Battle of wits between Tesla and short sellers isn’t over yet

Battle of wits between Tesla and short sellers isn’t over yet, according to Ortex Analytics

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Q2 2020 hedge fund letters, conferences and more

  • Ortex data shows a group of resilient short sellers are holding out despite surge in Tesla share price as they seek to profit from a “hype premium”
  • Analysis by the firm suggests short-term impact of inclusion into S&P 500 may be overstated and is likely to equate to only three days worth of volume
  • Ongoing battle between short sellers and Tesla is far from over, according to Ortex co-founder Peter Hillerberg

The Battle Continues Between Tesla And Short Sellers

London, 23rd July 2020 – The long running battle between Tesla and short sellers is set to continue despite a mass exodus from short positions in recent weeks, according to Ortex Analytics.

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Considered to be one of most shorted stocks in the world, Tesla’s share price surged in the run up to its Q2 earnings amid speculation the company was about to be included in the S&P 500. This prompted a large number of short sellers to exit their position at a loss, but data from Ortex Analytics shows that 11.3m Tesla shares remain held in short positions as traders continue to see an opportunity.

Commenting on the data, Peter Hillerberg, co-founder of Ortex Analytics, said: “Elon Musk has been quick to claim victory over the short sellers, however this doesn’t quite paint the full picture. It is highly likely that what we’ve seen over recent weeks is at least in part a “short squeeze” whereby the Tesla share price has been pushed higher by short sellers closing their positions. For high-conviction short sellers, this will just have been a further signal to hold tight and wait for an opportunity to take profit.”

Tesla and short sellers

Fig. 1. Negative correlation between share price and short interest estimates shows classic sign of a “short squeeze” pattern

Tesla's Inclusion Into The S&P 500

Ortex also point to a “hype premium” which may present a further opportunity for those maintaining short positions or seeking to re-enter the market. In a note published before Tesla’s Q2 earnings announcement, Ortex estimated that Tesla’s inclusion into the S&P 500 could equate to around $40bn of buy orders. However, it also pointed out that these orders would represent a “modest” three days of trading volume and that speculative buying was likely to be more significant than the index inclusion itself.

Hillerberg added: “Inclusion into the S&P 500 is undoubtedly a huge milestone for Tesla as a company, but its short-term impact on the share price may be being overstated. A surge in speculative buying could be a signal for new short sellers to take a position and seek to take advantage of the “hype premium” which has characterised so much of Tesla’s price movement in recent years.

“It remains to be seen whether the short sellers that have maintained their position will benefit from their resilience, but whichever way you look at it, the battle of wits between Tesla and its short sellers is far from over.”