KIOS-FM

Electric Burn: Those Who Bet Against Elon Musk And Tesla Are Paying A Big Price

Jan 16, 2020

Tesla CEO Elon Musk has always had ambitious goals. Make electric cars cool, save the world, all while making money as a brand new car manufacturer.

And from the start some people have been confident that he would fail. So they shorted Tesla stock — placing a bet that the company's stock value would collapse.

So far, that has been a phenomenally bad bet.

In the first two weeks of 2020 alone, short sellers were down some $2.6 billion, according to Ihor Dusaniwsky, the head of predictive analytics at S3 Partners.

"It's not a happy new year for Tesla short sellers," he says.

Tesla stock debuted at less than $20 a share in 2010. It hit $200 in 2014. And now, after strong deliveries in the fourth quarter and the successful launch of a new factory in China, it's above $500 — giving the company the highest valuation of any U.S. carmaker ever.

Dusaniwsky says that since 2016, Tesla short sellers are down $11.1 billion.

"We've lost a lot of money," says Mark Spiegel, the head of a small hedge fund that placed a very large bet against Tesla.

Don't see the graphic above? Click here.

Spiegel's fund lost more than $1 million from shorting Tesla, which he started doing back in 2014. This week, he began cutting back.

"[It was] at 20% of the fund, sometimes a third of the fund, and I slashed it back today because [the stock price] is just so decoupled from reality," he said on Monday.

"I am the world's worst predictor of Tesla's stock price," he said.

But he's far from the only one.

Most companies don't have investors betting against them like this, and when they do it's normal for 3% to 8% of a company's stock to be shorted, according to Dusaniwsky.

At the start of 2020, more than 20% of Tesla stock was shorted. As of Jan. 15, it's the single most-shorted stock on the U.S. market. Some major hedge funds are among the most active short sellers.

Musk seems to take this personally. He once called short sellers "jerks who want us to die," and he's tussled with prominent short sellers on Twitter.

He's also repeatedly warned them that they're making a bad bet — once saying a "tsunami of pain" was coming for those who bet against the company. And he's repeatedly been right.

'Cultish convictions on both sides'

Dusaniwsky says the community of Tesla short sellers is unusual — not just for its size, but for its passion. Meanwhile, Tesla also has a highly energetic community of superfans and Elon Musk enthusiasts.

"It's not just a financial transaction," Dusaniwsky says. "It's almost a lifestyle choice to be on one side or the other."

There's a very public battle between the two sides, waged on Twitter, podcasts, YouTube channels and the business press.

The Tesla fans say Musk is a genius and a visionary, who's made droolworthy, eco-friendly cars with cutting-edge autonomous technology. And sales are through the roof, they point out.

The Tesla shorts, like Spiegel, say Musk is an erratic fraud. They say Tesla's Autopilot technology is dangerous or even "homicidal," and that the company's sales rely on subsidies that will eventually run out.

"There is strong conviction on both sides. More than strong. There's cultish convictions on both sides," Dusaniwsky says. "It's almost like a college football game ... people are just crazy fans and it doesn't matter what the team does."

His data shows some short sellers are finally backing away from their investments as Tesla's remarkable rally continues. Forty percent of all the short sales of Tesla stock have been closed out since June 30, 2019. That means major losses, given Tesla's stock market surge.

But it still leaves a lot of investors holding on. "They're just staying in a position no matter what," Dusaniwsky says.

Even Spiegel, who has reduced the size of his position, hasn't changed his mind about the company's future.

He still says the stock prices will collapse — eventually.

Just like he's been saying for years.

"Obviously we've been way too early on the timing," Spiegel says. "But you never know that in advance."

Copyright 2020 NPR. To see more, visit https://www.npr.org.

AUDIE CORNISH, HOST:

We're just a couple of weeks into 2020, but so far, the electric automaker Tesla is having a good year. And for a small but vocal group of people, that's bad news. They're short sellers. They hope to make money by betting against Elon Musk. NPR's Camila Domonoske has their story.

CAMILA DOMONOSKE, BYLINE: Elon Musk's goals were always ambitious. He said he'd make money and save the world by making electric cars cool. From the start, some people have been sure that he would fail. So they shorted Tesla stock, placing a bet its value would go down. Way back in 2012 on Fox Business, Elon Musk warned short sellers that was a bad bet.

(SOUNDBITE OF ARCHIVED RECORDING)

ELON MUSK: There's a tsunami of hurt coming for the short - those holding a short position. It's going to be very, very unpleasant. I advise people to exit while there is time.

DOMONOSKE: A tsunami of hurt. And Musk was right. Over the next year, Tesla stock went from less than 30 bucks to 180. And now...

(SOUNDBITE OF NEWS MONTAGE)

UNIDENTIFIED REPORTER #1: Tesla shares surging for a record high today.

UNIDENTIFIED REPORTER #2: Passed a major milestone after it delivered more than 100,000 cars.

UNIDENTIFIED REPORTER #3: Tesla topping the tape today, the electric automaker surging nearly 4%.

DOMONOSKE: Tesla stock has topped $500, making it the highest valued U.S. automaker ever. But the short sellers didn't give up. Instead, they formed a community. And they're waging a very public battle with Elon Musk superfans. Tesla fans say Elon Musk is a genius who's made drool-worthy eco-friendly cars with cutting-edge autonomous technology, and sales are through the roof.

The shorts say Elon Musk is a fraud who makes outlandish statements, that Tesla autopilot is dangerous, even, quote, "homicidal." And sales are driven by subsidies that won't last forever.

IHOR DUSANIWSKY: So there is strong conviction on both sides - more than strong. There's cultish conviction on both sides.

DOMONOSKE: Ihor Dusaniwsky is the head of predictive analytics at S3 Partners, which monitors real-time data on the stock market.

DUSANIWSKY: It's like a college football game. People are just crazy fans, and it doesn't matter what the team does.

DOMONOSKE: And Dusaniwsky is kind of like the play-by-play announcer. He says, right now, it looks bad for the short sellers, really bad. Remember, a short sale is betting a stock's price will go down. If stocks go up instead, you lose money. It's very risky. You can lose even more money than you put in. And Tesla's stock price has soared. Since 2016, Tesla short sellers are down more than $11 billion - billion with a B. And short sellers are down $2.6 billion in just the first two weeks of this year.

DUSANIWSKY: So not a happy new year for Tesla short sellers.

MARK SPIEGEL: We've lost a lot of money.

DOMONOSKE: Mark Spiegel is team Tesla short. He's the general partner of a small hedge fund, and he placed a large bet against Tesla starting five years ago.

SPIEGEL: So I am the world's worst predictor of Tesla stock price.

DOMONOSKE: That has meant seven-figure losses for his small fund.

SPIEGEL: We were running it at 20% of the fund, sometimes a third of the fund. And I slashed it back today because it's just so decoupled from reality.

DOMONOSKE: But he hasn't changed his mind about Tesla. He still says the prices will collapse eventually, just like he's been saying for years.

SPIEGEL: Obviously, we've been way too early on the timing, but you never know that in advance.

DOMONOSKE: Many short sellers have had to back away from their bets as Tesla stock skyrockets. Meanwhile, the back-and-forth continues. Team Elon Musk says the shorts are dead wrong. And the shorts? They say their foes are short-sighted.

Camila Domonoske, NPR News. Transcript provided by NPR, Copyright NPR.