(Bloomberg) – Investors betting against Tesla Inc. are getting the big windfall they’ve been waiting for, as the electric vehicle maker is set to post its worst annual performance on record.
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The company’s short-sellers — or bearish investors who stand to gain when an asset’s price drops — are poised to reap profits of around $17 billion, making Tesla the short trade most profitable of the year, according to S3 Partners data shows.
Tesla fell more than 42% in December through Wednesday’s close, leading it to a 68% loss this year – marking a dramatic turnaround for a stock that surged during the low rate era of the pandemic.
It’s a rare win for the shorts, whose 89% return comes after several years of heavy losses, said S3’s Ihor Dusaniwsky. According to S3 data, about 2.9% of Tesla’s free float is stuck.
Tesla had a tumultuous year, with investors fleeing risky assets due to worries about geopolitical uncertainty, high inflation, rising interest rates and a possible recession. Add to that concern that Tesla CEO Elon Musk’s attention will be diverted to his recently acquired social media company, Twitter, just when demand for electric vehicles is expected to take a hit.
Dusaniwsky expects short selling to persist until the stock bottoms out. But analysts and investors are still struggling to see a bottom, especially as the company is due to release fourth-quarter delivery numbers early next month and has offered significant incentives to buyers.
Tesla shares rose 7% to $120.60 in New York on Thursday for the second straight day of gains, showing signs of relief after a seven-day losing streak dragged it down 31 %. If the lead holds through the end of the session, it will be the stock’s first consecutive days in green since early December.
Late Wednesday, Morgan Stanley analyst Adam Jonas, who has had the equivalent of a buy rating on the stock since November 2020, said there was an “attractive entry for investors” amid the sharp drop in the share price. Jonas cut his price target on Tesla to reflect lower prices and the reduced valuation of the company’s business, but said he expected the company to extend its lead over the competition. electric vehicles in 2023.
Still, even if the stock price starts to recover from here, Tesla’s notorious volatility could continue to linger, according to S3’s Dusaniwsky.
“As Tesla’s stock begins to rise, there should be a flurry of short-hedging that will help drive its stock price higher and faster, as short-term short-sellers look to make their outsized profits before they don’t evaporate,” he said. said.
(Updated stock movements and added details to seventh paragraph, added analyst comments to eighth.)
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