Short sellers taking aim at Tesla Inc. are holding onto bets that the electric car maker is on borrowed time, undeterred by the stock’s biggest one-day rally in years.
Heading into the electric car maker’s earnings report Wednesday, investors who had placed wagers on Tesla shares falling had racked up about $10.5 billion in short interest—making Tesla the most shorted stock in the U.S. on a dollar basis, according to financial-analytics firm S3 Partners. Short sellers borrow shares and then sell them, hoping to buy back the shares at lower prices and then pocket the difference.
Those bets turned into a $1.7 billion loss Thursday after Tesla’s results showed it burned through less cash than investors expected. Tesla shares jumped 16% to $349.54, notching their biggest one-day gain since 2013 and wiping out all of short sellers’ profits for the year.
Despite the whiplash, there were few signs of naysayers rushing to dump their positions. As of Thursday morning, Tesla remained the most heavily shorted stock in the U.S., attracting $4 billion more short interest than the second-most shorted stock on the list, Apple Inc., according to Ihor Dusaniwsky, head of predictive analytics at S3 Partners. There were also relatively few buy to covers, or orders placed to buy shares to close out existing short positions, Mr. Dusaniwsky added.
For longtime Tesla skeptics, the reason was simple: Betting against Tesla has long been a volatile and money-losing trade, with the company’s shares up more than 1,900% from its 2010 initial public offering price of $17. One post-earnings rally isn’t enough to shake their conviction that the company, whose electric cars have upended the conventional automobile industry, is running through cash at an unsustainable pace.
“It’s pounded my fund’s performance over the last 18 months…but I don’t let the stock price change how I feel about the company,” said Mark Spiegel, who says his hedge fund, Stanphyl Capital, has been shorting Tesla for years and would continue to do so for the foreseeable future.
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Mr. Spiegel said he first began shorting Tesla around 2013, when its share price was trading in the high $90s. Once it got to around $200, “I thought, this is beyond ridiculous, and that’s when I got a lot shorter,” he said.
Wednesday’s earnings report did little to impress Mr. Spiegel, who said he is troubled by competition from luxury auto makers that plan to roll out their own electric vehicles and issues with product delays, along with the pace at which the company has plowed through its cash. “I saw nothing in [Wednesday’s] report that I didn’t expect or that changes my opinion about the company,” Mr. Spiegel said.
Other investors with short positions in Tesla have cited skepticism over whether the company would be able to contend with challenges including product delays, layoffs and competition for the firm’s Models S and X vehicles.
Hedge fund Greenlight Capital Inc.’s short position in Tesla, whose shares jumped 29% last quarter, was its second-biggest loser throughout that period, according to a letter the firm’s president, David Einhorn, distributed to investors this week. Still, in his letter, Mr. Einhorn maintained that 2019 would likely be “a very challenging year” for Tesla, adding that he doubted “the entry-level Model 3 will be produced profitably anytime soon, if ever.”
Tesla shorts still face a long road to profitability after the latest rally. Investors who had bet on shares sliding are down $1.4 billion year to date, data from S3 Partners show. Going back to 2016, Tesla shorts are down $6.4 billion, making it the third-worst-performing short over that time behind Nvidia and Amazon.com, according to S3 Partners.
Mr. Dusaniwsky said he believes those in the business of shorting Tesla shares long term would likely shrug off Thursday’s more than $1 billion loss.
While it is possible short sellers with narrower time horizons are waiting for Tesla’s stock to pare recent gains before closing out their positions, longer-term sellers have accumulated losses of billions of dollars in the past—and in response, not just held onto their positions but also expanded them, Mr. Dusaniwsky said.
“The ones who’ve lost billions of dollars, they’re going to take it on the chin,” Mr. Dusaniwsky said, adding that Tesla has been one of the most heavily shorted stocks in the U.S. for years. “No matter what is going on with the price and with earnings and car production, the major long-term short sellers are holding onto their short positions.”
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Tesla also continues to attract short sellers who own the firm’s convertible bonds. Many of those investors take short positions in the company’s stock as part of an “absolute return” strategy which tries to minimize the risks of the stock and the bonds; others short the stock to try to profit from inefficiencies between markets.
Tesla isn’t the only high-profile tech stock investors are betting against. The eight most-shorted U.S. stocks are all in the technology industry, with Apple, Amazon.com Inc., Alphabet Inc. and Netflix Inc. rounding out the list of the top five most shorted U.S. companies, according to S3 Partners.
The bets reflect broad skepticism that technology companies, which have dominated the latest leg of the bull market, can continue meeting investors’ lofty expectations. Disappointing results from Netflix sent the stock last month on its biggest one-day slide in years, while Facebook Inc. notched the worst-ever one-day loss in market cap for a publicly traded U.S. firm following its latest quarterly earnings report.
Write to Akane Otani at akane.otani@wsj.com
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