Is it Finally Time to Short Tesla?
One year ago, Tesla (NASDAQ:TSLA) Chief Executive Officer Elon Musk told Fox News that there was a “tsunami of hurt coming for those holding a short position“ on the company’s stock. On September 13, 2012, the day his interview aired, shares of the electric vehicle maker’s stock closed at $28.28.
At that time, the company’s problems were creating headlines like “An Electric Carmaker Struggles as Its Production Lags,” from The New York Times. The new Model S was four to five weeks behind on production, the company was consuming cash at such a rapid rate that it had turned to investors and the federal government for financial help, and its quarterly revenue forecast had just been cut. ”Tesla’s story is starting to show some serious cracks,” CapStone Investments analyst Carter Driscoll told the Times. “This shows that capital raising is a necessity, not a luxury, as the company had maintained.” In other words, shorts saw an opportunity.
Selling short is the practice of selling securities — or other financial instruments — that are not currently owned with the intention of subsequently repurchasing them, or “covering” their position, at a lower price. In the event of a price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds received upon the initial, or short, sale. Unfortunately for those investors who went short on Tesla last September, shares continued trading in the high $20-per-share range before beginning an upward climb. By early this week, that climb left shares trading almost 510 percent higher than they were 12 months earlier.