Slumping oil prices and rising competition are attracting bearish option traders to Tesla, which has been flying high on a dream until recently
Tesla Motors is getting popular among short sellers and bearish options traders again, thanks in large part to declining oil prices. Expectations that slumping oil prices and rising competition from other major players will hurt demand for Tesla’s vehicles have helped boost short sales to a one-year high, according to Inyoung Hwang of Bloomberg News.
Tesla’s high valuation attracts short traders
As per data compiled by Bloomberg, the difference between the costs of bearish options against the bullish ones has almost quadrupled since September. It’s now the highest it has been since November 2012. This year Tesla trails Russell 1000 Index by about 8%, according to the report.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Tesla has been on a dream run since its initial public offering in 2010. As per Bloomberg data, the stock traded at 104 times estimated profits, compared to 8.7 times for other automakers in the Standard & Poor’s 500 Index. Such a high valuation has made it a soft target for short sellers. From 9.7% in August, bearish bets have increased to 18% of the company’s outstanding shares, according to data from Markit.
What fueled investors’ concern?
Tesla Motors CEO Elon Musk hinted earlier this year about slow sales growth in China, thus escalating investors’ concern. Experts believe the company’s shares will continue to struggle until there are signs of sales growth in the U.S., Europe and China.
Tesla Motors still has yet to prove its mass-market appeal. Its affordable and smaller Model 3 is not expected to be available before 2017. Also Musk said earlier this year that the company won’t be profitable until 2020. In November, the car maker lowered its sales estimate from 35,000 to 33,000 vehicles, citing inability to keep pace with demand.
Citing Andrea James of Dougherty & Co. Bloomberg’s report says demand for Tesla’s vehicles still exceeds supply, and this is evident from the length of the wait time. James, who is a senior research analyst with Dougherty, is “not concerned about China long term,” adding, “The Model S had a warm reception there and it is priced favorably to peers. As production will increase steadily in 2015, generating better operating leverage throughout the year, I’m bullish.”
On Friday, Tesla shares closed down 0.78% at $203.60.