How Tesla has Become Most Profitable Short Bet at $2.75 Billion

Tesla Inc. (TSLA) bulls have seen better days, if not years. The electric car maker’s shares have plummeted more than 30% this year, on course for their worst annual decline on record. Tesla’s bears, on the other hand, whose short bets have already notched $2.75 billion in mark-to-market profits, are having one of their best years. Much to the chagrin of founder and CEO Elon Musk, who has publicly ridiculed Tesla short sellers, his company’s stock has become the most profitable short bet in the U.S. in 2019, according to Bloomberg.   

Short sellers profited more off Tesla on Wednesday, when its shares plunged 6.5% with the market sell-off.

What it Means for Investors

Data from S3 Partners as of August 9, indicates that the profits made by Tesla short sellers are more than triple the next most profitable short bet, AbbVie Inc. (ABBV). Bearish bets against the drugmaker have returned close to $776 million in mark-to-market gains while third place DuPont de Nemours Inc. (DD) has returned about $631 million in gains so far this year.

These so-called “value destroyers,” as Musk has dubbed them, are no doubt feeling vindicated after the CEO warned short sellers in Tesla to prepare for the “short burn of the century” in the spring of 2018. Musk has taken to Twitter numerous times in order to deride short sellers.

Driving the bearish sentiment are falling forecasts for Tesla's earnings and price target as analysts become worried about the company’s quarterly losses, debt, management issues, and underlying domestic demand for vehicles. For all automakers, U.S. new-vehicles sales are expected to fall below 17 million for the first time since 2014, according to the Wall Street Journal.

Tesla shares dropped as much as 10% when it reported second quarter earnings last month, posting a larger-than-expected loss. Adjusted losses per share were $1.12, nearly triple the expected losses of 40 cents per share, and revenue came in at just $6.35 billion versus an expected $6.41 billion, per CNBC.  Things have not improved much since posting larger-than-expected losses during the first quarter and a 37% plunge in revenues from the prior quarter. 

Looking Ahead

The disappointing numbers helped to confirm short sellers’ convictions as mark-to-market gains on short bets against Tesla reached $1.07 billion by the middle of May. Citing concerns about the company’s debt problems, George Schultze, founder of Schultze Asset Management, told Business Insider, “If I had to make a new bet today, I’d put on a new short.” 

Based on Tesla's outlook today, many short sellers may be betting they can make even bigger profits off of Tesla's decline.