Tesla Motors Inc (NASDAQ:TSLA) was one of the biggest nightmares for short sellers in 2013. Its miraculous rally last year caused many short sellers to book hefty losses. however, the stock calmed down at the end of 2013. But the last two months of the last year have seen a sudden spike in short interest. During the last week of December, the short interest rose to above 37.5% of the total float. At this point, a short-squeeze looks possible. All Tesla Motors Inc (NASDAQ:TSLA) needs is some positive news. Analysts say that the electric vehicle maker is highly likely to beat the Q4 consensus.
Rising possibility of a short squeeze in Tesla
So far, Tesla Motors Inc (NASDAQ:TSLA) has witnessed five consecutive monthly increases in short interest, the latest one in December. The short interest ratcheted up by 7.75 million shares in November, and by about 2.5 million shares in December. After falling to 18.5 million in July, the number of shares shorted has increased by a total of 13 million or about 71%. At the end of the third quarter, Tesla Motors Inc (NASDAQ:TSLA) had a float of about 84 million shares, meaning that 37.75% of the stock is shorted. This means that some good news can easily trigger a short squeeze. This has happened many times with Tesla Motors Inc (NASDAQ:TSLA) and Netflix, Inc. (NASDAQ:NFLX) in 2013.
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Another important consideration in terms of a short squeeze is the “days to cover” ratio. The ratio shows, based on average trading volume, the number of days it will take short sellers to cover the total shares shorted. According to Nasdaq, Tesla Motors Inc (NASDAQ:TSLA) has 31.64 million shares short, and the average trading volume is 7.75 million. So, it will take short-sellers at least 4.08 days (31.64 million / 7.75 million) to cover their positions. As of November 15, the days to cover ratio was just 1.49. The ratio has surged rapidly over the last two months. An increase in the days to cover ratio makes a short squeeze even more possible.
Tesla: a perfect recipe for a short squeeze
Analysts have consistently been increasing their revenue estimates for Tesla Motors Inc (NASDAQ:TSLA) as the chart below shows. We may see further changes in estimates after the Q4 earnings release. Though the company’s revenue in Q3 was above consensus, its earnings fell slightly short due to heavy capital expenditures. Any way you slice it, these rising revenue estimates illustrate that analysts believe in Tesla Motors Inc (NASDAQ:TSLA)’s growth story.
Rising short interest, falling daily trading volume and solid growth potential make a perfect recipe for a short squeeze. Tesla Motors Inc (NASDAQ:TSLA)’s short interest has recently touched the highest level since March last year.
Tesla Motors Inc (NASDAQ:TSLA) shares closed Friday at $145.72, down 1.23% for the day.