Investors Betting Against Tesla Made $1 Billion on Friday

The slide in Tesla’s shares after Elon Musk’s interview with The New York Times generated more than $1 billion in profits for short-sellers.

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The investors betting against Tesla just got a gift from the company’s chief executive, Elon Musk.

Mr. Musk opened up on Thursday in an emotional interview with The New York Times about the toll the past year has taken on him, blaming those so-called short-sellers for much of his stress. It followed his cryptic tweet last week about converting the publicly traded company into a private one, which created a frenzy in the market.

The day after the interview, the stock of the electric-car maker tumbled 9 percent to $306.

Those losses were gains for the short-sellers. The slide in Tesla’s shares generated more than $1 billion in profits for short-sellers, according to S3 Partners, a financial technology and analytics firm, which tracks the positions held by those investors.

The stock drop helped them recover much of their losses that came on Aug. 7, the day Mr. Musk tweeted he was considering taking Tesla private at a stock price of $420. Short-sellers lost $1.3 billion that day after Tesla’s shares jumped 11 percent on the news.

Mr. Musk had long sparred with investors who make money when the company’s stock falls. And he is bracing for the fight to get worse. Mr. Musk told The New York Times that he was expecting “at least a few months of extreme torture from the short-sellers, who are desperately pushing a narrative that will possibly result in Tesla’s destruction.”

Tesla is among the most shorted stocks in the United States. More than a quarter of its stock valued at more than $11 billion is being shorted, according to S3 Partners.

Short-sellers have increased their bets against Tesla this year as its struggles have mounted. The company has continued to lose money. Its Model 3, crucial to the company becoming profitable, has faced glitches and delays.

In March, a driver was killed after a Model X crashed into a concrete highway divider while Autopilot, Tesla’s driver-assistance feature, was in use.

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Elon Musk’s Highs and Lows: PayPal, SpaceX, Tesla

Serial entrepreneur Elon Musk wants to fundamentally change the way we live. But his path to success has been characterized by both great accomplishments and flirtations with failure.

“I thought about what are the problems that are most likely to affect the future of the world or future of humanity.” Elon Musk, a South African-born engineer, inventor and billionaire, is one of the most important entrepreneurs in the world. But the 47-year-old is no stranger to turmoil, and by his own account his career has been full of highs and lows. “Just three years ago, I was showering at the Y and sleeping on the office floor. And now, I have got a million-dollar car and quite a few creature comforts.” After making a fortune with his first successful startup, Zip2, Musk gained fame as the co-founder of PayPal in the late 1990s. “So this is an ATM. What we’re going to do is transform the traditional banking industry.” The company lost hundreds of millions of dollars, and Musk was ousted as CEO because of internal turmoil. But when PayPal went public in 2002, and then was sold to eBay, Musk — as the biggest shareholder — walked away with $200 million. By the mid-2000s, Musk had turned around and invested almost all of his PayPal fortune into his new companies: SpaceX, Tesla and SolarCity. With SpaceX, Musk’s aspiration is out of this world — literally. It’s a commercial space flight company, which designs and launches advanced rockets into space. “Behind me is where Falcon 9 would sit during launch.” One of its ambitions is to eventually send people to Mars. “And I can’t think of anything more exciting than going out there and being among the stars.” But it has faced some roadblocks. Their first three rocket launches — failed, burning through almost all of the company’s assets. But SpaceX has had recent successes. The Falcon Heavy launch earlier this year was a big milestone and it carried an interesting payload: a dummy astronaut riding a Tesla car that was orbiting space. The company has also landed contracts with NASA, but questions about safety and cost remain. “We sold over 1,000 cars — and by sold I mean people put down a substantial deposit on the car.” Tesla, Musk’s electric car company, is one of the first of its kind to work on a large scale. It has also successfully disrupted the auto industry. The company is valued at over $50 billion. The Tesla Model S has been called the greatest car ever built. But Tesla has also faced some setbacks, including car batteries that caught on fire, recalls and production delays. SolarCity, Musk’s renewable energy venture, initially had a bright future. It’s the largest provider of rooftop solar systems in the U.S., and the company boomed on Wall Street. But after investors raised doubts about its business model, SolarCity’s shares quickly lost value, and Tesla had to take over in what was widely seen as a bailout. “We really need to make solar panels as appealing as electric cars have become.” But while Musk may have been flirting with bankruptcy and calamity for years, his projects continue to captivate the collective imagination. “Life has to be more than about solving problems. There have to be things that make you proud to be a member of humanity.”

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Serial entrepreneur Elon Musk wants to fundamentally change the way we live. But his path to success has been characterized by both great accomplishments and flirtations with failure.CreditCredit...Todd Anderson for The New York Times

That same month, Moody’s Investors Service downgraded the company’s credit rating, concerned that the company was burning through cash.

It has made for a bumpy ride for Tesla investors — on either side of the trade.

Through it all, Mr. Musk’s public attacks on shorts have only intensified.

In May, he took to Twitter and warned of the “short burn of the century comin soon.” A month later, he predicted that those wagering on the stock’s decline “had three weeks before their short position explodes.” He even taunted David Einhorn, whose Greenlight Capital hedge fund has performed poorly this year in part because of its short bet on Tesla.

Mr. Musk has pointed to short-sellers as a reason he is considering taking Tesla private. In a message to employees explaining his thinking, he wrote: “As the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”

He isn’t exactly right on his history of short-sellers. At various points in the past 10 years, the value of bets against Procter & Gamble, General Electric, Pfizer and Johnson & Johnson exceeded Tesla’s high of roughly $13 billion, according to IHS Markit.

The value of short bets against Alibaba currently stands at $25 billion.

Even by the percentage of shares being shorted, it is not the highest. It's not even the biggest of 2018. So far this year, 26 companies have had a higher percentage of their stock shorted than Tesla did at its peak of 33 percent in May.

But he does have a point about the persistence of short-sellers trying to profit on Tesla’s troubles. The short position in Tesla’s shares has remained above $10 billion for nearly five months. In the past decade, short-sellers have not held a position valued at more than $10 billion in any other American company for more than three months, according to IHS Markit.

Betting against Tesla has been expensive. Since 2016, short-sellers collectively have lost $5 billion, as the company’s shares rose 27 percent.

Even this year, amid all of Tesla’s woes, betting on a decline in the company’s share price has not been a winner. Its short-sellers remain down $650 million this year.

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