Short Sellers Got Fingers Burnt by Betting Against Tesla

Tesla Inc. (NASDAQ: TSLA) defied expectations of poor performance in 2023 and cost short sellers who bet on its shares falling a combined $12.2 billion. Short sellers lost more money on Tesla compared to any other company last year as the Texas-based EV maker broke its annual sales records and delivered 1.81 million electric vehicles.

Market analytics company S3 Partners estimates that rather than decline, Tesla’s shares increased by more than two times through the course of 2023, even though the company faced a myriad of challenges in several major markets. In China, for instance, extremely stiff competition threatened Tesla’s position as the most dominant EV maker in the Chinese market and forced the company to engage in several price hikes to remain profitable. By the end of 2023, China’s BYD had surpassed Tesla as the top-selling EV maker on the globe.

Despite facing increased competition and dwindling market demand, Tesla’s shares performed admirably throughout the year and cost Tesla short sellers a great deal. Data shows that short sellers suffered more losses on Tesla shares than losses at Meta and Microsoft combined, making 2023 an especially rough year for Tesla short sellers.

Although Tesla is quite new to the automotive game and its annual sales are nowhere near deliveries by established automakers, it is by far the most valuable car company in the world. Consequently, many short sellers believed its shares were overvalued and wrongly predicted that the share value would fall to appropriate levels in 2023.

Tesla shares were also subject to an average short interest of $18.9 billion in 2023 and were only eclipsed by Apple with an average of $19 billion in short interest. The massive losses short sellers suffered on Tesla stocks must have been a surprise as 2022 had proven to be a plentiful year for Tesla short sellers who made a whopping $15.9 billion profit after Tesla stocks dropped by 65%.

However, 2022 may have been an unusually lucky year for Tesla short sellers as this group of investors has cumulatively lost $61.8 billion since Tesla shares went public, S3 Partners says. According to S3 managing director Ihor Susaniwsky, this massive loss is “going to leave a mark.”

The first half of 2023 was especially bad for Tesla short sellers as they lost $13 billion in short positions between January to June before making a modest $771 million in profit through the remainder of the year when Tesla shares dropped by 15% from their July high.

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