Tesla stock declined along with much of the rest of the U.S. stock market today, adding to the gains enjoyed by shorts. Bloomberg reported that Tesla Inc. (NASDAQ:TSLA) short sellers raked in more than $50 billion in seven days of the selloff due to the coronavirus. Tesla stock has been the most profitable short since Feb. 24, according to data from S3 Partners.
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Tesla stock shorts rake in $1.1 billion
Over the seven days of data, Tesla stock short sellers racked up $1.1 billion in profits on their positions. However, they still have a long way to go before they will make up the $9 billion they have lost on their Tesla stock shorts already in 2020.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
S3 predicted that there could be some significant short covering going on if Wednesday's up market is followed by "several more days of positive stock price movement." However, Thursday might more declines as major U.S. stock indices resumed their declines.
As of mid-February, more than 18 million shares of Tesla stock were being sold short with an average day to cover of one. That marks a significant decline from mid-December when nearly 27.5 million shares of Tesla stock were sold short with more than 4 days required to cover, according to data from Nasdaq. The EV maker was the most-shorted U.S. stock since its recent post-earnings tear.
Chinese customers threaten legal action against Tesla
While Tesla stock has been falling along with the rest of the stock market, there are other reasons beside valuation to be concerned. China represents a big part of the company's growth plans, and after just a short period of production at its Shanghai factory, it has already upset Chinese consumers.
Tesla buyers who received Model 3 cars that were manufactured in China received an older version of the Autopilot hardware than what was promised when they ordered the cars. Nikkei and multiple posts on WeChat, Weibo and Twitter reveal just how upside Chinese consumers were by the move. Many see it as fraud or a secret downgrade of the cars they ordered.
The Model 3 cars that were manufactured in China contained hardware version 2.5 of Autopilot, but Tesla had promised version 3.0. The difference lies in the chip that's included in the hardware. The company said it will replace the chips in Model 3s manufactured in China free but that it just wanted to complete the orders. Tesla also blamed the coronavirus outbreak for a shortage of the new chips.
However, according to Nikkei, many Chinese consumers now threatening legal action against Tesla because it replaced the chips without telling them. Some are also seeking compensation without resorting to legal action.
GM draws a target on Tesla's back
In addition to the new problems in China, Tesla also faces new competition from the much bigger General Motors. GM shared many details about its plans to invest more than $20 billion in the next five years on autonomous and all-electric vehicles during its EV Day on Wednesday.
Several analysts noted that the details GM shared indicate that it has drawn a target on Tesla's back. The specs the automaker shared are in line with or better than those of Tesla's vehicles in some cases. GM said its next-generation all-electric vehicles will be able to travel at least 400 miles on a single charge. The automaker also said the vehicles will be able to charge for more than 100 miles of range within 10 minutes and accelerate from 0 to 60 miles per hour in as little as 3 seconds.
The Tesla Model 3 can travel 322 miles on a single charge and accelerate from 0 to 60 miles per hour in 3.2 seconds. It can recharge 172 miles' worth of battery in only 15 minutes.