Tesla (TSLA 7.33%) had an epic run last year, with the stock gaining 743% in 2020. Plenty of factors fueled the phenomenal rise, including five successive quarter of profits and a stock split that captivated the minds of investors. The magnitude of Tesla's gain, however, was matched only by the gargantuan losses of those that shorted the stock.
On this episode of Fool Live that aired on Dec. 4, 2020, "The Wrap" host Jason Hall, Fool Analyst Nick Sciple, and Fool.com contributor Danny Vena discuss the massive overall cost of shorting Tesla.
Jason Hall: Danny Vena, my good friend, as we swing into our "Smarter, Happier, Richer" here to end the show at the end of the week, I want you to go first, because there's got to be some fun to trolling on Tesla shorts, and in a really painful way.
Danny Vena: I ran across an article today and I thought it was pretty interesting. We all know that Tesla shares have been on fire this year, and there's lots of reasons that fed into that. The stock's up more than 600%. Some of the factors that fed into that, the company had delivered five successive quarters of profitability and it maintained its production goals even through the pandemic. Then there was a five-for-one stock split back in August, brought a lot of novice investors got interested in the stock market because of Tesla. There was a lot going on. Finally, just recently we have the fact that Tesla shares are going to be added to the S&P 500. That's going to happen before the start of trading on December the 21st.
As a result of all this interest, Tesla has captivated the minds of Wall Street and investors alike, and its market cap grew from less than $76 billion at the beginning of this year to nearly $563 billion. This is a massive gain from $76 billion to $563 billion. Now, it's also a controversial stock. Whenever you have that, you got the folks out there that want to sell the stock short, which is essentially a bet on the shares of the stock going down.
So here's an interesting statistic, and this comes courtesy of S3 Partners who did some analysis, and they said that those who shorted Tesla's stock this year, who bet that the shares were going to lose value, have lost $35 billion on those positions so far this year.
Now, to give that some context, the U.S. airline industry has had one of its worst years on record, and so far this year, the entire U.S. airline industry reported a combined loss of more than $24 billion. So Tesla shorts have lost more than the entire losses of the U.S. airline industry combined.
The thing that I immediately thought of when I saw that, was a quote by famous economist, John Maynard Keynes, who said, "A market can remain irrational longer than you can remain solvent." For folks that are Tesla short sellers, that is certainly the case.
Nick Sciple: Yeah. Jim Chanos is coming out today saying that he has cut the short position. He has been short for five years. I think you said it was like direct quote, "it's impossible to short the stock." He knows more about short-selling than me.
Jason Hall: Yeah. It's land wars in Southeast Asia and shorting story stocks. Two losing ventures right there.