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Tesla Shorts in ‘Winter of Despair’ With Stock at Record

Esha Dey
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Tesla Shorts in ‘Winter of Despair’ With Stock at Record

(Bloomberg) -- Investors betting against Tesla Inc. are facing the “worst of times” with the electric-vehicle maker’s stock price on a tear over the past seven months.

Tesla shares gained 0.4% to close at a record on Friday, rising more than 120% from a low of $178.97 on June 3.

The rally accelerated after Tesla reported an unexpected profit for the third quarter and said it was ahead of schedule on its China plant and launch of its Model Y crossover. The surge in the share price has sent short sellers into a “winter of despair,” S3 Partners Managing Director of predictive analytics Ihor Dusaniwsky wrote in a note, adding that bearish Tesla investors were down $2.43 billion in mark-to-market losses so far this year.

While the mounting mark-to-market losses have squeezed out many shorts with less conviction or tighter risk thresholds, a “significant amount of shorts have held their ground and taken their 2019 roller-coaster P/L ride in stride,” Dusaniwsky said. If Tesla’s rally continues, he expects to see continued short covering as more investors reach their risk limits.

The total number of Tesla shares shorted stands at 25.46 million, just above the three-year low of 24.23 million on Jan. 30, Dusaniwsky wrote. If the current pace of short covering and the stock price rally both continue, the number of shares shorted could fall below 20 million as Tesla’s stock price hits $450.

“What was a seven month long ‘hug’ is turning into a full-blown ‘squeeze,’” Dusaniwsky said.

(Updates shares in second paragraph.)

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Courtney Dentch

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