Tesla Short Sellers Take $1.4B Earnings Hit

It’s been a rough year for Tesla, Inc. TSLA investors, with the stock down more than 10% year to date overall even after a huge 16% gain on Thursday following a third-quarter earnings beat. While Tesla bulls celebrate the long-awaited good news, Tesla short sellers are getting torched.

Massive Profits Wiped Out

Heading into earnings, Tesla was the most profitable short trade of 2019 by a wide margin, scoring short sellers a $2.03 billion year-to-date mark-to-market profit. However, Tesla short sellers endured $1.4 billion in losses in early Thursday trading, according to S3 Partners analyst Ihor Dusaniwsky. He said Tesla short sellers saw 70% of their 2019 profits evaporate in a matter of minutes.

This year had been a rebound year for Tesla short sellers after they booked mark-to-market losses of $1.40 billion in 2018, $3.56 billion in 2017 and $400 million in 2016, according to Dusaniwsky.

Tesla is the second most heavily shorted U.S. equity with $8.31 billion in short interest. Only Apple, Inc. AAPL has more short interest than Tesla at $10.47 billion in shares held short.

Fortunately for Tesla shorts, many of them locked in their profits prior to Thursday, with 5.12 million short shares covered since June. In the past week, S3 reported 1.5 million Tesla short shares have been covered ahead of earnings. Short interest now represents 23.1% of Tesla’s public float.

See Also: 'Game Changing': Wall Street Weighs In On Tesla's Q3 Earnings

Short Squeeze Coming?

While Tesla shorts are feeling the pain, Dusaniwsky said a sustained push in the $300s for Tesla could trigger additional short covering.

“If TSLA’s stock price continues to climb we expect continued short covering to give the stock a short squeeze tailwind. If TSLA’s stock price surge pushes the stock steadily into the $300 range we should see shares shorted fall below the 30 million share level. That would be over 2.6 million shares of buying from the short side helping push TSLA’s stock price further into short squeeze territory,” Dusaniwsky said.

Following Thursday's gain, Tesla shares are now back above water for the past year, up 1.5% overall.

Benzinga’s Take

While the earnings report got Tesla back to where it was 12 months ago, a sustained push above $300 and a potential short squeeze may require at least one more impressive earnings report. Financial inconsistency has been one of the most common criticisms of Tesla in recent years, and it may take more than one earnings report to convert the skeptics.

Tesla's stock traded around $297.64 per share at time of publication.

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