Tesla’s Brutal Year Brings $17 Billion Windfall for Shorts

tech.hindustantimes.com:

After years of stinging losses, investors betting against Tesla Inc. are finally reaping the windfall they've been expecting.

With Chief Executive Officer Elon Musk — and some of his top lieutenants — distracted by his Twitter foray and demand for Tesla's electric vehicles cooling, the stock is careening toward its worst annual slump on record. This is handing short sellers, or bearish investors who are wagering that the stock will decline, mark-to-market profits of about $17 billion, making Tesla the most profitable short trade of the year, data from S3 Partners shows.

Tesla has tumbled more than 40% in December alone, extending its decline to about 68% this year and wiping out over $680 billion in market value. This marks a radical about-face for a stock that was one of the great winners of the pandemic, having surged more than 740% in 2020 on the back of booming demand and rock-bottom interest rates.

2022's 89% return is a rare victory for the shorts, who had once amassed a huge bet against Tesla and its lofty valuation. At one point in 2018, more than one third of the stock's entire free float was held short. High-profile financiers such as Jim Chanos, David Einhorn and Andrew Left were among those who had piled in.

This infuriated Musk. He vowed to “burn” the shorts and even sold merchandise — a pair of limited edition satin shorts for “Only $69.420” — to mock them as Tesla prices soared. As the Tesla rally quickened, most short sellers re-examined their bets. Today, only about 2.9% of Tesla's free float is currently held short, according to S3 data.

S3's Ihor Dusaniwsky expects short selling to persist until the stock reaches a bottom. But analysts and investors are still struggling to see a bottom,