Bloomberg News

Tesla Shorts Run for Cover as Stock Doubles: San Francisco Mover

May 10, 2013

Tesla Shorts Run for Cover as Stock Doubles

Tesla Motor Inc. associates work on the Model S electric car at the company's factory in Fremont, California. Photographer: David Paul Morris/Bloomberg

Tesla Motors Inc. (TSLA:US), the maker of electric cars run by billionaire Elon Musk, rose 11 percent after an analyst said that investors who’d expected the stock to decline had to buy it.

Tesla gained $7.36 to a record $76.76 at the close in New York. Its market capitalization totaled about $8.9 billion, ranking it between the $7.9 billion value of Turin, Italy-based Fiat SpA (F), the majority owner of Chrysler Group LLC, and Japan’s Mazda Motor Corp. (7261), at $10.5 billion.

Covering of short positions is “a big part of” Tesla’s gain, Elaine Kwei, said a New York-based analyst at Jefferies Group who rates the shares a buy, in a phone interview yesterday. “This has been such a polarizing stock. There’s still much skepticism and doubt around electric vehicles, and a lot of people didn’t expect the company to get this far.”

Currently, investors have a short interest in 41 percent (TSLA:US) of Palo Alto, California-based Tesla’s float, or shares available to the public, according to data compiled by Bloomberg. The shares had the sixth-highest short interest among Nasdaq-listed stocks as of the April 30 settlement date. Short sellers profit from price declines by selling borrowed securities and replacing them with stock bought at lower levels.

The surge in shares of the automaker named for inventor Nikola Tesla came after the company this week reported its first quarterly profit, which also beat estimates. Consumer Reports magazine yesterday also said Tesla’s Model S sedan, with a $69,900 base price, scored 99 out of 100 points in its evaluation, ranking among the best cars it has tested.

Naked Shorts?

Tesla has more than doubled this year compared with a 15 percent increase in the Russell 1000 Index. Bearish investors have pared back bets against the electric-car maker as the stock rallied.

About 20 percent of the company’s shares outstanding were borrowed and sold short on May 8, down from 23 percent three weeks ago, according to data compiled by Bloomberg and Markit, a London-based research firm. That compares with an average 3.1 percent for the Russell 1000 Index.

Shares on loan in Tesla reached a record 25 percent in September last year.

Musk said in an interview last week there are rumors some investors had a naked short position in Tesla. In a naked short sale, the seller doesn’t borrow shares at the beginning of the process and can get caught needing to buy at ever-higher prices.

“You’re not supposed to do that on the Nasdaq,” Musk said on May 2 in Hawthorne, California. “If there’s a naked short, oh my god, things could really go ballistic.”

The gains in Tesla shares this week, along with SolarCity Corp. (SCTY:US), a solar power company also led by Musk, have raised his fortune to $4.5 billion, according to the Bloomberg Billionaires Index. SolarCity has the highest short interest among Nasdaq-listed stocks as of the April 30 settlement date.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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Companies Mentioned

  • TSLA
    (Tesla Motors Inc)
    • $259.32 USD
    • -4.50
    • -1.74%
  • SCTY
    (SolarCity Corp)
    • $64.61 USD
    • -1.38
    • -2.14%
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