Please ensure Javascript is enabled for purposes of website accessibility

10% of Tesla Motors Short-Sellers Have Bailed

By Evan Niu, CFA - May 2, 2016 at 6:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You can't say Elon Musk didn't warn you.

Image source: Tesla.

With Tesla Motors (TSLA -0.27%) being the mother of all battleground stocks right now, it's particularly important for investors to keep a close eye on short interest numbers. There's a very large number of bearish investors out there that consider Tesla wildly overvalued and have taken positions accordingly.

Interestingly enough, as Tesla shares rallied after first-quarter earnings, short interest mostly held flat -- or even increased. That showed that the recovery was not being driven by short covering. Rather, the run up was being driven mostly by bullish investors taking long positions.

Well, Tesla short interest has just now posted a meaningful decline, and 10% of short interest has been covered.

Short interest is trending lower
The exchange recently posted its short interest data as of settlement date April 15. There are now 29.07 million shares being held short. That's still a whopping 33% of float, but it also represents a 10% sequential decline from the 32.3 million shares that were held short as of settlement date March 31.

Settlement Date

Short Interest

Days to Cover

April 15

29.07 million

3.36

March 31

32.3 million

6.89

March 15

32.2 million

6.89

February 29

34 million

6.66

February 12

31.5 million

3.81

January 29

30.2 million

7.79

January 15

29.1 million

6.55

Data source: Nasdaq.

Short interest has now hit the lowest level year to date.

Small squeeze
Keep in mind that the April 15 settlement date corresponds to a trade date of April 12, while the March 31 settlement date corresponds to a trade date of March 28. Shares gained 8% during that time as short interest fell by 10%, so there was something of a short squeeze, albeit a relatively mild one.

The particular couple of weeks in question is also when the news flow around Tesla's highly anticipated Model 3 was escalating. The affordable EV was unveiled on March 31 and quickly gathered nearly 400,000 reservations in the weeks that followed. CEO Elon Musk also warned that it was "probably unwise" to short Tesla shares on April 5.

Between Musk's warning and soaring Model 3 reservation numbers, it makes sense that a good number of shorts would be looking for the exits. However, Tesla reports earnings on Wednesday, and it's anyone's guess as to how the market will react. We already know that the electric-auto maker fell short on deliveries due to continued challenges ramping Model X, even as it reaffirmed its full-year outlook.

But Tesla is about as unpredictable as it gets when it comes to earnings reactions. Tesla lost far more money than the Street expected in the first quarter, yet shares jumped on the strong outlook. Beyond deliveries, cash flow will be the most important metric for the upcoming release.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$683.63 (-0.27%) $-1.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.