If you’ve been short Tesla (TSLA) stock over the past several trading sessions, chances are, you’re in quite a bit of pain. And don’t hold your breath and expect the pain to subside anytime soon.
Tesla shares have been under heavy accumulation, surging almost 20% just in the past five days, driven by a combination of factors, including the company’s recent announcement to lay off 9% of its workforce. This surprising layoff announcement comes at a time when short sellers and doubters are betting that the company will need to raise cash to ramp up production of the Model 3 electric vehicle — the company’s attempt at making a mass market car to compete with, among others, Detroit heavyweights General Motors (GM) and Ford (F).
It would seem that CEO Elon Musk, who has had to answer questions about the company’s profitability, has found another way to avoid taking on more debt to meet production goals.
Tesla shares closed Tuesday at $342.77, climbing 3.21% and adding to Monday’s gains of 4.5%. So if you’re keeping score at home, Tesla shares have returned as much as 33% since I last recommended buying the stock. These wild price swings are par for the course for those interested in Tesla.
The surging share price, however, means short-sellers, who have placed massive bets against the company, have gotten punished — to the tune of more than $2 billion in losses (on paper) so far in June, according to analytics firm S3 Partners.
Short-sellers borrow shares from their brokers and sell them on the open market, with the goal of covering (buying them back) at a lower price. And they would profit from the spread. Will the shorts be able to recoup some of those paper losses?
It’s too early to say, but the streak of good news for the automaker likely won’t end soon, which may only add to the pain. Wall Street is now more optimistic that the company is much closer towards meeting its Model 3 production targets. Tesla now aims to hit a weekly production rate of 5,000 Model 3 sedans by the end of the current month.
In April the company announced that it produced a first quarter total of 34,494 vehicles, which marked a sequential increased of 40%. The company also then disclosed that (at the time of the announcement) it had produced 2,020 Model 3 cars within the previous seven days. It stands to reason that if the company can produce more than 2,000 Model 3’s in a week, 5,000 Model 3’s by the end of June could be within reach.
S3 data shows that some 30% of Tesla shares — a metric known as short interest — are currently being controlled by short-sellers, worth about $12.6 billion. That high of short interest, meanwhile, is what has likely caused TSLA shares to surge so quickly, creating an event known as a short squeeze. It would seem Elon Musk has finally gotten his hands around the necks of those who consistently doubt him. It’s not a place I’d want to be.
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