Investors are ratcheting up their bets against Tesla ahead of its earnings report
- Short sellers are increasing their bets against Tesla's stock price ahead of the company's third-quarter earnings.
- Wall Street still expects a per-share loss when Tesla reports after the closing bell, but abnormally high Model 3 pricing could fuel a temporary beat, one analyst said.
- Andrew Left, a notorious short seller, reversed course on his earlier attacks this week, saying his firm Citron Research is now long Tesla.
Tesla will report its third-quarter earnings after the closing bell Wednesday, and investors are piling into bets that the stock will sink following the report.
Short interest - a measure of bets riding against Tesla's stock price - have been on a near-steady decline since the now-infamous "funding secured" tweet by CEO Elon Musk in August, but saw an uptick this week ahead of the company's highly anticipated earnings release, according to data from S3 Partners, a financial technology and analytics firm.
A solid $9.9 billion is currently riding against Tesla, with short sellers paying more than triple in borrowing costs, 1.03%, compared to some of the other heavily shorted equities like Apple, Qualcomm, Amazon, and Netflix.
"Over the last week we have seen renewed short selling with 886k of new shorts hitting the tape and even additional short selling into today's price move," Ihor Dusaniwsky, the firm's head of Predictive Analytics, said in a report. "Tesla has regained the number two spot in the U.S. short interest league tables, nipping on Apple's heels."
While Wall Street's consensus is that Tesla will still be in the red this quarter - analysts polled by Bloomberg expect an adjusted loss of $0.14 per share - one analyst said the 'abnormally high' Model 3 price could drive a temporary profit.
"If they aren't profitable, it's a problem," UBS analyst Colin Langan said in a note to clients Tuesday. "If Tesla is unable to report a profit in Q3 & Q4 with ASPs (average selling prices) ~$60k, we struggle to understand how they will be profitable when ASPs normalize at ~$45k."
Langan remains sell rated on Tesla, with a $190 price target, thanks to the $2 billion Tesla will need by the end of 2018 to fund operations. Another $1.8 billion of the company's total $9.5 billion in debt will come due in November 2019, only adding to the pressure for Tesla to become cash flow positive, as Musk has said will happen "in Q3 & Q4" this year.
Shares of Tesla rose more than 12% on Wednesday after famed short seller Andrew Left reversed his course on earlier attacks, saying Tesla is "destroying the competition."
"For the first time, Citron is long Tesla as the Model 3 is a proven hit and many of the TSLA warning signs have proven not to be significant," Left said in a report. He previously sued Tesla after the failed go-private bid in September, alleging CEO Elon Musk was trying to burn short sellers like himself."
If Tesla's report Wednesday afternoon is disappointing and the stock price declines, S3 says we could see new records of short interest against the stock "through the 35 million share level" from August.
More on Tesla's hotly anticipated earnings:
- Tesla jumped the gun on 3rd-quarter earnings - and it suggests that the company is close to breaking even
- Short seller Andrew Left is doing a 180 on Tesla because it's 'destroying the competition'
- Millennial investors are dumping Tesla ahead of its earnings
