Tesla shorts lost betting against Tesla in 2016 (-$866.4 billion), 2017 (-3.566 billion) and their suffering might end up peaking in 2018, if the company goes through with its plan to go private.
According to Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3 Partners, “Tesla shorts were down by $1.3 billion as the stock price rallied 11% today. ”
If the shorts hold on till Tesla reaches $420, then they will end up losing $4.45 billion for the year. Their best worst performance in three years.
There is no guarantee that the stock will rally to $420 and hold its position there. It may rally further in anticipation of a (buyout) price increase. There will be plenty of investors who are not ready to sell Tesla shares at $420.
Ross Gerber, President and CEO of Gerber Kawasaki Wealth and Investment Management, made it clear that he has no interest in selling his Tesla shares.
He tweeted, “It’s so obvious that the Chinese Saudis Vision fund all want in and Elon has been saying no. So now he’s had enough, tenders shares to sell to them. $420. What a joke. Shareholders say no. Wait for $571.”
He is definitely not going to be alone.
There will be plenty of individual investors and fund managers not ready to close out their position. It is not unusual for companies to slowly keep increasing the buyout price and get everyone on board. It’s time consuming process and one that could go either way.
Then there is always a chance for a hostile takeover attempt. Dell attracted two rival bids when the company’s founder Micheal Dell wanted to take the company private. This could be the last chance for a big tech company or a group of auto companies or a group of fund managers to buy Tesla. They may not win, but that is not going to stop them from making an offer.
If the Saudi’s are willing to take the open market route to build a 3% to 5% stake in the company, it’s not hard for deep pockets to join hands and make a hostile bid for the company.
Then there is the problem of short squeeze. What happens if the short squeeze ends up running Tesla stock price well over $420. Will you agree to sell a stock at $420, when it is already trading well over that price point?
Nope, you are going to ask for the buyout price to be increased.
There is certainly going to be plenty of action over the next few weeks, if not months, before the dust settles down on the go-private plan. It may happen or it may not, but the shorts have nowhere to hide as large funds, one of the biggest source for lending stocks to shorts will recall their stock before a vote.
You gotta buy it from the market to give it back. Let the Short Covering begin.
David Einhorn’s Greenlight Capital fund is down 19 percent, posting some of the industry’s worst returns, as Tesla was the fund’s second largest loser in the second quarter, the fund manager told investors in late July. – Reuters
At the start of yesterday there were nearly 35 million Tesla shares short. They all need an exit, unless they are ready to wait for the price to go over $420.
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