him as CEO of the social media company, traders have been anticipating a rally as strong as the post-Twitter purchase plunge. While Musk has yet to share any updates on the search for a new Twitter CEO, the news could potentially boost Tesla shares by as much as 30% to 50%. 

New Product Announcements and Releases Provide Tons of Catalysts for Bullish Trades

During the last earnings call, Musk teased some exciting announcements and developments slated for 2023. Details about the company’s third-generation vehicle will finally be announced in March during the company’s first-ever Investor Day. The repeatedly-delayed Cybertruck will also finally enter production this summer. 

The company is also working on new factories and ramping up production with the goal of reaching 1.8 million vehicles by the end of the year. Traders should watch for Tesla’s upcoming earnings releases in April, July and October to see if the company is hitting its milestones to meet that target. 

Helping Make the Most of Bullish or Bearish Plays With Direxion’s TSLA ETFs

Using leveraged ETFs like Direxion’s Daily TSLA Bull 1.5X Shares (TSLL) and Direxion Daily TSLA Bear 1X Shares (TSLS) can help create added opportunity for many traders. These single stock ETFs seek daily investment results, before fees and expenses, of 150% and 100% of the inverse (or opposite), respectively, of the daily performance of the common shares of Tesla, Inc. TSLA.

For bulls, the leveraged TSLL gives you a tool to magnify exposure on short-term trades by 150% so that they can get the most from each play. That means losses are magnified as much as gains, so this single-stock ETF is best used by experienced traders who understand the risks. 

For bears, the TSLS seeks daily inverse investment results of the performance of Tesla stock. This can make it a great tool for trading on bearish assumptions without using margin to take a short position. The risk of losses is still there, of course, but when used carefully, TSLS could be a handy ETF for chasing yield even when TSLA shares are struggling. 

Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day. The Funds do not invest directly in TSLA.

 

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An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

The Funds have derived all disclosures contained in this document regarding Tesla, Inc. from publicly available documents. In connection with the offering of the Funds’ securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Tesla, Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Tesla, Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Tesla, Inc. could affect the value of the Funds’ investments with respect to Tesla, Inc. 

Tesla Investing Risk — The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. 

Tesla, Inc. Risk — The future growth and success of Tesla, Inc. are dependent upon consumers' demand for electric vehicles, and specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles in general and Tesla, Inc. vehicles does not develop as Tesla, Inc. expects, develops more slowly than it expects, or if demand for its vehicles decreases in our markets or our vehicles compete with each other, the business, prospects, financial condition and operating results of Tesla, Inc. may be harmed. Tesla, Inc. may fail to meet its publicly announced guidelines or other expectations about its business, which could cause the price of TSLA to decline significantly. 

Automotive Companies Risk — The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating losses. Automotive companies can be significantly affected by labor relations, fluctuating component prices and supplier disruptions. 

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation Risk, Tesla, Inc. Investing Risk, Industry Concentration Risk, Market Risk, Indirect Investment Risk, Trading Halt Risk, Cash Transaction Risk, Tax Risk, and risks specific to the consumer discretionary sector, electric and autonomous vehicles companies, and automotive companies. Additional risks include, for the Direxion Daily TSLA Bear 1X Shares, risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds. 

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