Saturday 18 August 2018

Musk no longer scaring shorts with Tesla tweets


Elon Musk claimed Tesla was the “most shorted stock in the history of the stock market”
Elon Musk claimed Tesla was the “most shorted stock in the history of the stock market”

Elena Popina, Lu Wang and Joshua Fineman

If the goal was burying the short sellers, it hasn't quite worked out. As fast as Tesla shares surged after Elon Musk tweeted about going private, they've come back down. Mounting scepticism and an inquiry by the Securities and Exchange Commission have erased most of an 11pc gain.

"It always ends poorly for companies when they're trying to squeeze the shorts," said Chris Brown, managing member at Aristides Capital, whose biggest position is a Tesla short. "The idea of a transaction itself is idiotic."

As always, audacity is proving a double-edged sword for Musk, whose eight-year battle with public naysayers was a reason he gave for weighing the deal. After going public on Twitter without providing any financing specifics and igniting a frenzy of attention, the 47-year-old billionaire's gambit has seen its market impact fade.

"I doubled my short position the morning after Musk's original tweet," said Robert Chapman, money manager at Chapman Capital. "The more one learns about this situation, the more this appears to be a fakeover vs takeover."

Of course, Tesla's stock is often portrayed as a pitched battle pitting fervid bears and a megalomaniacal iconoclast. But in reality, Musk has usually won. Shares of the electric-car maker have posted a 47pc annualised gain since going public in 2010. And despite trading at more than 200 times next year's earnings, the stock is still up 13pc this year.

Anchored by a famously loyal shareholder base, the shares suffered only brief setbacks earlier in the year when Musk called a British cave diver in the Thai rescue mission a paedophile and portrayed a former battery factory employee as a saboteur. While he was urged last month by shareholder Baillie Gifford & Co and bullish venture capital firm Loup Ventures to focus on execution, there's been no signs of a mass institutional defection.

Tesla traded at $355.90 as of 7.32 am on Friday in New York. It was lifted overnight by a CNBC report that Musk previously talked to Saudi Arabia's wealth fund about a take-private deal and that its board plans to meet with financial advisers next week. The stock was trading at around $357 at the time of his Tuesday tweet.

"If somehow Elon Musk pulls the final rabbit out of the hat and gets the funding for this buyout, that's $67 upside from its close," said Brian Frank of Frank Capital Partners. "I'm sceptical."

Shorts on Tuesday absorbed a blow that by some measures cost them more than a billion dollars, but their resolve against Tesla - sometimes hatred - is proving hard to crack. Overall, accounting for positions that were covered, the loss shrunk to about $304m as of last Thursday, according to Ihor Dusaniwsky at S3 Partners, a financial technology and analytics firm.

"We've seen some of the larger shorts increasing their positions a bit," Dusaniwsky said. "In relative terms to the gains and losses Tesla shorts have incurred over the last several year, this is just a drop in the bucket and not enough to force large margin calls to well capitalised large short players, and definitely not enough to scare any of them out of their positions."

Bloomberg News has reported that SEC investigators are intensifying scrutiny of Tesla's public statements in the wake of Musk's tweet saying he had "funding secured" for a transaction at $420. Enforcement attorneys were already gathering information about Tesla's public pronouncements on manufacturing goals and sales targets. Musk referred to the company as the "most shorted stock in the history of the stock market" in a letter laying out reasons for going private last Tuesday.


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