Tesla short sellers lost billions of dollars in 2023 as shares doubled

According to markets analytics firm S3 Partners, Tesla short sellers lost a cumulative $12.2 billion last year as the shares more than doubled in value.

Overall, short sellers lost $194.8 billion as US share markets rose sharply and the combined market cap of S&P 500 shares, of which Tesla is a constituent, increased by $8 trillion last year.

While 2023 was a bad year for those shorting tech shares, it was more so for Tesla bears as the losses that short sellers suffered in the share were more than the combined losses that short sellers made in Meta Platforms and Microsoft.

The first half of the year was especially gruesome for Tesla bears and they lost $13 billion. However, Tesla shares eventually fell from their July highs and short sellers made a marginal profit of $771 million in the back half of the year.

TSLA short sellers lost massively last year

Tesla was the most shorted share last year and the average daily short interest was around $18.9 billion which was a tad higher than for Apple. However, the market cap of Apple is more than thrice that of Tesla which is reflective of the high short interest.

To be sure, the news of Tesla short sellers losing billions of dollars in 2023 hasn’t really come out of the blues. Last year, data compiled by Hazeltree, which tracks 12,000 shares globally shows that the Elon Musk-run company was the most shorted share in August for the third consecutive month.

The fortunes of Tesla bears have whipsawed over the last couple of years. Short sellers lost heavily in 2020 and 2021 as Tesla shares rose 740% and 50% respectively in these years. However, the 65% slide in Tesla shares last year made it a profitable trade for short sellers and they lost around $15.9 billion in the year.

Musk on Tesla short sellers

Musk has often mocked TSLA short sellers and in the past, the billionaire has swiped at short sellers like Jim Chanos and David Einhorn. In 2020 launched he the “Tesla short shorts” taking potshots at bears who lost massively betting against the shares.

Meanwhile, shorting Tesla shares has been a risky exercise and Dan Izzo, founder of the hedge fund Blackbird Capital admitted “If I’m honest, I’ve only lost money trying to short TSLA.”

He however emphasized, “Not because I’m wrong about it, but because the market can be irrational for longer than I can afford to be proven right.”

Musk also poked fun at Bill Gates and tweeted, “Taking out a short position against Tesla, as (Bill) Gates did, results in the highest return only if a company goes bankrupt! Gates placed a massive bet on Tesla dying when our company was at one of its weakest moments several years ago. Such a big short position also drives the stock down for everyday investors.”

Why are some traders bearish on Tesla shares?

HistoricallTeslasla has been among the most shorted shares as a section of the market finds the shares too overvalued and expects them to crash.

Tesla’s current market cap is around $745 billion – no automaker has even come close and the company’s market cap is above the combined market cap of all leading automakers put together. Bears see Tesla as overvalued citing comparisons with legacy automakers who have a much lower market cap while they deliver a lot more vehicles.

According to Dan Ives, an analyst with Wedbush Securities, “Every year the bears come out of hibernation mode and think ‘This is the year that Tesla shares collapse.”

He added, “The bears view it as an automobile company that should trade at a valuation a multiple of GM or Toyota. The bulls such as myself believe it’s a disruptive technology company. And that’s the Wall Street consensus view.”

Bulls expect Tesla shares to rise much higher

Meanwhile, TSLA bulls expect the shares to rise much higher as the company’s car becomes fully autonomous. Cathie Wood for instance expects Tesla shares to rise to $2,000 by 2027 in her base case.

Musk believes that Tesla’s valuation is dependent on its autonomous driving. Speaking at Paris’ VivaTech innovation conference last year, the Tesla CEO said that valuations are “strange” and stressed, “Sometimes I’ve said, ‘Hey, I think the stock price is too high at Tesla,’ and then the stock price goes up. I’m like, ‘okay.’”

Interacting with Bernard Arnault’s son Antoine Arnault, Musk admitted “If you look at our total vehicle output, it’s almost 2 million vehicles this year or something like that. But that’s still only 2% of total vehicle production.”

Musk on the potential for autonomous driving

He however stressed, “The potential for autonomy is that the value of autonomy is so high, that even if you have a discount, a percentage probability of autonomy happening, that is so incredibly valuable.”

Previously also Musk has said that the software business would drive earnings for Tesla. He believes that Tesla can even sell cars are zero profits currently and then make up by selling autonomous driving subscriptions in the future.

Musk eventually believes that Tesla’s valuation can surpass the combined valuation of Apple and Saudi Aramco – the world’s largest tech and energy companies respectively.

Tesla met the 2023 delivery guidance

Meanwhile, while Tesla lost the crown of largest EV seller to China’s BYD in Q4 2023, the company managed to deliver 1.8 million cars which was in line with its guidance.

Tesla still holds the pole position in the US EV market though and leads the competition by a wide margin. That said, the company has had to lower vehicle prices to spur sales.

Tesla has started an EV price war and has lowered car prices multiple times. Due to the frequent price cuts, its operating margins fell below 8% in Q3 2023. While its margins are still among the highest globally, they are now less than half of what they were before the price war.