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Fom the start some people have been confident that Elon Musk would fail. So they shorted Tesla stock — placing a bet that the company's stock value would collapse. So far, that has been a phenomenally bad bet. Since 2016, Tesla short sellers are down $11.1 billion... in the first two weeks of 2020 alone, down some $2.6 billion, according to Ihor Dusaniwsky, the head of predictive analytics at S3 Partners.
Tesla stock debuted at less than $20 a share in 2010. It hit $200 in 2014. And now, after strong deliveries in the fourth quarter and the successful launch of a new factory in China, it's above $500 — giving the company the highest valuation of any U.S. carmaker ever.
"We've lost a lot of money," says Mark Spiegel, the head of a small hedge fund that placed a very large bet against Tesla. His fund lost more than $1 million from shorting Tesla, which he started doing back in 2014. But he's far from the only one.
Most companies don't have investors betting against them like this, and when they do it's normal for 3% to 8% of a company's stock to be shorted. At the start of 2020, more than 20% of Tesla stock was shorted. As of Jan. 15, it's the single most-shorted stock on the U.S. market. Some major hedge funds are among the most active short sellers.
The community of Tesla short sellers is unusual — not just for its size, but for its passion. Meanwhile, Tesla also has a highly energetic community of superfans and Elon Musk enthusiasts. Dusaniwsky says "It's not just a financial transaction... It's almost a lifestyle choice to be on one side or the other."
His data shows some short sellers are finally backing away from their investments as Tesla's remarkable rally continues. Forty percent of all the short sales of Tesla stock have been closed out since June 30, 2019. That means major losses, given Tesla's stock market surge.
But it still leaves a lot of investors holding on. Even Spiegel, who has reduced the size of his position, hasn't changed his mind about the company's future.
He still says the stock prices will collapse — eventually.
© 2015 Mutual Fund Observer. All rights reserved.
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