Tesla Motors Inc: One-In-Five Shareholders Bet On Collapse

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Tesla Motors Inc (NASDAQ:TSLA) is, perhaps, the most controversial company on the market right now. The company’s government subsidies, its environmentally-friendly selling points and its tech company valuation all raise ire in certain crowds. It seems that some of those that disagree are getting in on the market, and now they’re holding 20% of the entire company.

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According to NASDAQ.com 26,081,089 shares in Tesla Motors were held short on the last day of March. The short interest is usually reported twice per month, so there should be another report on the metric coming on Friday. It’s unlikely to have changed dramatically, however. Tesla short interest is always high, though the last time it reached this level as April of 2014.

Tesla Motors attracts short sellers

Shorting a stock is almost ingenious in its simplicity. Instead of going and buying a share in a company and hoping for it to increase, a trader borrows a share from somebody else, and sells it. They are required to return those shares in future. If the price goes down the short seller can buy shares in at the lower price, and return them and take the difference as payment. If the price rises, however, they’ll lose as much money as the shares increase by, making it a risky business.

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Tesla Motors has an entire outstanding float of 125.69 million. That puts about 20.7% of the company’s shares in that kind of contract, waiting to be returned to borrowers. That’s an incredibly high number, rivaling almost any other company on Wall Street. A high percentage of shares held short means there are a lot of people betting that Tesla Motors shares will fall, it can also have other effects, however.

Tesla short squeeze incoming?

If a large percentage of a company’s shares are held short, it may take quite a while for the short sellers to buy stock to return to. Buying shares to fill a short order is known as covering. Days to cover is a key metric that shows the ratio of shares held to average daily volume. At normal trading levels it would take four days for all of the shorts to be covered.

If something big happens, for example if Tesla were to positively surprise in its earnings release, and shorts begin to believe that the stock won’t fall any time soon they all try to buy at the same time to cover their losses. This spike in demand for shares causes a spike in the price of Tesla Motors stock, known as a short squeeze.

Tesla product incoming

There’s two major events on the way that could cause serious volatility for Tesla stock. The company is announcing a new product on April 30, and it’s delivering its earnings report for the three months through March on May 5.

Most analysts believe that the new product is going to be a home energy storage solution, and if that turns out to be true there’s likely little enough movement ahead for shares. On earnings, however, opinions differ radically. Adam Jonas, writing for Morgan Stanley believes the company will record losses of 77 cents for the quarter, well ahead of the 58 cents consensus figure.

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Paul Shea

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